Filed Pursuant to Rule 497(e)
File Number 333-39955
GE CAPITAL LIFE SEPARATE ACCOUNT II PROSPECTUS FOR
THE FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
FORM P1066 6/97
Issued by:
GE Capital Life Assurance Company of New York
125 Park Avenue, 6th Floor, New York, New York 10017-5529
Telephone: (212) 672-4400
Variable Annuity Servicing Center
6610 West Broad Street
Richmond, VA 23230
(800) 313-5282
This Prospectus describes a flexible premium variable deferred annuity policy
(the "Policy") for individuals and some qualified and nonqualified retirement
plans. GE Capital Life Assurance Company of New York (the "Company," "we,"
"us," or "our") issues the Policy.
The Policy offers you the accumulation of Account Value and the payment of
periodic annuity benefits. We may pay these benefits on a variable or fixed
basis or a combination of both.
You may allocate your premium payments to the Separate Account, the Guarantee
Account, or both. Each Investment Subdivision of the Separate Account invests
in shares of the Funds. We list the Funds, and their currently available
portfolios, below.
JANUS ASPEN SERIES:
Growth Portfolio, Aggressive Growth Portfolio, International Growth
Portfolio, Worldwide Growth Portfolio, Balanced Portfolio, Flexible Income
Portfolio, Capital Appreciation Portfolio
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Equity-Income Portfolio, VIP Overseas Portfolio, VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Growth & Income Portfolio, VIP III Growth Opportunities Portfolio
GE INVESTMENTS FUNDS, INC.:
S&P 500 Index Fund, Money Market Fund, Total Return Fund, International
Equity Fund, Real Estate Securities Fund, Global Income Fund, Value Equity
Fund, Income Fund, U.S. Equity Fund, Premier Growth Equity Fund
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund/VA, Oppenheimer Aggressive Growth Fund/VA,
Oppenheimer Capital Appreciation Fund/VA, Oppenheimer High Income Fund/VA,
Oppenheimer Multiple Strategies Fund/VA
FEDERATED INSURANCE SERIES:
Federated American Leaders Fund II, Federated Utility Fund II, Federated
High Income Bond Fund II
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio, Alger American Small Capitalization
Portfolio
PBHG INSURANCE SERIES FUND, INC.:
PBHG Growth II Portfolio, PBHG Large Cap Growth Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT):
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid Cap Value Fund
SALOMON BROTHERS VARIABLE SERIES FUND INC.:
Salomon Investors Fund, Salomon Total Return Fund, Salomon Strategic Bond
Fund
Not all of these portfolios may be available.
<PAGE>
Except for amounts in the Guarantee Account, both the value of a Policy before
the Maturity Date and the amount of monthly income afterward will depend upon
the investment performance of the portfolio(s) you select. You bear the
investment risk of investing in the portfolios.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
YOUR INVESTMENT IN THE POLICY IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT
AGENCY.
This Prospectus gives details about the Separate Account and our Guarantee
Account that you should know before investing. Please read this Prospectus
carefully and keep it for future reference.
A statement of additional information ("SAI"), dated May 1, 1999, concerning
the Separate Account has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. If you would
like a free copy, call us at 1-800-352-9910. The SAI also is available on the
SEC's website at http://www.sec.gov. A table of contents for the SAI appears on
the last page of this Prospectus.
The date of this Prospectus is May 1, 1999.
<PAGE>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions ....................................................... 4
Expense Table ..................................................... 5
Synopsis .......................................................... 12
Investment Results ................................................ 13
Financial Statements .............................................. 13
GE Capital Life Assurance Company of New York ..................... 14
Separate Account .................................................. 14
The Guarantee Account ............................................. 20
Charges and Other Deductions ...................................... 21
The Policy ........................................................ 24
Transfers ......................................................... 25
Surrenders ........................................................ 27
The Death Benefit ................................................. 28
Income Payments ................................................... 30
Federal Tax Matters ............................................... 33
Voting Rights ..................................................... 38
Requesting Payments ............................................... 38
Distribution of the Policies ...................................... 38
Additional Information ............................................ 39
Condensed Financial Information ................................... 40
Table of Contents for Statement of Additional Information ......... 41
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
We have tried to make this Prospectus as understandable as possible. However,
in explaining how the Policy works, we have had to use certain terms that have
special meanings. We define these terms below.
ACCOUNT VALUE -- The value of the Policy equal to the amount allocated to the
Investment Subdivisions of the Separate Account and the Guarantee Account.
ACCUMULATION UNIT -- An accounting unit of measure we use in calculating the
Account Value in the Separate Account before the Maturity Date.
ANNUITANT -- The Annuitant is the person named in the Policy upon whose age
and, where appropriate, sex, we determine monthly income benefits.
ANNUITY UNIT -- An accounting unit of measure we use in the calculation of the
amount of the second and each subsequent variable income payment.
BUSINESS DAY -- Any day that the New York Stock Exchange is open for business
(except for days on which a Fund does not value its shares) and any other day
in which there is a material change in the value of the assets in the Separate
Account.
DEATH BENEFIT -- The benefit provided under a Policy upon the death of an
Annuitant before the Maturity Date.
DESIGNATED BENEFICIARY(IES) -- The person(s) designated in the Policy who is
alive (or in existence for non-natural entities) on the date of an Owner's,
Joint Owner's or Annuitant's death and who we will treat as the sole Owner of
the Policy following such a death.
FUND -- Any open-end management investment company or unit investment trust in
which the Separate Account invests.
GENERAL ACCOUNT -- Our assets that are not segregated in any of our separate
investment accounts.
GUARANTEE ACCOUNT -- Part of our General Account that provides a guaranteed
interest rate for a specified interest rate guarantee period. This account is
not part of and does not depend on the investment performance of the Separate
Account.
INVESTMENT SUBDIVISION -- A subdivision of the Separate Account; each
Investment Subdivision invests exclusively in shares of a designated portfolio
of one of the Funds. Not all Investment Subdivisions may be available.
MATURITY DATE -- The date stated in the Policy on which your income payments
will commence, if the Annuitant is living on that date.
OWNER -- The person or persons (in the case of Joint Owners) entitled to
receive income payments after the Maturity Date. During the lifetime of the
Annuitant, the Owner also is entitled to the ownership rights stated in the
Policy and, is shown in the Policy and in any application. "You" or "your"
refers to the Owner or Joint Owners.
POLICY DATE -- The date we issue your Policy and your Policy becomes effective.
Your Policy Date is shown in your Policy and we use it to determine Policy
years and anniversaries.
SEPARATE ACCOUNT -- GE Capital Life Separate Account II.
SURRENDER VALUE -- The Account Value (after deduction of any policy maintenance
charge and any optional benefit changes) less any applicable surrender charge.
VALUATION PERIOD -- The period between the close of business on a Business Day
and the close of business on the next succeeding Business Day.
VARIABLE ANNUITY SERVICE CENTER -- The office to which all written and
telephone inquiries concerning the Policy or portfolios of the Funds should be
made: 6610 West Broad Street, Richmond, VA 23230, 1-800-313-5282.
4
<PAGE>
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EXPENSE TABLE
- --------------------------------------------------------------------------------
This table describes the various costs and expenses that you will pay (either
directly or indirectly) if you purchase the Policy. The table reflects expenses
both of Investment Subdivisions of the Separate Account and of the portfolios.
For more complete descriptions of the various costs and expenses involved, SEE
Charges and Other Deductions in this Prospectus, and the Fund prospectuses.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES:
The maximum surrender charge (as a percentage of each premium payment surrendered/
withdrawn): 6%
We reduce the surrender charge percentage over time. In general, the later you surrender
or withdraw a premium payment, the lower the surrender charge will be on that
premium payment.
(Note: We may waive the surrender charge in certain cases. SEE Surrender Charge.)
Transfer Charge:
First 12 transfers in a calendar year None
Subsequent transfers (each) $ 10.00
ANNUAL EXPENSES (AS A PERCENTAGE OF ACCOUNT VALUE):
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
- ------------------------------------------------------------------------------------------ -------
Total Annual Expenses 1.40%
OTHER ANNUAL EXPENSES:
Annual Policy Maintenance Charge $ 25*
Maximum Elective Optional Death Benefit Charge ("ODB") (as a percentage of Account
Value) .25%**
</TABLE>
* We do not assess this charge if your Account Value at the time the charge is
due is more than $75,000.
** If the Optional Death Benefit applies. (This may be referred to as the
"Annual EstateProtector" in our marketing materials.)
5
<PAGE>
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PORTFOLIO ANNUAL EXPENSES
Annual expenses of the portfolios of the Funds for the year ended December 31,
1998 (as a percentage of each portfolio's average net assets):
<TABLE>
<CAPTION>
MANAGEMENT FEES OTHER EXPENSES
(AFTER FEE WAIVER (AFTER REIMBURSEMENT- TOTAL ANNUAL
AS APPLICABLE) AS APPLICABLE) EXPENSES
------------------- ----------------------- -------------
<S> <C> <C> <C>
PORTFOLIO
- ----------
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio1 .65 .07 .72
Janus Aspen International Growth Portfolio1 .66 .20 .86
VIP Overseas Portfolio2 .74 .15 .89
GE International Equity Fund 1.00 .15 1.15
SPECIALTY
GE Real Estate Securities Fund .85 .14 .99
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund/VA .69 .02 .71
Alger American Small Capitalization Portfolio .85 .04 .89
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio .72 .03 .75
Goldman Sachs VIT Mid Cap Value Fund*5 .80 .15 .95
PBHG Growth II Portfolio9 .51 .69 1.20
MID-CAP VALUE
GE Value Equity Fund** .65 .10 .75
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio1 .65 .03 .68
Janus Aspen Capital Appreciation Portfolio1 .70 .22 .92
VIP II Contrafund Portfolio3 .59 .07 .66
VIP Growth Portfolio2 .59 .07 .66
VIP III Growth & Income Portfolio4 .49 .11 .60
Oppenheimer Capital Appreciation Fund/VA .72 .03 .75
GE Premier Growth Equity Fund .65 .17 .82
Alger American Growth Portfolio .75 .04 .79
PBHG Large Cap Growth Portfolio9 .32 .78 1.10
LARGE-CAP VALUE
VIP Equity Income Portfolio2 .49 .08 .57
VIP III Growth Opportunities Portfolio4 .59 .11 .70
GE U.S. Equity Fund .55 .14 .69
GE S&P 500 Index Fund .35 .10 .45
Federated Utility Fund II8 .68 .25 .93
Federated American Leaders Fund II8 .74 .14 .88
Goldman Sachs VIT Growth and Income Fund5 .75 .15 .90
Salomon Investors Fund6 .70 .30 1.00
BALANCED
Janus Aspen Balanced Portfolio .72 .02 .74
VIP II Asset Manager Portfolio3 .54 .09 .63
Oppenheimer Multiple Strategies Fund/VA .72 .04 .76
GE Total Return Fund .50 .13 .63
Salomon Total Return Fund6 .80 .20 1.00
GLOBAL BOND
GE Global Income Fund .60 .22 .82
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEES OTHER EXPENSES
(AFTER FEE WAIVER (AFTER REIMBURSEMENT- TOTAL ANNUAL
AS APPLICABLE) AS APPLICABLE) EXPENSES
------------------- ----------------------- -------------
<S> <C> <C> <C>
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfolio .65 .08 .73
Oppenheimer High Income Fund/VA .74 .04 .78
Federated High Income Bond Fund II .60 .18 .78
DOMESTIC BONDS
Oppenheimer Bond Fund/VA .72 .02 .74
GE Income Fund .50 .14 .64
Salomon Strategic Bond Fund6 .75 .25 1.00
MONEY MARKET
GE Money Market Fund7 .25 .12 .37
</TABLE>
Not all of these portfolios may be available.
* These expenses are estimated due to the portfolio being in existence for less
than 10 months.
** Although past practice reflects investments within the mid cap range, the
portfolio is not restricted on the capitalizations of the companies in
which it can invest.
1 Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1998 would have been .75% for Growth Portfolio,
.95% for International Growth Portfolio, .74% for Worldwide Growth
Portfolio, and .97% for Capital Appreciation Portfolio.
2 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
during 1998 would have been .58% for VIP Equity-Income Portfolio, .91% for
VIP Overseas Portfolio and .68% for VIP Growth Portfolio.
3 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
II during 1998 would have been .64% for VIP II Asset Manager Portfolio and
.70% for VIP II Contrafund Portfolio.
4 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
III during 1998 would have been .61% for VIP III Growth & Income Portfolio
and .71% for VIP III Growth Opportunities Portfolio.
5 Goldman Sachs Asset Management has voluntarily agreed to reduce or limit
certain other expenses (excluding management fees, taxes, interest,
brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.15% of each Fund's
respective average daily net assets. The investment adviser may modify or
discontinue any of the limitations set forth above in the future at its
discretion. Absent reimbursements, the total annual expenses during 1998
would have been 2.69% for Growth and Income Fund and 4.79% for Mid Cap
Value Fund.
6 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of Salomon Brothers Variable Series Fund during 1998 would
have been 2.07% for Investors Fund, 2.90% for Total Return Fund and 1.79%
for Strategic Bond Fund.
7 GE Investment Management Incorporated currently serves as investment adviser
to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
and has voluntarily agreed to waive a portion of the fee payable by the
Fund. Absent this fee waiver, the total annual expenses during 1998 of the
GE Money Market Fund would have been .59%.
8 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of the Federated Insurance Series during 1998 would have
been .89% for Federated American Leaders Fund II and 1.00% for Federated
Utility Fund II.
9 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of PBHG Insurance Series Fund, Inc. would have been 1.54%
for PBHG Growth II Portfolio and 1.53% for PBHG Large Cap Growth Portfolio.
7
<PAGE>
EXAMPLES
These examples show what your costs would be under certain hypothetical
situations. The examples do not represent past or future expenses. Your actual
expenses may be more or less than those shown. The examples are based on the
annual expenses of the portfolios of the Funds for the year ended December 31,
1998 (shown above in Portfolio Annual Expenses). The examples assume that the
$25 policy maintenance charge is equivalent to 0.1% of Account Value
attributable to the hypothetical investment (this charge will be waived if the
Account Value is more than $75,000 at the time the charge is due). To the
extent the examples reflect the charge for the Optional Death Benefit Rider,
the examples assume that the maximum charge applies.
EXAMPLES: An Owner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Expense Table above:
1. If you surrender* your Policy at the end of the applicable period:
<TABLE>
<CAPTION>
WITHOUT ODB RIDER
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio ................ 76.34 122.91 154.39 255.44
Janus Aspen International Growth Portfolio ............ 77.75 127.16 161.48 269.62
VIP Overseas Portfolio ................................ 78.05 128.07 163.00 272.63
GE International Equity Fund .......................... 80.67 135.91 176.02 298.32
SPECIALTY
GE Real Estate Securities Fund ........................ 79.06 131.09 168.02 282.59
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund/VA ................. 76.24 122.60 153.88 254.42
Alger American Small Capitalization Portfolio ......... 78.05 128.07 163.00 272.63
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio ............... 76.65 123.82 155.91 258.49
Goldman Sachs VIT Mid Cap Value Fund .................. 78.66 129.88 166.01 278.62
PBHG Growth II Portfolio .............................. 81.17 137.41 178.50 303.18
MID-CAP VALUE
GE Value Equity Fund .................................. 76.65 123.82 155.91 258.49
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio .......................... 75.94 121.69 152.35 251.35
Janus Aspen Capital Appreciation Portfolio ............ 78.36 128.97 164.51 275.63
VIP II Contrafund Portfolio ........................... 75.74 121.07 151.33 249.29
VIP Growth Portfolio .................................. 75.74 121.07 151.33 249.29
VIP III Growth & Income Portfolio ..................... 75.13 119.24 148.27 243.11
Oppenheimer Capital Appreciation Fund/VA .............. 76.65 123.82 155.91 258.49
GE Premier Growth Equity Fund ......................... 77.35 125.94 159.46 265.59
Alger American Growth Portfolio ....................... 77.05 125.03 157.94 262.55
PBHG Large Cap Growth Portfolio ....................... 80.17 134.41 173.53 293.43
LARGE-CAP VALUE
VIP Equity-Income Portfolio ........................... 74.82 118.33 146.73 240.00
VIP III Growth Opportunities Portfolio ................ 76.14 122.30 153.37 253.39
GE U.S. Equity Fund ................................... 76.04 121.99 152.87 252.37
GE S&P 500 Index Fund ................................. 73.62 114.65 140.56 227.48
Federated Utility Fund II ............................. 78.46 129.28 165.01 276.63
Federated American Leaders Fund II .................... 77.95 127.77 162.49 271.63
Goldman Sachs VIT Growth and Income Fund .............. 78.15 128.37 163.50 273.63
Salomon Investors Fund ................................ 79.16 131.39 168.52 283.59
BALANCED
Janus Aspen Balanced Portfolio ........................ 76.54 123.51 155.41 257.48
VIP II Asset Manager Portfolio ........................ 75.44 120.17 149.80 246.21
Oppenheimer Multiple Strategies Fund/VA ............... 76.75 124.12 156.42 259.51
GE Total Return Fund .................................. 75.44 120.17 149.80 246.21
Salomon Total Return Fund ............................. 79.16 131.39 168.52 283.59
GLOBAL BOND
GE Global Income Fund ................................. 77.35 125.94 159.46 265.59
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfolio ................. 76.44 123.21 154.89 256.46
Oppenheimer High Income Fund/VA ....................... 76.95 124.73 157.44 261.54
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
WITHOUT ODB RIDER
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federated High Income Bond Fund II ......... 76.95 124.73 157.44 261.54
DOMESTIC BONDS
Oppenheimer Bond Fund/VA ................... 76.54 123.51 155.41 257.48
GE Income Fund ............................. 75.54 120.47 150.31 247.24
Salomon Strategic Bond Fund ................ 79.16 131.39 168.52 283.59
MONEY MARKET
GE Money Market Fund ....................... 72.80 112.20 136.43 219.40
</TABLE>
* surrender includes annuitization over a period of less than 5 years.
2. If you annuitize at the end of the applicable period, or do not surrender*:
<TABLE>
<CAPTION>
WITHOUT ODB RIDER
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio ................ 22.51 69.42 118.98 255.44
Janus Aspen International Growth Portfolio ............ 23.91 73.65 126.04 269.62
VIP Overseas Portfolio ................................ 24.21 74.55 127.55 272.63
GE International Equity Fund .......................... 26.81 82.34 140.51 298.32
SPECIALTY
GE Real Estate Securities Fund ........................ 25.21 77.55 132.55 282.59
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund/VA ................. 22.41 69.12 118.47 254.42
Alger American Small Capitalization Portfolio ......... 24.21 74.55 127.55 272.63
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio ............... 22.81 70.33 120.49 258.49
Goldman Sachs VIT Mid Cap Value Fund .................. 24.81 76.35 130.55 278.62
PBHG Growth II Portfolio .............................. 27.31 83.83 142.98 303.18
MID-CAP VALUE
GE Value Equity Fund .................................. 22.81 70.33 120.49 258.49
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio .......................... 22.11 68.21 116.95 251.35
Janus Aspen Capital Appreciation Portfolio ............ 24.51 75.45 129.05 275.63
VIP II Contrafund Portfolio ........................... 21.91 67.60 115.93 249.29
VIP Growth Portfolio .................................. 21.91 67.60 115.93 249.29
VIP III Growth & Income Portfolio ..................... 21.30 65.78 112.88 243.11
Oppenheimer Capital Appreciation Fund/VA .............. 22.81 70.33 120.49 258.49
GE Premier Growth Equity Fund ......................... 23.51 72.44 124.03 265.59
Alger American Growth Portfolio ....................... 23.21 71.53 122.51 262.55
PBHG Large Cap Growth Portfolio ....................... 26.31 80.85 138.03 293.43
LARGE-CAP VALUE
VIP Equity-Income Portfolio ........................... 21.00 64.87 111.35 240.00
VIP III Growth Opportunities Portfolio ................ 22.31 68.82 117.96 253.39
GE U.S. Equity Fund ................................... 22.21 68.51 117.46 252.37
GE S&P 500 Index Fund ................................. 19.80 61.22 105.21 227.48
Federated Utility Fund II ............................. 24.61 75.75 129.55 276.63
Federated American Leaders Fund II .................... 24.11 74.25 127.04 271.63
Goldman Sachs VIT Growth and Income Fund .............. 24.31 74.85 128.05 273.63
Salomon Investors Fund ................................ 25.31 77.85 133.05 283.59
BALANCED
Janus Aspen Balanced Portfolio ........................ 22.71 70.02 119.99 257.48
VIP II Asset Manager Portfolio ........................ 21.61 66.70 114.41 246.21
Oppenheimer Multiple Strategies Fund/VA ............... 22.91 70.63 121.00 259.51
GE Total Return Fund .................................. 21.61 66.70 114.41 246.21
Salomon Total Return Fund ............................. 25.31 77.85 133.05 283.59
GLOBAL BOND
GE Global Income Fund ................................. 23.51 72.44 124.03 265.59
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
WITHOUT ODB RIDER
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfoliio ......... 22.61 69.72 119.48 256.46
Oppenheimer High Income Fund/VA ................ 23.11 71.23 122.01 261.54
Federated High Income Bond Fund II ............. 23.11 71.23 122.01 261.54
DOMESTIC BONDS
Oppenheimer Bond Fund/VA ....................... 22.71 70.02 119.99 257.48
GE Income Fund ................................. 21.71 67.00 114.92 247.24
Salomon Strategic Bond Fund .................... 25.31 77.85 133.05 283.59
MONEY MARKET
GE Money Market Fund ........................... 18.99 58.78 101.10 219.04
</TABLE>
* surrender includes annuitization over a period of less than 5 years
EXAMPLES: A Policyowner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Expense Table above:
3. If you surrender* your Policy at the end of the applicable period:
<TABLE>
<CAPTION>
WITH ODB RIDER
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio ................ 78.86 130.48 167.02 280.61
Janus Aspen International Growth Portfolio ............ 80.27 134.70 174.02 294.41
VIP Overseas Portfolio ................................ 80.57 135.61 175.52 297.34
GE International Equity Fund .......................... 83.17 143.38 188.37 322.35
SPECIALTY
GE Real Estate Securities Fund ........................ 81.57 138.60 180.48 307.04
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund .................... 78.76 130.18 166.52 279.62
Alger American Small Capitalization Portfolio ......... 80.57 135.61 175.52 297.34
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio ............... 79.16 131.39 168.52 283.59
Goldman Sachs VIT Mid Cap Value Fund .................. 81.17 137.41 178.50 303.18
PBHG Growth II Portfolio .............................. 83.68 144.87 190.82 327.07
MID-CAP VALUE
GE Value Equity Fund .................................. 79.16 131.39 168.52 283.59
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio .......................... 78.46 129.28 165.01 276.63
Janus Aspen Capital Appreciation Portfolio ............ 80.87 136.51 177.01 300.27
VIP II Contrafund Portfolio ........................... 78.25 128.67 164.00 274.63
VIP Growth Portfolio .................................. 78.25 128.67 164.00 274.63
VIP III Growth & Income Portfolio ..................... 77.65 126.85 160.98 268.61
Oppenheimer Capital Appreciation Fund ................. 79.16 131.39 168.52 283.59
GE Premier Growth Equity Fund ......................... 79.86 133.50 172.03 290.49
Alger American Growth Portfolio ....................... 79.56 132.60 170.52 287.54
PBHG Large Cap Growth Portfolio ....................... 82.68 141.89 185.91 317.59
LARGE-CAP VALUE
VIP Equity-Income Portfolio ........................... 77.35 125.94 159.46 265.59
VIP III Growth Opportunities Portfolio ................ 78.66 129.88 166.01 278.62
GE U.S. Equity Fund ................................... 78.56 129.58 165.51 277.63
GE S&P 500 Index Fund ................................. 76.14 122.30 153.37 253.59
Federated Utility Fund II ............................. 80.97 136.80 177.50 301.24
Federated American Leaders Fund II .................... 80.47 135.30 175.02 296.37
Goldman Sachs VIT Growth and Income Fund .............. 80.67 135.91 176.02 298.32
Salomon Investors Fund ................................ 81.68 138.91 180.98 308.01
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
WITH ODB RIDER
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCED
Janus Aspen Balanced Portfolio .................. 79.06 131.09 168.02 282.59
VIP II Asset Manager Portfolio .................. 77.95 127.77 162.49 271.63
Oppenheimer Multiple Strategies Fund/VA ......... 79.26 131.69 169.03 284.58
GE Total Return Fund ............................ 77.95 127.77 162.49 271.63
Salomon Total Return Fund ....................... 81.68 138.91 180.98 308.01
GLOBAL BOND
GE Global Income Fund ........................... 79.86 133.50 172.03 290.49
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfolio ........... 78.96 130.78 167.52 281.60
Oppenheimer High Income Fund .................... 79.46 132.29 170.03 286.55
Federated High Income Bond Fund ................. 79.46 132.29 170.03 286.55
DOMESTIC BONDS
Oppenheimer Bond Fund ........................... 79.06 131.09 168.02 282.59
GE Income Fund .................................. 78.05 128.07 163.00 272.63
Salomon Strategic Bond Fund ..................... 81.68 138.91 180.98 308.01
MONEY MARKET
GE Money Market Fund ............................ 75.34 119.86 149.29 245.18
</TABLE>
* surrender includes annuitization over a period of less than 5 years.
4. If you annuitize at the end of the applicable period, or do not surrender*:
<TABLE>
<CAPTION>
WITH ODB RIDER
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio ................ 25.01 76.95 131.55 280.61
Janus Aspen International Growth Portfolio ............ 26.41 81.14 138.52 294.41
VIP Overseas Portfolio ................................ 26.71 82.04 140.01 297.34
GE International Equity Fund .......................... 29.30 89.77 152.81 322.35
SPECIALTY
GE Real Estate Securities Fund ........................ 27.71 85.02 144.95 307.04
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund .................... 24.91 76.65 131.05 279.62
Alger American Small Capitalization Portfolio ......... 26.71 82.04 140.01 297.34
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio ............... 25.31 77.85 133.05 283.59
Goldman Sachs VIT Mid Cap Value Fund .................. 27.31 83.83 142.98 303.18
PBHG Growth II Portfolio .............................. 29.80 91.25 155.25 327.07
MID-CAP VALUE
GE Value Equity Fund .................................. 25.31 77.85 133.05 283.59
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio .......................... 24.61 75.75 129.55 276.63
Janus Aspen Capital Appreciation Portfolio ............ 27.01 82.94 141.50 300.27
VIP II Contrafund Portfolio ........................... 24.41 75.15 128.55 274.63
VIP Growth Portfolio .................................. 24.41 75.15 128.55 274.63
VIP III Growth & Income Portfolio ..................... 23.81 73.34 125.54 268.61
Oppenheimer Capital Appreciation Fund/VA .............. 25.31 77.85 133.05 283.59
GE Premier Growth Equity Fund ......................... 26.01 79.95 136.54 290.49
Alger American Growth Portfolio ....................... 25.71 79.05 135.04 287.54
PBHG Large Cap Growth Portfolio ....................... 28.81 88.29 150.36 317.59
LARGE-CAP VALUE
VIP Equity-Income Portfolio ........................... 23.51 72.44 124.03 265.59
VIP III Growth Opportunities Portfolio ................ 24.81 76.35 130.55 278.62
GE U.S. Equity Fund ................................... 24.71 76.05 130.05 277.63
GE S&P 500 Index Fund ................................. 22.31 68.82 117.96 253.39
Federated Utility Fund ................................ 27.11 83.23 141.99 301.24
Federated American Leaders Fund ....................... 26.61 81.74 139.52 296.37
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
WITH ODB RIDER
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
SUBDIVISION INVESTING IN: ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Goldman Sachs VIT Growth and Income Fund ......... 26.81 82.34 140.51 298.32
Salomon Investors Fund ........................... 27.81 85.32 145.45 308.01
BALANCED
Janus Aspen Balanced Portfolio ................... 25.21 77.55 132.55 282.59
VIP II Asset Manager Portfolio ................... 24.11 74.25 127.04 271.63
Oppenheimer Multiple Strategies Fund ............. 25.41 78.15 133.55 284.58
GE Total Return Fund ............................. 24.11 75.25 127.04 271.63
Salomon Total Return Fund ........................ 27.81 85.32 145.45 308.01
GLOBAL BOND
GE Global Income Fund ............................ 26.01 79.95 136.54 290.49
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfolio ............ 25.11 77.25 132.05 281.60
Oppenheimer High Income Fund ..................... 25.61 78.75 134.55 286.55
Federated High Income Bond Fund .................. 25.61 78.75 134.55 286.55
DOMESTIC BONDS
Oppenheimer Bond Fund ............................ 25.21 77.55 132.55 282.59
GE Income Fund ................................... 24.21 74.55 127.55 272.63
Salomon Strategic Bond Fund ...................... 27.81 85.32 145.45 308.01
MONEY MARKET
GE Money Market Fund ............................. 21.51 66.39 113.90 245.18
</TABLE>
* surrender includes annuitization over a period of less than 5 years
The Funds supplied all of the figures provided under the subheading Portfolio
Annual Expenses and part of the data used to produce the figures in the
examples. We have not independently verified this information. Certain
portfolio expenses are shown net of fee waivers and reimbursements. We cannot
guarantee that the fee waivers and reimbursements will continue.
- --------------------------------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
WHAT TYPE OF POLICY AM I BUYING? The Policy is an individual flexible premium
variable deferred annuity policy. We may issue it as a policy qualified
("Qualified Policy") under the Internal Revenue Code of 1986, as amended (the
"Code"), or as a policy that is not qualified under the Code ("Non-Qualified
Policy"). This Prospectus only provides disclosure about the Policy. Certain
features described in this Prospectus may vary from your Policy. SEE The
Policy.
HOW DOES THE POLICY WORK? Once we approve your application, we will issue a
Policy to you. During the accumulation period, while you are paying in, you can
use your premium payments to buy Accumulation Units under the Separate Account
or interests in the Guarantee Account. Should you decide to annuitize (that is,
change your Policy to a payout mode rather than an accumulation mode), we will
convert your Accumulation Units to Annuity Units. You can choose a fixed or
variable income payment. If you choose a variable income payment, we will base
your periodic income payment upon the number of Annuity Units to which you
became entitled at the time you decided to annuitize and on the value of each
unit on the date the payment is determined. SEE The Policy.
WHAT ARE MY VARIABLE INVESTMENT CHOICES? Through its 41 Investment
Subdivisions, the Separate Account uses your premium payments to purchase
shares, at your direction, in one or more portfolios of the 11 Funds. In turn,
each portfolio holds securities consistent with its own particular investment
policy. Amounts you allocate to the Separate Account will reflect the
investment performance of the portfolios you select. You bear the risk of
investment gain or loss. SEE Separate Account -- Investment Subdivisions.
WHAT IS THE GUARANTEE ACCOUNT? We offer fixed investment choices through our
Guarantee Account. The Guarantee Account is part of our General Account and
pays interest at declared rates we guarantee for selected periods of time. We
also guarantee the principal, after deductions. Since the Guarantee Account is
part of the General Account, we assume the risk of investment gain or loss on
this amount. You may transfer value between the Guarantee Account and the
Separate Account subject to certain restrictions. SEE Transfers Before the
Maturity Date.
WHAT CHARGES ARE ASSOCIATED WITH THIS POLICY? Should you withdraw Account Value
before your premium payments have been in your Policy for six years, we will
assess a surrender charge of anywhere from 0% to 6%, depending upon how many
full years those payments have been in the Policy. (Note: We waive this charge
under certain conditions). SEE Surrender Charge.
12
<PAGE>
We assess daily charges in the aggregate at an effective annual rate of 1.40%
against the daily net asset value of the Separate Account, including that
portion of the account attributable to your premium payments. These charges
consist of .15% as an administrative expense charge and 1.25% as a mortality
and expense risk charge. Additionally, we may impose an annual $25 Policy
Maintenance Charge. We also charge for the Optional Death Benefit ("ODB"). For
a complete discussion of all charges associated with the Policy, SEE Charges
and Other Deductions.
Before the Maturity Date, you may make twelve transfers in a Policy year
without incurring a transfer charge. After that, a $10 transfer charge will be
assessed each time a transfer is made during the calendar year. We will not
impose a transfer charge on transfers made after the Maturity Date. SEE The
Policy -- Transfer Charges.
The portfolios also have certain expenses. These include management fees and
other expenses associated with the daily operation of each portfolio. SEE
Separate Account -- Investment Subdivisions. These portfolio expenses are more
fully described in each Fund's prospectus.
HOW MUCH MUST I PAY, AND HOW OFTEN? Subject to certain minimum and maximum
payments, the amount and frequency of your premium payments are completely
flexible. SEE The Policy -- Premium Payments.
HOW WILL MY INCOME PAYMENTS BE CALCULATED? We will pay you a monthly income
beginning on the Maturity Date if the Annuitant is still living. You may also
decide to annuitize under one of the optional payment plans. We will base your
initial payment on maturity value and other factors. SEE Income Payments.
WHAT HAPPENS IF I DIE BEFORE THE MATURITY DATE? Before the Maturity Date, if an
Owner, Joint Owner, or Annuitant dies while the Policy is in force, we will
treat the Designated Beneficiary as the sole Owner of the Policy, subject to
certain distribution rules. We may pay a Death Benefit to the Designated
Beneficiary. SEE Death of the Owner or Joint Owner Before the Maturity Date.
MAY I TRANSFER ACCOUNT VALUE AMONG PORTFOLIOS? Yes, but there may be limits on
how often you may do so. SEE Transfers. The minimum transfer amount is $100 or
the entire balance in the Investment Subdivision if the transfer will leave a
balance of less than $100. SEE Transfers -- Transfers Before the Maturity Date,
and Income Payments -- Transfers After the Maturity Date.
MAY I SURRENDER THE POLICY OR MAKE A PARTIAL SURRENDER? Yes, subject to Policy
requirements and to restrictions imposed under certain retirement plans.
If you surrender the Policy or make a partial surrender, we may assess a
surrender charge as discussed above. In addition, you may be subject to income
tax and, if you are younger than age 59 1/2 at the time of the surrender, a 10%
premature withdrawal penalty tax. A surrender or a partial surrender may also
be subject to withholding. SEE Federal Tax Matters.
DO I GET A FREE LOOK AT THIS POLICY? Yes. You have the right to return the
Policy to us at our Variable Annuity Service Center, and have us cancel the
Policy within ten days (or longer if required by applicable law).
If you exercise this right, we will cancel the Policy as of the day we receive
your request and send you a refund equal to your Account Value plus any charges
we have deducted from premium payments (excluding charges the portfolios
deducted) on or before the date we received the returned Policy or such other
amount as required by applicable law. We will not deduct the surrender charge.
SEE Return Privilege.
You cannot make transfers or partial surrenders during the free look period.
WHERE MAY I FIND MORE INFORMATION ABOUT ACCUMULATION UNIT VALUES? The Condensed
Financial Information section at the end of the Prospectus provides more
information about Accumulation Unit Values.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
- --------------------------------------------------------------------------------
At times, the Separate Account may compare its investment results to various
unmanaged indices or other variable annuities in reports to shareholders, sales
literature, and advertisements. We will calculate the results on a total return
basis for various periods, with or without surrender charges. Results
calculated without surrender charges will be higher. Total returns include the
reinvestment of all distributions of the portfolios. Total returns reflect Fund
fees and expenses, the administrative expense charge, the mortality and expense
risk charge, and the policy maintenance charge. Total returns do not reflect
the elective Optional Death Benefit charge. SEE the SAI for further
information.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements for GE Life Assurance Company of New York
are located in the SAI. There are no financial statements for GE Capital Life
Separate Account II as there were no Policies sold as of December 31, 1998. If
you would like a free copy of the SAI, call 1-800-313-5282. Otherwise, the SAI
is available on the SEC's website at http://www.sec.gov.
13
<PAGE>
- --------------------------------------------------------------------------------
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
We are a stock life insurance company that was incorporated in New York on
February 23, 1988. We are ultimately a subsidiary of General Electric Capital
Corporation ("GE Capital"), a New York corporation that is a diversified
financial services company whose subsidiaries consist of specialty insurance,
equipment management, and commercial and consumer financing businesses. GE
Capital's ultimate parent, General Electric Company, founded more than one
hundred years ago by Thomas Edison, is the world's largest manufacturer of jet
engines, engineering plastics, medical diagnostic equipment, and large electric
power generation equipment.
We are licensed solely in New York and specialize in writing individual
fixed-rate deferred annuities, fixed payout immediate annuities, and variable
deferred annuities.
We are subject to regulation by the Superintendent of Insurance of the State of
New York. We submit annual statements on our operations and finances to the New
York Insurance Department.
We are a member of the Insurance Marketplace Standards Association ("IMSA"). We
may use the IMSA membership logo and language in our advertisements, as
outlined in IMSA's Marketing and Graphics Guidelines. Companies that belong to
IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
We established the Separate Account as a separate investment account on April
1, 1996. The Separate Account may invest in mutual funds or in portfolios of
series-type mutual funds. We use the Separate Account to support the Policy as
well as for other purposes permitted by law.
The Separate Account currently has 41 Investment Subdivisions available under
the Policy, but that number may change in the future. Each Investment
Subdivision invests exclusively in shares representing an interest in a
separate corresponding portfolio of the Funds described below. We allocate net
premium payments in accordance with your instructions among up to 10 of the 41
Investment Subdivisions available under the Policy.
The assets of the Separate Account belong to us. Nonetheless, we do not charge
the assets in the Separate Account attributable to the Policies with
liabilities arising out of any other business which we may conduct. The assets
of the Separate Account shall, however, be available to cover the liabilities
of our General Account to the extent that the assets of the Separate Account
exceed its liabilities arising under the Policies supported by it. Income and
both realized and unrealized gains or losses from the assets of the Separate
Account are credited to or charged against the Separate Account without regard
to the income, gains, or losses arising out of any other business we may
conduct.
We registered the Separate Account with the SEC as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The Separate Account
meets the definition of a separate account under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the Separate Account by the SEC. You assume
the full investment risk for all amounts you allocate to the Separate Account.
THE PORTFOLIOS
There is a separate Investment Subdivision which corresponds to each portfolio
of a Fund offered in this Policy. You decide the Investment Subdivisions to
which you allocate net premium payments. You may change your allocation without
penalty or charges.
Each Fund is registered with the Securities and Exchange Commission as an
open-end management investment company under the 1940 Act. The assets of each
portfolio are separate from other portfolios of a Fund and each portfolio has
separate investment objectives and policies. As a result, each portfolio
operates as a separate portfolio and the investment performance of one
portfolio has no effect on the investment performance of any other portfolio.
Before choosing an Investment Subdivision to allocate your net premium payments
and Account Value, carefully read the prospectus for each Fund, along with this
Prospectus. We summarize the investment objectives of each portfolio below.
There is no assurance that any of the portfolios will meet these objectives. We
do not guarantee any minimum value for the amounts you allocate to the Separate
Account. You bear the investment risk of investing in the portfolios.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the
portfolios, however, may be higher or lower than the results of such other
portfolios. There can be no assurance, and no representation is made,
that the investment results of any of the portfolios will be comparable to the
investment results of any other portfolio, even if the other portfolio has the
same investment adviser or manager, or if the other portfolio has a similar
name.
14
<PAGE>
INVESTMENT SUBDIVISIONS
We offer you a choice from among 41 Investment Subdivisions, each of which
invests in an underlying portfolio of one of the Funds. You may allocate
premiums to up to ten Investment Subdivisions at any one time.
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE1 ADVISER, AS APPLICABLE)
- ---------------------------------- -------------------------------------------------------------- ------------------------
INTERNATIONAL AND GLOBAL EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JANUS ASPEN SERIES Seeks long-term capital growth in a manner consistent Janus Capital
Worldwide Growth Portfolio with the preservation of capital. Pursues this objective by Corporation
investing in a diversified portfolio of common stocks of
foreign and domestic issuers of all sizes. Normally invests
in at least five different countries including the United
States.
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term growth of capital. Pursues this objective Janus Capital
International Growth Portfolio primarily through investments in common stocks of Corporation
issuers located outside the United States. The portfolio
normally invests at least 65% of its total assets in
securities of issuers from at least five different countries,
excluding the United States.
- --------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks long-term growth of capital by investing at least Fidelity
PRODUCTS FUND 65% of total assets in foreign securities, primarily in Management &
VIP Overseas Portfolio common stocks. Research
Company
- --------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital by GE Investment
International Equity Fund investing primarily in foreign equity and equity-related Management
securities which the Adviser believes have long-term Incorporated
potential for capital growth.
- --------------------------------------------------------------------------------------------------------------------------
SPECIALTY
- --------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing maximum total return through GE Investment
Real Estate Securities Fund current income and capital appreciation by investing Management
primarily in securities of U.S. issuers that are principally Incorporated
engaged in or related to the real estate industry including (Subadvised by
those that own significant real estate assets. The portfolio Seneca Capital
will not invest directly in real estate. Management,
L.L.C.)
- --------------------------------------------------------------------------------------------------------------------------
SMALL-CAP STOCKS
- --------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks to achieve capital appreciation by investing in Oppenhei-
FUNDS "growth-type" companies. merFunds, Inc.
Aggressive Growth Fund/VA
(formerly known as Aggressive
Growth Fund)
- --------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND Seeks long-term capital appreciation by focusing on Fred Alger
Alger American Small small, fast-growing companies that offer innovative Management,
Capitalization Portfolio products, services or technologies to a rapidly expanding Inc.
marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company
is one that has a market capitalization within the range of
the Russell 2000 Growth Index or the S&P(R) Small Cap
600 Index.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
1 Standard and Poor's, together with the Funds, determined these categories.
15
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE1 ADVISER, AS APPLICABLE)
- -------------------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JANUS ASPEN SERIES Non-diversified portfolio pursuing long-term growth of Janus Capital
Aggressive Growth Portfolio capital. Pursues this objective by normally investing at Corporation
least 50% of its assets in equity securities issued by
medium-sized companies.
- -------------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE Seeks long-term capital appreciation, primarily through Goldman Sachs
INSURANCE TRUST (VIT) equity securities of companies with public stock market Asset
Mid Cap Value Fund capitalizations within the range of the market Management
(formerly known as Mid Cap capitalization of companies constituting the Russell
Equity Fund) Midcap Index at the time of investment (currently
between $400 million and $16 billion).
- -------------------------------------------------------------------------------------------------------------------------
PBHG INSURANCE SERIES FUND Seeks to achieve capital appreciation by investing at least Pilgrim Baxter &
PBHG Growth II Portfolio 65% of its total assets in the growth securities (primarily Associates, Ltd.
common stocks) of small and medium sized companies
(market capitalization or annual revenues between $500
million and $10 billion) that, in the adviser's opinion,
have an outlook for strong earnings growth and capital
appreciation potential.
- --------------------------------------------------------------------------------------------------------------------------
MID-CAP VALUE
- --------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long term growth of capital by GE Investment
Value Equity Fund investing primarily in common stock and other equity Management
securities of companies that the investment adviser Incorporated
believes are undervalued by the marketplace at the time (Subadvised by
of purchase and that offer the potential for above-average NWQ Investment
growth of capital. Although the current portfolio reflects Management
investments primarily within the mid cap range, the Fund Company)
is not restricted to investments within any particular
capitalization and may in the future invest a majority of
its assets in another capitalization range.
- --------------------------------------------------------------------------------------------------------------------------
LARGE-CAP GROWTH
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term capital growth consistent with the Janus Capital
Growth Portfolio preservation of capital and pursues its objective by Corporation
investing in common stocks of companies of any size.
Emphasizes larger, more established issuers.
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term growth of capital. Pursues this objective Janus Capital
Capital Appreciation Portfolio by investing primarily in common stocks of companies of Corporation
any size.
- --------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks long-term capital appreciation by investing mainly Fidelity
PRODUCTS FUND II in common stocks and in securities of companies whose Management &
VIP II Contrafund Portfolio value is believed to have not been fully recognized by the Research
public. This fund invests in domestic and foreign issuers. Company
This fund also invests in "growth" stocks or "value"
stocks or both.
- --------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks capital appreciation by investing primarily in Fidelity
PRODUCTS FUND common stocks of companies believed to have Management &
VIP Growth Portfolio above-average growth potential. Research
Company
- --------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks high total return through a combination of current Fidelity
PRODUCTS FUND III income and capital appreciation by investing a majority of Management &
VIP III Growth & Income assets in common stocks with a focus on those that pay Research
Portfolio current dividends and show potential for capital Company
appreciation.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPPENHEIMER VARIABLE ACCOUNT Seeks capital appreciation from investments in securities Oppenhei-
FUNDS of well-known and established companies. Such securities merFunds, Inc.
Capital Appreciation Fund/VA generally have a history of earnings and dividends and
(formerly known as Growth Fund) are issued by seasoned companies (having an operating
history of at least five years, including predecessors).
Current income is a secondary consideration in the
selection of the Capital Appreciation Fund's portfolio
securities.
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital as GE Investment
Premier Growth Equity Fund* well as future (rather than current) income by investing Management
primarily in growth-oriented equity securities. Incorporated
- -------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND Seeks long-term capital appreciation by focusing on Fred Alger
Alger American Growth Portfolio growing companies that generally have broad product Management,
lines, markets, financial resources and depth of Inc.
management. Under normal circumstances, the portfolio
invests primarily in the equity securities of large
companies. The portfolio considers a large company to
have a market capitalization of $1 billion or greater.
- -------------------------------------------------------------------------------------------------------------------------
PBHG INSURANCE SERIES FUND Seeks long term growth of capital by investing at least Pilgrim Baxter &
PBHG Large Cap Growth 65% of its total assets in growth securities (primarily Associates, Ltd.
Portfolio common stocks) of large capitalization companies (market
capitalization over $1 billion) that, in the adviser's
opinion, have an outlook for strong earnings growth and
capital appreciation potential.
- -------------------------------------------------------------------------------------------------------------------------
LARGE-CAP VALUE
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks reasonable income and will consider the potential Fidelity
PRODUCTS FUND for capital appreciation. The fund also seeks a yield, Management &
VIP Equity-Income Portfolio which exceeds the composite yield on the securities Research
comprising the S&P 500 by investing primarily in Company
income-producing equity securities and by investing in
domestic and foreign issuers.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks to provide capital growth by investing primarily in Fidelity
PRODUCTS FUND III common stock and other types of securities, including Management &
VIP III Growth Opportunities bonds, which may be lower-quality debt securities. Research
Portfolio Company
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital GE Investment
U.S. Equity Fund through investments primarily in equity securities of U.S. Management
companies. Incorporated
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing capital appreciation and GE Investment
S&P 500 Index Fund2 accumulation of income that corresponds to the Management
investment return of the Standard & Poor's 500 Incorporated
Composite Stock Price Index through investment in (Subadvised by
common stocks comprising the Index. State Street
Global Advisors)
- -------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES Seeks high current income and moderate capital Federated
Utility Fund II appreciation by investing primarily in equity and debt Investment
securities of utility companies. Management
Company
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
2 "Standard & Poor's," "S&P," and "S&P 500" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by GE Investment
Management Incorporated. The S&P 500 Index Fund is not sponsored, endorsed,
sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation or warranty, express or implied, regarding the advisability of
investing in this Fund or the Policy.
17
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERATED INSURANCE SERIES Seeks long-term growth of capital with a secondary Federated
American Leaders Fund II objective of providing income. Seeks to achieve its Investment
objective by investing, under normal circumstances, at Management
least 65% of its total assets in common stock of "blue Company
chip" companies.
- --------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE Seeks long-term capital growth and growth of income, Goldman Sachs
INSURANCE TRUST (VIT) primarily through equity securities that are considered to Asset
Growth and Income Fund have favorable prospects for capital appreciation and/or Management
dividend-paying ability.
- --------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks long-term growth of capital with current income as Salomon
SERIES FUNDS a secondary objective, primarily through investments in Brothers Asset
Investors Fund* common stocks of well-known companies. Management Inc
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
BALANCED
- ---------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long term growth of capital. Pursues this objective Janus Capital
Balanced Portfolio consistent with the preservation of capital and balanced Corporation
by current income. Normally invests 40-60% of its assets
in securities selected primarily for their growth potential
and 40-60% of its assets in securities selected primarily
for their income potential.
- ---------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks high total return with reduced risk over the Fidelity
PRODUCTS FUND II long-term by allocating assets among stocks, bonds and Management &
VIP II Asset Manager Portfolio short-term and money market instruments. Research
Company
- ---------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks total investment return (which includes current Oppenhei-
FUNDS income and capital appreciation in the values of its merFunds, Inc.
Multiple Strategies Fund/VA shares) from investments in common stocks and other
(formerly known as Multiple equity securities, bonds and other debt securities, and
Strategies Fund) "money market" securities.
- ---------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing the highest total return, composed GE Investment
Total Return Fund of current income and capital appreciation, as is Management
consistent with prudent investment risk by investing in Incorporated
common stock, bonds and money market instruments, the
proportion of each being continuously determined by the
investment adviser.
- ---------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks to obtain above-average income by primarily Salomon
SERIES FUNDS investing in a broad variety of securities, including stocks, Brothers Asset
Total Return Fund* fixed-income securities and short-term obligations. Management Inc
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BONDS
- ---------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing high total return, emphasizing GE Investment
Global Income Fund current income and, to a lesser extent, capital Management
appreciation. The Fund seeks to achieve this objective by Incorporated-
investing primarily in foreign and domestic (subadvised by
income-bearing debt securities and other foreign and GE
domestic income bearing instruments. Investments(US)
Limited)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-YIELD BONDS
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks maximum total return consistent with preservation Janus Capital
Flexible Income Portfolio of capital. Total return is expected to result from a Corporation
combination of income and capital appreciation. The
portfolio pursues its objective primarily by investing in
any type of income-producing securities. This portfolio
may have substantial holdings of lower-rated debt
securities or "junk" bonds. The risks of investing in junk
bonds are described in the prospectus for Janus Aspen
Series, which should be read carefully before investing.
- --------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks high current income from investments in high yield OppenheimerFunds,
FUNDS fixed income securities, including unrated securities or Inc.
High Income Fund/VA high-risk securities in lower rating categories. These
(formerly known as High Income securities may be considered speculative. This Fund may
Fund) have substantial holdings of lower-rated debt securities or
"junk" bonds. The risks of investing in junk bonds are
described in the prospectus for the Oppenheimer Variable
Account Funds, which should be read carefully before
investing.
- --------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES Seeks high current income by investing primarily in a Federated
High Income Bond Fund II diversified portfolio of professionally managed Investment
fixed-income securities. The fixed income securities in Management
which the Fund intends to invest are lower-rated Company
corporate debt obligations, commonly referred to as "junk
bonds". The risks of these securities and their high yield
potential are described in the prospectus for the Federated
Insurance Series, which should be read carefully before
investing.
- --------------------------------------------------------------------------------------------------------------------------
DOMESTIC BONDS
- --------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks high level of current income and capital, and OppenheimerFunds,
FUNDS growth when consistent with its primary objective. Under Inc.
Bond Fund/VA normal conditions this fund will invest at least 65% of its
(formerly known as Bond Fund) total assets in investment grade debt securities.
- --------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing maximum income consistent with GE Investment
Income Fund prudent investment management and preservation of Management
capital by investing primarily in income-bearing debt Incorporated
securities and other income bearing instruments.
- --------------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks high level of current income with capital Salomon Brothers
SERIES FUNDS appreciation as a secondary objective, through a globally Asset Management
Strategic Bond Fund* diverse portfolio of fixed-income investments, including Inc
lower-rated fixed income securities commonly known as
junk bonds.
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- --------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing highest level of current income as GE Investment
Money Market Fund is consistent with high liquidity and safety of principal by Management
investing in various types of good quality money market Incorporated
securities.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*We anticipate these Funds will be available for the Separate Account's
investment in the third quarter of 1999.
We will purchase shares of the portfolios at net asset value and direct them to
the appropriate Investment Subdivisions of the Separate Account. We will redeem
sufficient shares of the appropriate portfolios at net asset value to pay Death
Benefits and surrender/partial surrender proceeds, to make income payments, or
for other purposes described in the Policy. We automatically reinvest all
dividend and capital gain distributions of the portfolios in shares of the
distributing portfolios at their net asset
19
<PAGE>
value on the date of distribution. In other words, we do not pay portfolio
dividends or portfolio distributions out to Owners as additional units, but
instead reflect them in unit values.
Shares of the portfolios of the Funds are not sold directly to the general
public. They are sold to the Company, and may be sold to other insurance
companies that issue variable annuity and variable life insurance policies. In
addition, they may be sold to retirement plans.
When a Fund sells shares in any of its portfolios both to variable annuity and
to variable life insurance separate accounts, it engages in mixed funding. When
a Fund sells shares in any of its portfolios to separate accounts of
unaffiliated life insurance companies, it engages in shared funding.
Each Fund may engage in mixed and shared funding. Therefore, due to differences
in redemption rates or tax treatment, or other considerations, the interests of
various shareholders participating in a Fund could conflict. A Fund's Board of
Directors will monitor for the existence of any material conflicts, and
determine what action, if any, should be taken. SEE the Prospectuses for the
Funds.
We have entered into agreements with either the investment adviser or
distributor of each of the Funds under which the adviser or distributor pays us
a fee ordinarily based upon a percentage of the average aggregate amount we
have invested on behalf of the Separate Account and other separate accounts.
These percentages differ, and some investment advisers or distributors pay us a
greater percentage than other advisors or distributors. These agreements
reflect administrative services we provide.
CHANGES TO THE SEPARATE ACCOUNT AND THE INVESTMENT SUBDIVISIONS
We reserve the right, within the law, to make additions, deletions and
substitutions for the Funds and/or any portfolios within the Funds in which the
Separate Account participates. We may substitute shares of other portfolios for
shares already purchased, or to be purchased in the future, under the Policy.
This substitution might occur if shares of a portfolio should no longer be
available, or if investment in any portfolio's shares should become
inappropriate, in the judgment of our management, for the purposes of the
Policy. No substitution of the shares attributable to your Policy may take
place without notice to you and before approval of the SEC, in accordance with
the 1940 Act.
We also reserve the right to establish additional Investment Subdivisions, each
of which would invest in a separate portfolio of a Fund, or in shares of
another investment company, with a specified investment objective. We may also
eliminate one or more Investment Subdivisions if, in our sole discretion,
marketing, tax, or investment conditions warrant.
If permitted by law, we may deregister the Separate Account under the 1940 Act
in the event such registration is no longer required; manage the Separate
Account under the direction of a committee; or combine the Separate Account
with other separate accounts of the Company. Further, to the extent permitted
by applicable law, we may transfer the assets of the Separate Account to
another separate account.
- --------------------------------------------------------------------------------
THE GUARANTEE ACCOUNT
- --------------------------------------------------------------------------------
Due to certain exemptive and exclusionary provisions of the federal securities
laws, we have not registered interests in the Guarantee Account under the
Securities Act of 1933 (the "1933 Act"), and we have not registered either the
Guarantee Account or our General Account as an investment company under the
1940 Act. Accordingly, neither the interests in the Guarantee Account, nor our
General Account are generally subject to regulation under the 1933 Act and the
1940 Act. Disclosures relating to the interests in the Guarantee Account, and
the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy of
statements made in a registration statement.
You may allocate some or all of your net premium payments and transfer some or
all of your Account Value to the Guarantee Account. We credit the portion of
the Account Value allocated to the Guarantee Account with interest (as
described below). Account Value in the Guarantee Account is subject to some,
but not all, of the charges we assess in connection with the Policy. SEE
Charges and Other Deductions.
Each time you allocate net premium payments or transfer Account Value to the
Guarantee Account, we establish an interest rate guarantee period. For each
interest rate guarantee period, we guarantee an interest rate for a specified
period of time. At the end of an interest rate guarantee period, a new interest
rate will become effective, and a new interest rate guarantee period will
commence for the remaining portion of that particular allocation.
20
<PAGE>
The initial interest rate guarantee period for any allocation will be one year,
unless you elect differently at the time of your allocation. Subsequent
interest rate guarantee periods will each be one year, unless you select
another period at or before the beginning of the subsequent period. During the
first 10 days of each interest rate guarantee period, you may change the
interest rate guarantee period to any other period we then offer. If you change
the interest rate guarantee period, a different interest rate may apply. After
the first 10 days of an interest rate guarantee period, you may not change that
guarantee period.
We determine the interest rates in our sole discretion. The determination made
will be influenced by, but not necessarily correspond to, interest rates
available on fixed income investments which we may acquire with the amounts we
receive as premium payments or transfers of Account Value under the Policies.
You will have no direct or indirect interest in these investments. We also will
consider other factors in determining interest rates for a guarantee period
including, but not limited to, regulatory and tax requirements, sales
commissions, and administrative expenses borne by us, general economic trends,
and competitive factors. Amounts you allocate to the Guarantee Account will not
share in the investment performance of our General Account, or any portion
thereof. WE CANNOT PREDICT OR GUARANTEE THE LEVEL OF INTEREST RATES IN FUTURE
GUARANTEE PERIODS. HOWEVER, THE INTEREST RATES FOR ANY INTEREST RATE GUARANTEE
PERIOD WILL BE AT LEAST THE GUARANTEED INTEREST RATE SHOWN IN YOUR POLICY.
We will notify Owners in writing at least 10 days prior to the expiration date
of any interest rate guarantee period about the then currently available
interest rate guarantee periods and the guaranteed interest rates applicable to
such interest rate guarantee periods. A new one year interest rate guarantee
period will commence automatically unless we receive written notice prior to
the end of the 30 day period following the expiration of the interest rate
guarantee period ("30 day window") of your election of a different interest
rate guarantee period from among those being offered by us at that time, or
instructions to transfer all or a portion of the remaining amount to one or
more Investment Subdivisions subject to certain restrictions. SEE Transfers
Before the Maturity Date. During the 30 day window, the allocation will accrue
interest at the new interest rate guarantee period's interest rate.
We reserve the right to credit bonus interest on premium payments allocated to
a Guarantee Account participating in the Dollar-Cost Averaging Program.
- --------------------------------------------------------------------------------
CHARGES AND OTHER DEDUCTIONS
- --------------------------------------------------------------------------------
All of the charges described in this section apply to Account Value allocated
to the Separate Account. Account Value in the Guarantee Account is subject to
all of the charges described in this section except for the mortality and
expense risk charge and the administrative expense charge.
We will deduct the charges described below to cover our costs and expenses,
services provided, and risks assumed under the Policies. We incur certain costs
and expenses for the distribution and administration of the Policies and for
providing the benefits payable thereunder. Our administrative services include:
o processing applications for and issuing the Policies;
o processing purchases and redemptions of portfolio shares as required;
o maintaining records;
o administering annuity payouts;
o furnishing accounting and valuation services (including the calculation
and monitoring of daily Investment Subdivision values);
o reconciling and depositing cash receipts;
o providing Policy confirmations and periodic statements; and
o providing toll-free inquiry services.
The risks we assume include:
o the risk that the Death Benefits will be greater than the Surrender
Value;
o the risk that the actual life-span of persons receiving income payments
under the Policy will exceed the assumptions reflected in our guaranteed
rates (these rates are incorporated in the Policy and cannot be
changed);
21
<PAGE>
o the risk that more Owners than expected will qualify for waivers of the
surrender charges; and
o the risk that our costs in providing the services will exceed our
revenues from Policy charges (which cannot be changed by us).
The amount of a charge may not necessarily correspond to the costs associated
with providing the services or benefits indicated by the designation of the
charge. For example, the surrender charge we collect may not fully cover all of
the sales and distribution expenses we actually incur. We also may realize a
profit on one or more of the charges. We may use any such profits for any
corporate purpose, including the payment of sales expenses.
TRANSACTION EXPENSES
SURRENDER CHARGE
We assess a surrender charge (except as described below) on partial and full
surrenders of premium payments. We also assess surrender charges to payments we
make upon maturity if your Maturity Date occurs before all of your premium
payments have been in your Policy for seven years. You pay this charge to
partially compensate us for the losses we experience on Policy distribution
costs when Owners surrender or partially surrender.
We calculate the surrender charge separately for each premium payment. For
purposes of calculating this charge, we assume that you withdraw premium
payments on a first-in, first-out basis. We also assume you surrender your
premium payments before you surrender any gains in your Policy. We deduct the
surrender charge proportionately from the Investment Subdivisions. However, if
there is no Account Value in the Separate Account, we will deduct the charge
from the Guarantee Account. The surrender charge is as follows:
<TABLE>
<CAPTION>
Number of full and
partially
completed years
since we received Surrender charge as a percentage
the premium of the surrendered or partially
payment surrendered premium payment
- ------------------- ---------------------------------
Year Percentage
- ------------------- ---------------------------------
<S> <C>
1 6%
2 6%
3 6%
4 6%
5 4%
6 2%
7 or more 0%
</TABLE>
We do not assess the surrender charge on surrenders:
o of free withdrawal amounts (as defined below);
o if taken under Optional Payment Plan 1, Optional Payment Plan 2 (for a
period of 5 or more years), Optional Payment Plan 3 (for a payment
period of at least 5 years based on a guaranteed interest rate), or
Optional Payment Plan 5;
o if within 90 days of the Annuitant's death.
Your first surrender in any Policy year of up to 10% of your Account Value
(determined as of the Valuation Period during which we receive the surrender
request) may be made without a surrender charge (the "free withdrawal amount").
If the first surrender in any Policy year is a full surrender or a partial
surrender of more than 10% of Account Value, no surrender
22
<PAGE>
charge will apply to a portion of the amount surrendered equal to 10% of your
Account Value. Any amount subject to the surrender charge will not exceed the
amount you surrender. The free withdrawal amount is not cumulative from Policy
year to Policy year.
Further, we will waive the surrender charge if you annuitize under Optional
Payment Plan 1 (Life Income with Period Certain), Optional Payment Plan 2
(Income for a Fixed Period) provided that you select a fixed period of 5 years
or more, Optional Payment Plan 3 (for a payment period of at least 5 years
based on a guaranteed interest rate), or Optional Payment Plan 5 (Joint Life
and Survivor Income). SEE Optional Payment Plans.
DEDUCTIONS FROM THE SEPARATE ACCOUNT
We deduct from the Separate Account an amount, computed daily, at an annual
rate of 1.40% of the daily net asset value. The charge consists of an
administrative expense charge at an effective annual rate of .15% and a
mortality and expense risk charge at an effective annual rate of 1.25%. These
deductions from the Separate Account are reflected in Account Value.
OTHER CHARGES
OPTIONAL DEATH BENEFIT CHARGE
In the third quarter of 1999, we anticipate offering an Optional Death Benefit
Rider. We charge you for expenses related to the elective Optional Death
Benefit ("ODB"). We deduct these charges against the Account Value in the
Separate Account at each policy anniversary and at full surrender to compensate
us for the increased risks and expenses associated with providing the enhanced
Death Benefit. We will allocate the annual ODB charge among the Investment
Subdivisions in the same proportion that the Policy's Account Value in each
Investment Subdivision bears to the total Account Value in all Investment
Subdivisions at the time we make the charge. If the Account Value in the
Separate Account is not sufficient to cover the charge for the ODB, we will
deduct the charge first from the Account Value in the Separate Account, if any,
and then from the Guarantee Account. We will take deductions from the Guarantee
Account from the amounts which have been in the Guarantee Account for the
longest period of time. At full surrender, we will charge you a pro-rata
portion of the annual charge. (We do not have exemptive relief to deduct the
ODB charge at full surrender, so we do not currently deduct the ODB charge at
full surrender. We are, however, in the process of applying for exemptive
relief. If we receive this exemptive relief, we will begin to deduct the ODB
charge at full surrender.)
We guarantee that the ODB charge will never exceed an annual rate of 0.25% of
your Account Value.
POLICY MAINTENANCE CHARGE
We will deduct an annual charge of $25 annually from the Account Value of each
Policy to compensate us for certain administrative expenses incurred in
connection with the Policies. We will deduct the charge at each Policy
anniversary and at full surrender. We will waive this charge if your Account
Value at the time of deduction is more than $75,000.
We will allocate the annual policy maintenance charge among the Investment
Subdivisions in the same proportion that the Policy's Account Value in each
Investment Subdivision bears to the total Account Value in all Investment
Subdivisions at the time we make the charge. If there is insufficient Account
Value allocated to the Separate Account, we will deduct any remaining portion
of the charge from the Guarantee Account from the amounts that have been in the
Guarantee Account for the longest period of time. Other allocation methods may
be available upon request.
TRANSFER CHARGES
You may transfer amounts from and among the Investment Subdivisions of the
Separate Account and the Guarantee Account. You may make twelve transfers each
calendar year without incurring a charge. After that, each time you transfer
amounts during that calendar year, we will deduct a $10 transfer charge from
the amount transferred to compensate us for the costs in making the transfer.
We will not charge for transfers occurring after income payments begin.
OTHER CHARGES AND DEDUCTIONS
Each portfolio incurs certain fees and expenses. To pay for these charges, the
portfolio makes deductions from its assets. The deductions are described more
fully in each Fund's prospectus.
23
<PAGE>
ADDITIONAL INFORMATION
We may reduce or eliminate the administrative expense and surrender charges
described previously for any particular Policy. However, we will reduce these
charges only to the extent that we anticipate lower distribution and/or
administrative expenses, or that we perform fewer sales or administrative
services than those originally contemplated in establishing the level of those
charges. Lower distribution and administrative expenses may be the result of
economies associated with (1) the use of mass enrollment procedures, (2) the
performance of administrative or sales functions by the employer, (3) the use
by an employer of automated techniques in submitting deposits or information
related to deposits on behalf of its employees, or (4) any other circumstances
which reduce distribution or administrative expenses. We will state the exact
amount of administrative expense and surrender charges applicable to a
particular Policy in that Policy. We will include any such differences in your
Policy.
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
The Policy is an individual flexible premium variable deferred annuity Policy.
We describe your rights and benefits below and in the Policy.
PURCHASE OF THE POLICY
If you wish to purchase a Policy, you must apply for it through an authorized
sales representative. The sales representative will send your completed
application to us, and we will decide whether to accept or reject it. If we
accept your application, our legally authorized officers prepare and execute a
Policy. We then send the Policy to you through your sales representative. SEE
Distribution of the Policies.
If we receive a completed application and all other information necessary for
processing a purchase order, we will apply your initial premium payment no
later than two business days after we receive the order. While attempting to
finish an incomplete application, we may hold your initial premium payment for
no more than five business days. If the incomplete application cannot be
completed within those five days, we will inform you of the reasons, and will
return your premium payment immediately (unless you specifically authorize us
to keep it until the application is complete). Once you complete your
application, we must apply the initial premium payment within two business
days.
To apply for a Policy, you must be of legal age and also be eligible to
participate in any of the qualified or non-qualified plans for which we
designed the Policies. The Annuitant cannot be older than age 85, unless we
approve a different age.
OWNERSHIP
As Owner, you have all rights under the Policy, subject to the rights of any
irrevocable beneficiary. According to New York law, the assets of the Separate
Account are held for the exclusive benefit of all Owners and their Designated
Beneficiaries. Qualified Policies may not be assigned or transferred except as
permitted by the Employee Retirement Income Security Act (ERISA) of 1974 and
upon written notification to us. We assume no responsibility for the validity
or effect of any assignment. Consult your tax advisor about the tax
consequences of an assignment.
If you name a Joint Owner in the application, we will treat the Joint Owners as
having equal undivided interests in the Policy. All Owners must together
exercise any ownership rights in this Policy.
PREMIUM PAYMENTS
You may make premium payments at a frequency and in the amount you select,
subject to certain limitations. You must obtain our approval before you make
total premium payments for an Annuitant age 79 or younger that exceed
$2,000,000. If the Annuitant is age 80 or older at the time of payment, the
total amount not subject to prior approval is $1,000,000. Payments may be made
or, if stopped, resumed at any time until the Maturity Date, the surrender of
the Policy, or the death of the Owner (or Joint Owner, if applicable),
whichever comes first. We reserve the right to refuse to accept a premium
payment for any lawful reason and in a manner that does not unfairly
discriminate against similarly situated purchasers.
The minimum initial premium payment is $5,000 (or $2,000 if your Policy is an
IRA Policy). We may accept a lower initial premium payment in the case of
certain group sales. Each additional premium payment must be at least $500 for
Non-Qualified Policies, $50 for IRA Policies and $100 for other Qualified
Policies.
24
<PAGE>
BUSINESS DAY
We will value Accumulation and Annuity Units once daily as of the close of
trading (currently 4:00 p.m., New York time) for each day the New York Stock
Exchange is open except for days on which a Fund does not value its shares. If
a Valuation Period contains more than one day, the unit values will be same for
each day in the Valuation Period.
ALLOCATION OF PREMIUM PAYMENTS
We place net premium payments into the Separate Account's Investment
Subdivisions, each of which invests in shares of a corresponding portfolio of
the Funds, and/or the Guarantee Account, according to your instructions. You
may allocate premiums to up to ten Investment Subdivisions at any one time.
The percentage of any premium payment which you can put into any one Investment
Subdivision or interest rate guarantee period must be at least 1%. Upon
allocation to the appropriate Investment Subdivisions we convert net premium
payments into Accumulation Units. We determine the number of Accumulation Units
credited by dividing the amount allocated to each Investment Subdivision by the
value of an Accumulation Unit for that Investment Subdivision on the Business
Day on which we receive the premium payment at our Variable Annuity Service
Center if received before 4:00 p.m., New York time. If we receive the premium
payment at or after 4:00 p.m, New York time, we will use the Accumulation Unit
value computed on the next Business Day. The number of Accumulation Units
determined in this way is not changed by any subsequent change in the value of
an Accumulation Unit. However, the dollar value of an Accumulation Unit will
vary depending not only upon how well the portfolio's investments perform, but
also upon the charges of the Separate Account and the fees and expenses of the
portfolios.
You may change the allocation of subsequent premium payments at any time,
without charge, by sending us acceptable notice in writing. The new allocation
will apply to any premium payments made after we receive notice of the change.
VALUATION OF ACCUMULATION UNITS
We value Accumulation Units for each Investment Subdivision separately.
Initially, we arbitrarily set the value of each Accumulation Unit at $10.00.
After that, the value of an Accumulation Unit in any Investment Subdivision for
a Valuation Period equals the value of an Accumulation Unit in that Investment
Subdivision as of the preceding Valuation Period multiplied by the net
investment factor of that Investment Subdivision for the current Valuation
Period.
The net investment factor is an index we use to measure the investment
performance of an Investment Subdivision from one Valuation Period to the next.
The net investment factor for any Investment Subdivision for any Valuation
Period reflects the change in the net asset value per share of the portfolio
held in the Investment Subdivision from one Valuation Period to the next,
adjusted for the daily deduction of the administrative expense and mortality
and expense risk charges from assets in the Investment Subdivision. If any
"ex-dividend" date occurs during the Valuation Period, we take into account the
per share amount of any dividend or capital gain distribution so that the unit
value is not impacted. Also, if we need to reserve money for taxes, we take
into account a per share charge or credit for any taxes reserved for which we
determine to have resulted from the operations of the Investment Subdivision.
- --------------------------------------------------------------------------------
TRANSFERS
- --------------------------------------------------------------------------------
TRANSFERS BEFORE THE MATURITY DATE
Before the earliest of the surrender of the Policy, payment of any Death
Benefit, or the Maturity Date, you may transfer all or a portion of your
investment between and among the Investment Subdivisions of the Separate
Account and the Guarantee Account, subject to certain conditions. We process
transfers among the Investment Subdivisions of the Separate Account and between
the Investment Subdivisions and the Guarantee Account as of the end of the
Valuation Period that we receive the transfer request at our Variable Annuity
Service Center. We may postpone transfers to, from, or among the Investment
Subdivisions of the Separate Account, under certain circumstances. SEE
Requesting Payments.
Further, we may restrict certain transfers from the Investment Subdivisions to
the Guarantee Account. We reserve the right to prohibit or limit transfers from
an Investment Subdivision to the Guarantee Account during the six month period
following the transfer of any amount from the Guarantee Account to any
Investment Subdivision.
Currently, there is no other limit on the number of transfers between and among
Investment Subdivisions of the Separate Account and the Guarantee Account;
however, we reserve the right to limit the number of transfers each calendar
year to
25
<PAGE>
twelve, or if it is necessary for the Policy to continue to be treated as an
annuity policy by the Internal Revenue Service, a lower number. Currently, the
first twelve transfers in a calendar year are free. After that, we will assess
a fee of $10 per transfer during that calendar year. We do not assess a
transfer charge on dollar-cost averaging transfers or on portfolio rebalancing
transfers. The minimum transfer amount is $100 or the entire balance in the
Investment Subdivision or interest rate guarantee period if the transfer will
leave a balance of less than $100.
Sometimes, we may not honor your transfer request. We may not honor your
transfer request:
(i) if any Investment Subdivision that would be affected by the
transfer is unable to purchase or redeem shares of the Fund in which
the Investment Subdivision invests;
(ii) if the transfer is a result of more than one trade involving the
same Investment Subdivision within a 30 day period; or
(iii) if the transfer would adversely affect accumulation unit values;
and
(iv) if the transfer would adversely affect any portfolio affected by the
transfer.
We also may not honor transfers made by third parties. (SEE Transfers by Third
Parties.)
When thinking about a transfer of Account Value, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that you will make a transfer at an inopportune time.
TRANSFERS BY THIRD PARTIES
As a general rule and as a convenience to you, we allow you to give third
parties the right to effect transfers on your behalf. However, when the same
third party makes transfer for many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers can disrupt
the orderly management of the portfolios underlying the Policy, can result in
higher costs to Owners, and are generally not compatible with the long-range
goals of Owners. We believe that such simultaneous transfers effected by such
third parties are not in the best interests of all shareholders of the Funds
underlying the Policies, and the management of the Funds share this position.
Therefore, we may limit transfers made by a third party.
DOLLAR-COST AVERAGING
The dollar-cost averaging program permits you to systematically transfer on a
monthly or quarterly basis a set dollar amount from the Money Market Investment
Subdivision and/or the Guarantee Account to any combination of other Investment
Subdivisions (as long as the total number of Investment Subdivisions used does
not exceed 10 at any one time). The dollar-cost averaging method of investment
is designed to reduce the risk of making purchases only when the price of units
is high, but you should carefully consider your financial ability to continue
the program over a long enough period of time to purchase Accumulation Units
when their value is low as well as when it is high. Dollar-cost averaging does
not assure a profit or protect against a loss.
You may participate in the dollar-cost averaging program by selecting the
program on the application, or by completing a dollar-cost averaging agreement.
To use the dollar-cost averaging program, you must transfer at least $100 from
an Investment Subdivision or an interest rate guarantee period with each
transfer. Once elected, dollar-cost averaging remains in effect from the date
we receive your request until the value of the Investment Subdivision or the
interest rate guarantee period from which transfers are being made is depleted,
or until you cancel the program by written request.
With regard to dollar-cost averaging from the Guarantee Account, we reserve the
right to determine the amount of each automatic transfer. We reserve the right
to transfer any remaining portion of an allocation used for dollar-cost
averaging to the Guarantee Account with a new interest rate guarantee period
upon termination of the dollar-cost averaging program for that allocation.
There is no additional charge for dollar-cost averaging. Dollar-cost averaging
transfers are not subject to a transfer charge. We reserve the right to
discontinue offering or to modify the dollar-cost averaging program at any time
and for any reason.
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<PAGE>
ASSET ALLOCATION
You may select from five asset allocation model portfolios, or you may use a
model as a guide to help you develop your own asset allocation program. The
models are as follows:
<TABLE>
<CAPTION>
Model Investment and Risk Profile
- ------- ----------------------------
<S> <C>
1 Income
2 Enhanced Income
3 Growth & Income
4 Growth
5 Aggressive Growth
</TABLE>
If you elect to participate in the asset allocation program, we will
automatically allocate all premium payments among the Investment Subdivisions
indicated by the model and the portfolios within the model you select. The
models do not include allocation to the Guarantee Account. Although you may use
only one model at a time, you may elect to change your selection as your
tolerance for risk, needs, and/or objectives change. You may use a
questionnaire to determine the model that best meets your risk tolerance and
time horizons. Asset allocation does not guarantee a profit or protect against
a loss.
Because each Investment Subdivision performs differently over time, your
portfolio mix may vary from its initial allocations. You may elect to have the
portfolios automatically rebalanced under our portfolio rebalancing program,
described below.
From time to time, the allocation percentages among the Investment Subdivisions
or even some of the Investment Subdivisions within a particular model may need
to be changed. We will send you notice that such a change has been made. Unless
you elect to participate in the new allocation model you will remain in your
current designated allocation model. This change will not be made
automatically.
There is no additional charge for the asset allocation program. We reserve the
right to discontinue offering this program at any time and for any reason.
PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Investment Subdivisions, the
performance of each Investment Subdivision may cause your allocation to shift.
You may instruct us to automatically rebalance (on a quarterly, semi-annual or
annual basis) your Account Value among the Investment Subdivisions to return to
the percentages specified in your allocation instructions. The program does not
include allocations to the Guarantee Account. You may elect to participate in
the portfolio rebalancing program at any time by completing the portfolio
rebalancing agreement. Your percentage allocations must be in whole
percentages.
Subsequent changes to your percentage allocations may be made at any time by
written instructions to our Variable Annuity Service Center. Once elected,
portfolio rebalancing remains in effect from the date we receive your written
request until you instruct us to discontinue portfolio rebalancing. There is no
additional charge for using portfolio rebalancing, and we do not consider a
portfolio rebalancing transfer a transfer for purposes of assessing a transfer
processing fee or calculating the maximum number of transfers permitted in a
calendar year. Portfolio rebalancing does not guarantee a profit or protect
against a loss. We reserve the right to discontinue offering or to modify the
portfolio rebalancing program at any time and for any reason.
- --------------------------------------------------------------------------------
SURRENDERS
- --------------------------------------------------------------------------------
SURRENDERS AND PARTIAL SURRENDERS
Subject to the rules discussed below, we will allow the surrender of the Policy
or a withdrawal of a portion of the Account Value at any time before the
Maturity Date upon your written request.
We will not permit a partial surrender that is less than $500 or that reduces
Account Value to less than $5,000. If your partial surrender request would
reduce Account Value to less than $5,000, we will surrender only that amount of
Account Value that would reduce the remaining Account Value to $5,000 and
deduct any surrender charge from the amount you surrendered.
The amount payable on full surrender of the Policy is the Surrender Value at
the end of the Valuation Period during which we receive the request. The
Surrender Value equals the Account Value (after deduction of any policy
maintenance charge
27
<PAGE>
and any optional benefit charges) on the date we receive a request for
surrender less any applicable surrender charge. We may pay the Surrender Value
in a lump sum or under one of the optional payment plans specified in the
Policy, based on your instructions.
You may indicate, in writing, from which Investment Subdivisions or interest
rate guarantee periods we are to take your partial surrender. If you do not
tell us, we will deduct the amount of the partial surrender first from the
Investment Subdivisions of the Separate Account on a pro-rata basis, in
proportion to the Account Value in the Separate Account. We then will deduct
any remaining amount from the Guarantee Account. We will take deductions from
the Guarantee Account from the amounts (including any interest credited to such
amounts) which have been in the Guarantee Account for the longest period of
time.
SYSTEMATIC WITHDRAWALS
You may elect in writing on our form to take systematic withdrawals of a
specified dollar amount (in equal installments of at least $100) on a monthly,
quarterly, semi-annual, or annual basis. Payments can begin at any time after
30 days from the Policy Date. Each partial surrender may not exceed 10% of your
Account Value on the effective date of the first installment for that Policy
year. You may provide specific instructions as to how we are to take the
systematic withdrawals. If you have not provided specific instructions, or if
your specific instructions cannot be carried out, we will process the
withdrawals by first taking on a pro-rata basis Accumulation Units from all of
the Investment Subdivisions in which you have an interest. To the extent that
your Account Value in the Separate Account is not sufficient to accomplish the
withdrawal, we will take the necessary amount from the Guarantee Account to
accomplish the withdrawal.
After your systematic withdrawals begin, you may change the frequency and/or
amount of your payments, subject to the following:
o you may request only one such change in a calendar quarter; and
o if you did not elect the maximum amount you could withdraw under this
program at the time you elected the current series of systematic
withdrawals, then you may increase the remaining payments up to the
amount which would distribute the maximum.
A systematic withdrawal program will terminate automatically when a systematic
withdrawal would cause the remaining Account Value to be less than $5,000. If a
systematic withdrawal would cause the Account Value to be less than $5,000,
then we will not process that systematic withdrawal transaction. If any of your
systematic withdrawals would be or becomes less than $50, we reserve the right
to reduce the frequency of payments to an interval that would result in each
payment being at least $50. You may discontinue systematic withdrawals at any
time by notifying us in writing at our Variable Annuity Service Center.
When you consider systematic withdrawals, please remember that each systematic
withdrawal is subject to federal income taxes on any portion considered gain
for tax purposes. In addition, you may be assessed a 10% federal penalty tax on
systematic withdrawals if you are under age 59 1/2 at the time of the
withdrawal.
We reserve the right to prohibit simultaneous systematic withdrawals and
dollar-cost averaging. We also reserve the right to discontinue systematic
withdrawals upon 30 days written notice to Owners.
- --------------------------------------------------------------------------------
THE DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH BENEFIT AT DEATH OF ANNUITANT BEFORE MATURITY DATE
If the Annuitant dies before income payments begin, the amount of proceeds
available is the Death Benefit if the Designated Beneficiary (defined below)
elects this option within 90 days of the Annuitant's death. Otherwise, we will
pay Surrender Value. Upon receipt of due proof of the Annuitant's death
(generally, due proof is a certified copy of the death certificate or a
certified copy of the decree of a court of competent jurisdiction as to the
finding of death), we will treat the Death Benefit in accordance with your
instructions, subject to distribution rules and termination of contract
provisions described elsewhere. Once we have paid the Death Benefit, the Policy
will terminate and we will have no further obligation under the Policy. We will
assess surrender charges if the Policy is surrendered more than 90 days after
the death of the Annuitant.
The Death Benefit will be the greater of:
o the minimum death benefit (described below); or
o the Account Value on the date we receive due proof of death of the
Annuitant.
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<PAGE>
During the first six Policy years, and subsequently if the Annuitant was age 81
or older on the Policy Date, the minimum death benefit is the total premium
payments adjusted for any partial surrenders.
During any subsequent six-year period, if the Annuitant was age 80 or younger
on the Policy Date, the minimum death benefit will be the Death Benefit on the
last day of the previous six-year period plus any premium payments since then,
adjusted for any partial surrenders.
DEATH OF AN OWNER OR JOINT OWNER BEFORE THE MATURITY DATE
GENERAL: In certain circumstances, federal tax law requires that distributions
be made under this Policy upon the first death of:
o an Owner or Joint Owner, or
o the Annuitant if any Owner is a non-natural entity (such as a trust or
corporation).
The discussion below describes the methods available for distributing the value
of the Policy upon death.
DESIGNATED BENEFICIARY: At the death of any Owner (or Annuitant, if any Owner
is a non-natural entity), the person or entity first listed below who is alive
or in existence on the date of that death will become the Designated
Beneficiary:
(1) Owner or Joint Owners;
(2) Primary beneficiary;
(3) Contingent beneficiary; or
(4) Owner's estate.
We then will treat the Designated Beneficiary as the sole Owner of the Policy.
If there is more than one Designated Beneficiary, we will treat each one
separately in applying the tax law's rules described below.
DISTRIBUTION RULES: The distributions required by federal tax law differ
depending on whether the Designated Beneficiary is the spouse of the deceased
Owner (or of the Annuitant, if the Policy is owned by a non-natural entity).
o SPOUSES -- If the Designated Beneficiary is the surviving spouse of the
deceased person, the surviving spouse may continue the Policy in force
with the surviving spouse as the new Owner. If the deceased person was
the Annuitant and there was no surviving Contingent Annuitant, the
surviving spouse will automatically become the new Annuitant. At the
death of the surviving spouse, this provision may not be used again,
even if the surviving spouse remarries. In that case, the entire
interest in the Policy will be paid within 5 years of such spouse's
death to the beneficiary named by the surviving spouse. If no
beneficiary is named, such payment will be made to the surviving
spouse's estate.
o NON-SPOUSES -- If the Designated Beneficiary is not the surviving
spouse of the deceased person, this Policy cannot be continued in force
indefinitely. Instead, upon the death of any Owner (or Annuitant, if any
Owner is a non-natural entity), payments must be made to (or for the
benefit of) the Designated Beneficiary under one of the following
payment choices:
(1) Receive the Surrender Value in one lump sum payment upon receipt
of due proof of death.
(2) Receive the Surrender Value at any time during the five year
period following the date of death. At the end of the five year
period, we will pay in a lump sum payment any Surrender Value still
remaining.
(3) Apply the Surrender Value to provide a monthly income benefit
under Optional Payment Plan 1 or 2. The first monthly income benefit
payment must be made no later than one year after the date of death.
Also, the monthly income benefit payment period must be either the
lifetime of the Designated Beneficiary or a period not exceeding the
Designated Beneficiary's life expectancy.
If no choice is made by the Designated Beneficiary within 30 days following
receipt of due proof of death, we will use payment choice 2 (payment of the
entire value of the Policy within 5 years of the date of death). We will not
accept any premium payments after the non-spouse's death. If the Designated
Beneficiary dies before all required payments have been made, we will make any
remaining payments to the person named by the Designated Beneficiary. If no
person is so named, we will pay the Designated Beneficiary's estate.
29
<PAGE>
Under payment choices 1 or 2, the Policy will terminate upon payment of the
entire Surrender Value. Under payment choice 3, this Policy will terminate when
we apply the Surrender Value to provide a Monthly Income Benefit.
AMOUNT OF THE PROCEEDS: The proceeds we will pay will vary, in part, based on
the person who dies. We show these amounts below.
<TABLE>
<CAPTION>
PERSON WHO DIED PROCEEDS PAID
- ----------------------------- -----------------
<S> <C>
Owner or Joint Owner Surrender Value
(who is not the Annuitant)
Owner or Joint Owner Death Benefit
(who is the Annuitant)
Annuitant Death Benefit
</TABLE>
Upon receipt of due proof of death, the Designated Beneficiary will instruct us
how to treat the proceeds subject to the distribution rules we discussed above.
DEATH OF OWNER, JOINT OWNER, OR ANNUITANT AFTER INCOME PAYMENTS BEGIN
If an Owner, Joint Owner, or Annuitant dies after income payments have begun,
or if a Designated Beneficiary receiving income payments dies after the date
income payments have begun, payments made under the Policy will be made at
least as rapidly as under the method of distribution in effect at the time of
the death, notwithstanding any other provision of the Policy.
ELECTIVE OPTIONAL DEATH BENEFIT
In the third quarter of 1999, we anticipate offering an Optional Death Benefit
Rider. The Optional Death Benefit Rider provides for an annual step-up in death
benefit, as described below. (This may be referred to as the "Annual
EstateProtector" in our marketing materials). The Designated Beneficiary may
elect the Optional Death Benefit at any time after the Annuitant's death. If we
pay this Death Benefit, the Policy will terminate, and we will have no further
obligation under the Policy.
The Death Benefit under the Optional Death Benefit Rider is the greater of: (1)
the Death Benefit described above under "Death Benefit at Death of Annuitant
Before Maturity Date," and (2) the minimum Death Benefit described below.
During the first Policy year, the minimum Death Benefit under the Optional
Death Benefit Rider is the total of premium payments made, adjusted for any
partial surrenders. After the first Policy year and until the Policy
anniversary immediately preceding the Annuitant's 81st birthday, the minimum
Death Benefit is the Policy's greatest Death Benefit on any previous Policy
anniversary, plus the total premium payments made since that date, adjusted for
any partial surrenders taken since that date. Beginning on the Policy
anniversary immediately preceding the Annuitant's 81st birthday, the minimum
Death Benefit is the Policy's minimum Death Benefit on that date, plus the
total premium payments made since that date, less adjustments for any partial
surrenders taken since that date.
Your election of the Optional Death Benefit Rider is effective on the Policy
Date (unless another effective date is shown on the Policy data pages). It will
remain in effect while the Policy is in force and before income payments begin,
or until the Policy anniversary following the date of receipt of your request
to terminate the rider. If we receive your request within 30 days of any Policy
anniversary, you may request that the rider terminate as of that anniversary.
We will charge you each year (and at full surrender if we receive exemptive
relief to do so) for expenses related to the Death Benefit available under the
terms of the Optional Death Benefit Rider. This charge will not exceed .25% of
Account Value. SEE "Elective Optional Death Benefit Charge." Amounts payable
under the Optional Death Benefit Rider are subject to the distribution rules
described above.
- --------------------------------------------------------------------------------
INCOME PAYMENTS
- --------------------------------------------------------------------------------
When you apply for a Policy, you may select any Maturity Date permitted by law;
however, this date cannot be any later than the Policy anniversary following
the Annuitant's 90th birthday. (Please note the following exception: Policies
issued under Qualified Retirement Plans provide for income payments to start at
the date and under the option specified in the plan.)
30
<PAGE>
We will pay a monthly income benefit to the Owner beginning on the Maturity
Date if the Annuitant is still living. We will pay the monthly income benefit
in the form of variable income payments similar to those described in Optional
Payment Plan 1, Life Income with 10 Years Certain (automatic payment plan),
using the sex and settlement age of the Annuitant instead of the payee, unless
you make another election. You may also choose to receive the maturity value
(that is, the Surrender Value of your Policy on the date immediately preceding
the Maturity Date) in one lump sum in which case we will cancel the Policy.
Under the Life Income with 10 Years Certain plan, if the Annuitant lives longer
than ten years, payments will continue for his or her life. If the Annuitant
dies before the end of ten years, we will discount the remaining payments for
the ten year period at the same rate used to calculate the monthly income
payment. If the remaining payments are variable income payments, we will assume
the amount of each payment that we discount equals the payment amount on the
date we receive due proof of death. We will pay this discounted amount in one
sum.
The Policy also provides optional forms of annuity payments, each of which is
payable on a fixed basis. Optional Payment Plans 1 and 5 also are available on
a variable basis. The Policy provides that all or part of the Account Value may
be used to purchase an annuity.
If you elect fixed income payments, the guaranteed amount payable will earn
interest at 3% compounded yearly. We may increase the interest rate which will
increase the amount we pay to you or the payee.
If you elect variable income payments, your income payments, after the first
payment, will reflect the investment experience of the Investment Subdivisions
to which you allocated Account Value.
We will make annuity payments monthly unless you elect quarterly, semi-annual
or annual installments. Under the monthly income benefit and all of the
optional payment plans, if any payment made more frequently than annually would
be or becomes less than $20, we reserve the right to reduce the frequency of
payments to an interval that would result in each payment being at least $20.
If the annual payment payable at maturity is less than $20, we will pay the
maturity value in a lump sum. Upon making such a payment, we will have no
future obligation under the Policy. Following are explanations of the optional
payment plans available.
OPTIONAL PAYMENT PLANS
PLAN 1 -- LIFE INCOME WITH PERIOD CERTAIN. This option guarantees periodic
payments during a designated period. If the payee lives longer than the minimum
period, payments will continue for his or her life. The minimum period can be
10, 15, or 20 years. The payee selects the designated period. If the payee dies
during the minimum period, we will discount the amount of the remaining
guaranteed payments at the same rate used in calculating income payments. We
will pay the discounted amount in one sum to the payee's estate unless
otherwise provided.
PLAN 2 -- INCOME FOR A FIXED PERIOD. This option provides for periodic payments
to be made for a fixed period not longer than 30 years. Payments can be annual,
semi-annual, quarterly, or monthly. If the payee dies, we will discount the
amount of the remaining guaranteed payments to the date of the payee's death at
the same rate used in calculating income payments. We will pay the discounted
amount in one sum to the payee's estate unless otherwise provided.
PLAN 3 -- INCOME OF A DEFINITE ACCOUNT. This option provides periodic payments
of a definite amount to be paid. Payments can be annual, semi-annual,
quarterly, or monthly. The amount paid each year must be at least $120 for each
$1,000 of proceeds. Payments will continue until the proceeds are exhausted.
The last payment will equal the amount of any unpaid proceeds. If the payee
dies, we will pay the amount of the remaining proceeds with earned interest in
one sum to the payee's estate unless otherwise provided.
PLAN 4 -- INTEREST INCOME. This option provides for periodic payments of
interest earned from the proceeds left with us. Payments can be annual,
semi-annual, quarterly, or monthly. If the payee dies, we will pay the amount
of remaining proceeds and any earned but unpaid interest in one sum to the
payee's estate unless otherwise provided. This plan is not available under
Qualified Policies.
PLAN 5 -- JOINT LIFE AND SURVIVOR INCOME. This option provides for us to make
monthly payments to two payees for a guaranteed minimum of 10 years. Each payee
must be at least 35 years old when payments begin. Payments will continue as
long as either payee is living. If both payees die before the end of the
minimum period, we will discount the amount of the remaining payments for the
10-year period at the same rate used in calculating income payments. We will
pay the discounted amount in one sum to the survivor's estate unless otherwise
provided.
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<PAGE>
If the payee is not a natural person, our consent must be obtained before
selecting an Optional Payment Plan.
Before the Maturity Date, you may change:
o your Maturity Date;
o your optional payment plan;
o the allocation of your investment among the Investment Subdivisions;
and
o the Owner, Joint Owner, primary beneficiary, contingent beneficiary,
and contingent Annuitant upon written notice to the Variable Annuity
Service Center if you reserved this right and the Annuitant is living.
We must receive your request for a change in a form satisfactory to us. The
change will take effect as of the date you sign the request. The change will be
subject to any payment made before we recorded the change.
Fixed income payments will begin on the date we receive due proof of the
Annuitant's death, on surrender, or on the Policy's Maturity Date. Variable
income payments will begin within seven days after the date payments would
begin under the corresponding fixed option. Payments under Optional Payment
Plan 4 (Interest Income) will begin at the end of the first interest period
after the date proceeds are otherwise payable.
VARIABLE INCOME PAYMENTS
We will determine your variable income payments using:
1. The maturity value;
2. The annuity tables contained in the Policy;
3. The optional payment plan selected; and
4. The investment performance of the Investment Subdivisions selected.
To determine the amount of payment, we make this calculation:
1. First, we determine the dollar amount of the first income payment;
then
2. We allocate that amount to the Investment Subdivisions according to
your instructions; then
3. We determine the number of Annuity Units for each Investment
Subdivision by dividing the amount allocated by the Annuity Unit Value
seven days before the income payment is due; and finally
4. We calculate the value of the Annuity Units for each Investment
Subdivision seven days before the income payment is due for each income
payment thereafter.
To calculate your variable income payments, we need to make an assumption
regarding the investment performance of the Investment Subdivisions you select.
We call this your assumed investment rate. This rate is simply the total
return, after expenses, you need to earn to keep your variable income payments
level. We assume an effective annual rate of 3%. This means that if the
annualized investment performance, after expenses, of your Investment
Subdivisions is less than 3%, then the dollar amount of your variable income
payment will decrease. Conversely, if the annualized investment performance,
after expenses, of your Investment Subdivisions is greater than 3%, then the
dollar amount of your income payments will increase.
TRANSFERS AFTER THE MATURITY DATE
If we are making variable income payments, the payee may change the Investment
Subdivisions from which we are making the payments once each calendar year. The
transfer will be effective as of the end of the Valuation Period during which
we receive written request at our Variable Annuity Service Center. However, we
reserve the right to limit the number of transfers if necessary for the Policy
to continue to be treated as an annuity under the Code. We also reserve the
right to refuse to execute any transfer if any of the Investment Subdivisions
that would be affected by the transfer is unable to purchase or redeem shares
of the Fund in which the Investment Subdivision invests. If the number of
Annuity Units remaining in an Investment Subdivision after a transfer is less
than 1, we will transfer the remaining balance in addition to the amount
requested for the transfer.
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<PAGE>
We do not permit transfers between the Investment Subdivisions and the
Guarantee Account after the Maturity Date.
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
This part of the Prospectus discusses the Federal income tax treatment of the
Policy. The Federal income tax treatment of the Policy is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not address all of the Federal income tax
rules that may affect you and your Policy. This discussion also does not
address other Federal tax consequences, or state or local tax consequences,
associated with a Policy. As a result, you should always consult a tax advisor
about the application of tax rules to your individual situation.
TAXATION OF NON-QUALIFIED POLICIES
This part of the discussion describes some of the Federal income tax rules
applicable to Non-Qualified Policies. A Non-Qualified Policy is a Policy not
issued in connection with a qualified retirement plan receiving special tax
treatment under the Code, such as an individual retirement annuity or a section
401(k) plan.
TAX DEFERRAL ON EARNINGS. The Federal income tax law does not tax any increase
in an Owner's Account Value until there is a distribution from the Policy.
However, certain requirements must be satisfied in order for this general rule
to apply, including:
o An individual must own the Policy (or the tax law must treat the Policy
as owned by an individual);
o The investments of the Separate Account must be "adequately
diversified" in accordance with Internal Revenue Service ("IRS")
regulations;
o The Owner's right to choose particular investments for a Policy must be
limited; and
o The Policy's Maturity Date must not occur near the end of the
Annuitant's life expectancy.
This part of the Prospectus discusses each of these requirements.
POLICIES NOT OWNED BY AN INDIVIDUAL -- NO TAX DEFERRAL AND LOSS OF INTEREST
DEDUCTION: As a general rule, the Code does not treat a Policy that is owned by
an entity (rather than an individual) as an annuity contract for Federal income
tax purposes. The entity owning the Policy pays tax currently on the excess of
the Account Value over the premiums paid for the Policy. Policies issued to a
corporation or a trust are examples of Policies where the Owner pays current
tax on the Policy's earnings.
There are several exceptions to this rule. For example, the Code treats a
Policy as owned by an individual if the nominal owner is a trust or other
entity that holds the Policy as an agent for an individual. However, this
exception does not apply in the case of any employer that owns a Policy to
provide deferred compensation for its employees.
In the case of a Policy issued after June 8, 1997 to a taxpayer that is not an
individual, or a Policy held for the benefit of an entity, the entity will lose
its deduction for a portion of its otherwise deductible interest expenses. This
disallowance does not apply if the Owner pays tax on the annual increase in the
Account Value. Entities that are considering purchasing the Policy, or entities
that will benefit from someone else's ownership of a Policy, should consult a
tax advisor.
INVESTMENTS IN THE SEPARATE ACCOUNT MUST BE DIVERSIFIED: For a Policy to be
treated as an annuity contract for Federal income tax purposes, the investments
of a separate account such as the Separate Account must be "adequately
diversified." The IRS has issued regulations that prescribe standards for
determining whether the investments of the Separate Account are adequately
diversified. If the Separate Account fails to comply with these diversification
standards, the Owner could be required to pay tax currently on the excess of
the Account Value over the premiums paid for the Policy.
Although we do not control the investments of all of the Funds (we only
indirectly control those of GE Investments Funds, Inc., through an affiliated
company), we expect that the Funds will comply with the IRS regulations so that
the Separate Account will be considered "adequately diversified."
RESTRICTIONS ON THE EXTENT TO WHICH AN OWNER CAN DIRECT THE INVESTMENT OF
ACCOUNT VALUES: Federal income tax law limits the Owner's right to choose
particular investments for the Policy. The U.S. Treasury Department stated in
1986 that it expected to issue guidance clarifying those limits, but it has not
yet done so. Thus, the nature of the limits is currently uncertain. As
33
<PAGE>
a result, an Owner's right to allocate Account Values among the portfolios may
exceed those limits. If so, the Owner would be treated as the owner of the
assets of the Separate Account and thus subject to current taxation on the
income and gains from those assets.
We do not know what limits the Treasury Department may set forth in any
guidance that the Treasury Department may issue or whether any such limits will
apply to existing Policies. We therefore reserve the right to modify the Policy
without the Owners' consent to attempt to prevent the tax law from considering
the Owners as the owners of the assets of the Separate Account.
AGE AT WHICH ANNUITY PAYOUTS MUST BEGIN: Federal income tax rules do not
expressly identify a particular age by which annuity payouts must begin.
However, those rules do require that an annuity contract provide for
amortization, through annuity payouts, of the contract's premiums paid and
earnings. If annuity payouts under the Policy begin or are scheduled to begin
on a date past the Annuitant's 85th birthday, it is possible that the tax law
will not treat the Policy as an annuity contract for Federal income tax
purposes. In that event, the Owner would be currently taxable on the excess of
the Account Value over the premiums paid for the Policy.
NO GUARANTEES REGARDING TAX TREATMENT: We make no guarantees regarding the tax
treatment of any Policy or of any transaction involving a Policy. However, the
remainder of this discussion assumes that your Policy will be treated as an
annuity contract for Federal income tax purposes and that the tax law will not
impose tax on any increase in your Account Value until there is a distribution
from your Policy.
WITHDRAWALS AND SURRENDERS. A withdrawal occurs when you receive less than the
total amount of the Policy's Surrender Value. In the case of a withdrawal, you
will pay tax on the amount you receive to the extent your Account Value before
the withdrawal exceeds your "investment in the contract." (This term is
explained below.) This income (and all other income from your Policy) is
ordinary income. The Code imposes a higher rate of tax on ordinary income than
it does on capital gains.
A surrender occurs when you receive the total amount of the Policy's Surrender
Value. In the case of a surrender, you will pay tax on the amount you receive
to the extent it exceeds your "investment in the contract."
Your "investment in the contract" generally equals the total of your premium
payments under the Policy, reduced by any amounts you previously received from
the Policy that you did not include in your income.
Your Policy imposes mortality charges relating to the Death Benefit, including
any elective ODB Rider. It is possible that all or a portion of these charges
could be treated as withdrawals from the Policy.
ASSIGNMENTS AND PLEDGES. The Code treats any assignment or pledge (or agreement
to assign or pledge) of any portion of your Account Value as a withdrawal of
such amount or portion.
GIFTING A POLICY. If you transfer ownership of your Policy -- without receiving
a payment equal to your Policy's value -- to a person other than your spouse
(or to your former spouse incident to divorce), you will pay tax on your
Account Value to the extent it exceeds your "investment in the contract." In
such a case, the new owner's "investment in the contract" will be increased to
reflect the amount included in your income.
SYSTEMATIC WITHDRAWALS. In the case of systematic withdrawals, the amount of
each withdrawal should be considered a distribution and taxed in the same
manner as a withdrawal from the Policy. However, there is some uncertainty
regarding the tax treatment of systematic withdrawals, and it is possible that
additional amounts could be included in income.
TAXATION OF ANNUITY PAYOUTS. The Code imposes tax on a portion of each annuity
payout (at ordinary income tax rates) and treats a portion as a nontaxable
return of your "investment in the contract." The Company will notify you
annually of the taxable amount of your annuity payout.
Pursuant to IRS regulations, you will pay tax on the full amount of your
annuity payouts once you have recovered the total amount of the "investment in
the contract." If annuity payouts cease because of the death of the Annuitant
and before the total amount of the investment in the contract has been
recovered, the unrecovered amount generally will be deductible.
If proceeds are left with us (Optional Payment Plan 4), they are taxed in the
same manner as a surrender. The Owner must pay tax currently on the interest
credited on these proceeds. This treatment could also apply to Plan 3 if the
payee is at an advanced age, such as age 80 or older.
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TAXATION OF DEATH BENEFITS. We may distribute amounts from your Policy because
of the death of an Owner, a Joint Owner, or an Annuitant. The tax treatment of
these amounts depends on whether the Owner, Joint Owner, or Annuitant dies
before or after the Policy's Maturity Date.
Before the Policy's Maturity Date:
o If received under an annuity payout option, death benefits are taxed in
the same manner as annuity payouts.
o If not received under an annuity payout option, death benefits are
taxed in the same manner as a withdrawal.
After the Policy's Maturity Date:
o If received in accordance with the existing annuity payout option,
death benefits are excludible from income to the extent that they do not
exceed the unrecovered "investment in the contract." All annuity payouts
in excess of the unrecovered "investment in the contract" are includible
in income.
o If received in a lump sum, the tax law imposes tax on death benefits to
the extent that they exceed the unrecovered "investment in the contract"
at that time.
PENALTY TAXES PAYABLE ON WITHDRAWALS, SURRENDERS, OR ANNUITY PAYOUTS. The Code
may impose a penalty tax equal to 10% of the amount of any payment from your
Policy that is included in your gross income. The Code does not impose the 10%
penalty tax if one of several exceptions applies. These exceptions include
withdrawals, surrenders, or annuity payouts that:
o you receive on or after you reach age 59 1/2,
o you receive because you became disabled (as defined in the tax law),
o a beneficiary receives on or after the death of the Owner, or
o you receive as a series of substantially equal periodic payments for
the life (or life expectancy) of the Owner.
It is uncertain whether systematic withdrawals will qualify for this last
exception. If they did, any modification of the systematic withdrawals could
result in certain adverse tax consequences. In addition, a transfer between
Investment Subdivisions may result in payments not qualifying for this
exception.
SPECIAL RULES IF YOU OWN MORE THAN ONE POLICY. In certain circumstances, you
must combine some or all of the Non-Qualified Policies you own in order to
determine the amount of an annuity payout, a surrender, or a withdrawal that
you must include in income. For example:
o If you purchase a Policy offered by this Prospectus and also purchase
at approximately the same time an immediate annuity, the IRS may treat
the two contracts as one contract.
o If you purchase two or more deferred annuity contracts from the same
life insurance company (or its affiliates) during any calendar year, the
Code treats all such contracts as one contract.
The effects of such aggregation are not clear. However, it could affect:
o the amount of a surrender, a withdrawal or an annuity payout that you
must include in income, and
o the amount that might be subject to the penalty tax described above.
QUALIFIED RETIREMENT PLANS
We also designed the Policies for use in connection with certain types of
retirement plans that receive favorable treatment under the Code. Policies
issued to or in connection with a qualified retirement plan are called
"Qualified Policies." We do not currently offer all of the types of Qualified
Policies described, and may not offer them in the future. Prospective
purchasers should contact our Variable Annuity Service Center to learn the
availability of Qualified Policies at any given time.
The Federal income tax rules applicable to qualified plans are complex and
varied. As a result, this Prospectus makes no attempt to provide more than
general information about use of the Policy with the various types of qualified
plans. Persons intending to use the Policy in connection with a qualified plan
should obtain advice from a competent advisor.
TYPES OF QUALIFIED POLICIES. Some of the different types of Qualified Policies
include:
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o Individual Retirement Accounts and Annuities ("Traditional IRAs")
o Roth IRAs
o Simplified Employee Pensions ("SEP's")
o Savings Incentive Matched Plan for Employees ("SIMPLE plans", including
"SIMPLE IRAs")
o Public school system and tax-exempt organization annuity plans ("403(b)
plans")
o Qualified corporate employee pension and profit-sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
o Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
o Deferred compensation plans of state and local governments and
tax-exempt organizations ("457 plans")
TERMS OF QUALIFIED PLANS AND QUALIFIED POLICIES. The terms of a qualified plan
may affect your rights under a Qualified Policy. When issued in connection with
a qualified plan, we will amend a Policy as generally necessary to conform to
the requirements of the type of plan. However, the rights of any person to any
benefits under qualified plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Policy. In
addition, we are not bound by the terms and conditions of qualified plans to
the extent such terms and conditions contradict the Policy, unless we consent.
THE DEATH BENEFIT AND QUALIFIED POLICIES. Pursuant to IRS regulations, IRAs may
not invest in life insurance contracts. We do not believe that these
regulations prohibit the Death Benefit, including that provided by the ODB
Rider, from being provided under the Policies when we issue the Policies as
Traditional IRAs, Roth IRAs or SIMPLE IRAs. However, the law is unclear and it
is possible that the presence of the Death Benefit under a Policy issued as a
Traditional IRA, Roth IRA or SIMPLE IRA could result in increased taxes to the
Owner.
It is also possible that the Death Benefit could be characterized as an
incidental death benefit. If the Death Benefit were so characterized, this
could result in currently taxable income to purchasers. In addition, there are
limitations on the amount of incidental death benefits that may be provided
under qualified plans, such as in connection with a 403(b) plan. Even if the
Death Benefit under the Policy were characterized as an incidental death
benefit, it is unlikely to violate those limits unless the purchaser also
purchases a life insurance contract in connection with such plan.
TREATMENT OF QUALIFIED POLICIES COMPARED WITH NON-QUALIFIED POLICIES. Although
some of the Federal income tax rules are the same for both Qualified and
Non-Qualified Policies, many of the rules are different. For example:
o The Code generally does not impose tax on the earnings under either
Qualified or Non-Qualified Policies until received.
o The Code does not limit the amount of premium payments and the time at
which premium payments can be made under Non-Qualified Policies.
However, the Code does limit both the amount and frequency of premium
payments made to Qualified Policies.
o The Code does not allow a deduction for premium payments made for
Non-Qualified Policies, but sometimes allows a deduction or exclusion
from income for premium payments made to a Qualified Policy.
The Federal income tax rules applicable to qualified plans and Qualified
Policies vary with the type of plan and Policy. For example:
o Federal tax rules limit the amount of premium payments that can be
made, and the tax deduction or exclusion that may be allowed for the
premium payments. These limits vary depending on the type of qualified
plan and the circumstances of the plan participant, E.G., the
participant's compensation.
o Under most qualified plans, E.G., 403(b) plans and Traditional IRAs,
the Owner must begin receiving payments from the Policy in certain
minimum amounts by a certain age, typically age 70 1/2. However, these
"minimum distribution rules" do not apply to a Roth IRA.
AMOUNTS RECEIVED UNDER QUALIFIED POLICIES. AMOUNTS ARE GENERALLY SUBJECT TO
INCOME TAX: Federal income tax rules generally include distributions from a
Qualified Policy in your income as ordinary income. Premium payments that are
deductible or excludible from income do not create "investment in the
contract." Thus, under many Qualified Policies there
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will be no "investment in the contract" and you include the total amount you
receive in your income. There are exceptions. For example, you do not include
amounts received from a Roth IRA if certain conditions are satisfied.
ADDITIONAL FEDERAL TAXES MAY BE PAYABLE IN CONNECTION WITH A QUALIFIED POLICY:
For example, failure to comply with the minimum distribution rules applicable
to certain qualified plans, such as Traditional IRAs, will result in the
imposition of an excise tax. This excise tax generally equals 50% of the amount
by which a minimum required distribution exceeds the actual distribution from
the qualified plan.
FEDERAL PENALTY TAXES PAYABLE ON DISTRIBUTIONS: The Code may impose a penalty
tax equal to 10% of the amount of any payment from your Qualified Policy that
is includible in your income. The Code does not impose the penalty tax if one
of several exceptions apply. The exceptions vary depending on the type of
Qualified Policy you purchase. For example, in the case of an IRA, exceptions
provide that the penalty tax does not apply to a withdrawal, surrender, or
annuity payout:
o received on or after the Owner reaches age 59 1/2,
o received on or after the Owner's death or because of the Owner's
disability (as defined in the tax law),
o received as a series of substantially equal periodic payments for the
life (or life expectancy) of the Owner, or
o received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
MOVING MONEY FROM ONE QUALIFIED POLICY OR QUALIFIED PLAN TO ANOTHER. ROLLOVERS
AND TRANSFERS: In many circumstances you may move money between Qualified
Policies and qualified plans by means of a rollover or a transfer. Special
rules apply to such rollovers and transfers. If you do not follow the
applicable rules, you may suffer adverse Federal income tax consequences,
including paying taxes which you might not otherwise have had to pay. You
should always consult a qualified advisor before you move or attempt to move
funds between any Qualified Policy or plan and another Qualified Policy or
plan.
DIRECT ROLLOVERS: The direct rollover rules apply to certain payments (called
"eligible rollover distributions") from section 401(a) plans, section 403(a) or
(b) plans, H.R. 10 plans, and Qualified Policies used in connection with these
types of plans. (The direct rollover rules do not apply to distributions from
IRAs or section 457 plans). The direct rollover rules require Federal income
tax equal to 20% of the eligible rollover distribution to be withheld from the
amount of the distribution, unless the Owner elects to have the amount directly
transferred to certain Qualified Policies or plans.
Prior to receiving an eligible rollover distribution from the Company, we will
provide you with a notice explaining these requirements and how you can avoid
20% withholding by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a Policy unless the distributee notifies us at or
before the time of the distribution that he or she elects not to have any
amounts withheld. In certain circumstances, Federal income tax rules may
require us to withhold tax. At the time you request a withdrawal, surrender, or
annuity payout, we will send you forms that explain the withholding
requirements.
TAX STATUS OF THE COMPANY
Under existing Federal income tax laws, we do not pay tax on investment income
and realized capital gains of the Separate Account. We do not anticipate that
we will incur any Federal income tax liability on the income and gains earned
by the Separate Account. The Company, therefore, does not impose a charge for
Federal income taxes. If Federal income tax law changes and we must pay tax on
some or all of the income and gains earned by the Separate Account, we may
impose a charge against the Separate Account to pay the taxes.
CHANGES IN THE LAW
This discussion is based on the Code, IRS regulations, and interpretations
existing on the date of this Prospectus. Congress, the IRS, and the courts may
modify these authorities, however, sometimes retroactively.
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VOTING RIGHTS
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As required by law, we will vote the portfolio shares held in the Separate
Account at meetings of the shareholders of the Funds. The voting will be done
according to the instructions of Owners who have interests in any Investment
Subdivisions which invest in the portfolios of the Funds. If the 1940 Act or
any regulation under it should be amended, and if as a result we determine that
we are permitted to vote the portfolios' shares in our own right, we may elect
to do so.
We will determine the number of votes which you have the right to cast by
applying your percentage interest in an Investment Subdivision to the total
number of votes attributable to the Investment Subdivision. In determining the
number of votes, we will recognize fractional shares.
We will vote portfolio shares of a class held in an Investment Subdivision for
which we received no timely instructions in proportion to the voting
instructions which we received for all Policies participating in that
Investment Subdivision. We will apply voting instructions to abstain on any
item to be voted on a pro-rata basis to reduce the number of votes eligible to
be cast.
Whenever a Fund calls a shareholders meeting, each person having a voting
interest in an Investment Subdivision will receive proxy voting material,
reports and other materials relating to the relevant portfolio. Since each Fund
may engage in shared funding, other persons or entities besides the Company may
vote Fund shares. SEE Separate Account -- Investment Subdivisions.
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REQUESTING PAYMENTS
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To request a payment, you must provide us with notice in a form satisfactory to
us. We will ordinarily pay any Death Benefit, partial surrender, or surrender
proceeds within seven days after receipt at our Variable Annuity Service Center
of all the requirements for such a payment. We will determine the amount as of
the date our Variable Annuity Service Center receives all such requirements.
We may delay making a payment, applying Account Value to a payment plan, or
processing a transfer request if: (1) the disposal or valuation of the Separate
Account's assets is not reasonably practicable because the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC, or the SEC declares that an emergency exists; or (2) the
SEC, by order, permits postponement of payment to protect our Owners. We also
may defer making payments attributable to a check that has not cleared (which
may take up to 15 days), and we may defer payment of proceeds from the
Guarantee Account for a withdrawal, surrender, or transfer request for up to
six months from the date we receive the request. The amount deferred will earn
interest at a rate and for a time period not less than the minimum required in
the jurisdiction in which we issued the Policy.
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DISTRIBUTION OF THE POLICIES
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DISTRIBUTOR
Capital Brokerage Corporation (doing business in Indiana, Minnesota, New
Mexico, and Texas as GE Capital Brokerage Corporation) ("Capital Brokerage") is
the distributor and principal underwriter of the Policies. Capital Brokerage, a
Washington corporation and an affiliate of ours, is located at 6630 W. Broad
St., Richmond, Virginia 23230. Properly licensed registered representatives of
independent broker-dealers will sell the Policies. These broker-dealers have
selling agreements with Capital Brokerage and have been licensed by the New
York state insurance department to represent us. Properly licensed registered
representatives of Capital Brokerage will also sell the Policies. Capital
Brokerage is registered with the SEC under the Securities Exchange Act of 1934
as a broker-dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD").
COMMISSIONS
Our writing agents will receive commissions based on a commission schedule and
rules. The agents will receive a maximum commission of 3% of the initial
premium payment and any additional premium payment.
Agents may also be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Our field management
receives compensation which we may base in part on the level of agent
commissions in their management units. Broker-dealers and their registered
agents will receive first-year and subsequent year commissions equivalent
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to the total commissions and benefits received by our field management and
writing agents. We do not deduct these commissions from premium payments or
Account Value; we pay these commissions.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
OWNER QUESTIONS
The obligations to Owners under the Policies are ours. Please direct your
questions and concerns to us at our Variable Annuity Service Center.
RETURN PRIVILEGE
Within 10 days after you receive the Policy (or such period as may be required
by applicable laws), you may cancel it for any reason by delivering or mailing
it postage prepaid, to our Variable Annuity Service Center. If you cancel your
Policy, it will be void. The amount of the refund you receive will equal the
Account Value on the date we receive the Policy plus any amount deducted from
premium payments, but without reduction for any surrender charge or such other
amount as may be required by applicable law. You may not make partial
surrenders or transfers during the free look period.
STATE REGULATION
As a life insurance company organized and operated under the laws of the State
of New York, we are subject to provisions governing life insurers and to
regulation by the New York Commissioner of Insurance.
Our books and accounts are subject to review and examination by the State
Corporation Commission of the State of New York at all times. That Commission
conducts a full examination of our operations at least every five years.
EVIDENCE OF DEATH, AGE, GENDER OR SURVIVAL
We may require proof of the age, gender or survival of any person or persons
before acting on any applicable Policy provision.
RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the Separate
Account. At least once each year, we will send you a report showing information
about your Policy for the period covered by the report. The report will show
the Account Value in each Investment Subdivision. The report also will show
premium payments and charges made during the statement period. We also will
send you an annual and a semi-annual report for each portfolio underlying an
Investment Subdivision to which you have allocated Account Value, as required
by the 1940 Act. In addition, when you make premium payments, transfers, or
partial surrenders, you will receive a written confirmation of these
transactions.
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the Policies being offered here. This Prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further
information about the Separate Account, the Company, and the Policies offered.
Statements in this Prospectus about the content of Policies and other legal
instruments are summaries. For the complete text of those Policies and
instruments, please refer to those documents as filed with the SEC and
available on the SEC's website at http://www.sec.gov.
YEAR 2000 READINESS DISCLOSURE
Like all financial services providers, we use computer systems that may be
affected by Year 2000 date data processing issues and we rely on service
providers, including banks, custodians, administrators, and investment managers
that may also be affected. In addition, to the extent the Funds invest in
securities of issuers located in foreign countries, the Funds may be affected
not only in the United States, but also in foreign countries. (Please see the
Funds' prospectuses for more information.) Therefore, we have been engaged in a
process to evaluate and develop plans to have our computer systems and critical
applications ready to process Year 2000 date data and to correct or replace
systems and applications with Year 2000 issues. Moreover, we have confirmed
that our service providers are also so engaged, and we are monitoring these
other service providers (particularly those that are critical to our business)
for emerging Year 2000 date data issues.
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Together with our affiliates, have devoted, and will continue to devote,
substantial resources to this effort. In 1998, we spent $2.4 million dollars on
this effort, and we have budgeted an additional $1.8 million dollars on this
effort in 1999. Remedial and other actions we have taken include inventorying
our computer systems, applications and interfaces, assessing ways we might be
impacted by Year 2000 issues, and developing a range of solutions specific to
particular situations and implementing appropriate solutions. Most of the
systems, applications and interfaces that were identified as having Year 2000
issues have already been replaced with different hardware or software or
upgraded to new or other releases of software which is Year 2000 ready. We have
also developed a business continuity plan and have completed testing the plan.
It is difficult to predict with precision whether the outcome of these efforts
will be completely successful. However, as of the date of this Prospectus, we
do not anticipate that you will experience negative effects on your investment,
or on the services provided in connection therewith, as a result of the
Company's Year 2000 transition implementation. We have completed our efforts
with respect to our critical applications, and therefore we believe that our
critical applications are substantially Year 2000 capable. With respect to our
non-critical applications, our goal is to be substantially Year 2000 capable on
or about June 1999. However, there can be no assurance that our efforts will be
totally successful, or that interaction with other service providers will not
impair our ability to provide uninterrupted and complete services to you.
If we are not successful in our Year 2000 transition or implementation, or if
interaction with our service providers is impaired, it is possible that we
could encounter difficulty and/or delays in calculating unit values, redeeming
units, delivering account statements and providing other information,
communication and servicing to our policyholders. In light of our past and
current efforts to address this issue, we do not consider the likelihood of
this possibility to be very high.
LEGAL MATTERS
The Company, like other life insurance companies, is involved in lawsuits. In
some class action and other lawsuits involving insurance companies, substantial
damages have been sought and/or material settlement payments have been made.
Although the Company cannot predict the outcome of any litigation with
certainty, the Company believes that at the present time there are no pending
or threatened lawsuits that are reasonably likely to have a material adverse
impact on it or the Separate Account.
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CONDENSED FINANCIAL INFORMATION
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There are no condensed financial statements as this is a new product and such
information is not yet available.
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STATEMENT OF ADDITIONAL INFORMATION
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TABLE OF CONTENTS
The Policies
Transfer of Annuity Units
Net Investment Factor
Termination of Participation Agreements
Calculation of Performance Data
Money Market Investment Subdivisions
Other Investment Subdivisions
Federal Tax Matters
Taxation of GE Life & Annuity
IRS Required Distributions
General Provisions
Using the Policies as Collateral
Beneficiaries
Non-Participating
Misstatement of Age or Sex
Incontestability
Statement of Values
Written Notice
Legal Developments Regarding Employment-Related Benefit Plans
State Regulation of GE Capital Life
Legal Matters
Experts
Financial Statements
A Statement of Additional Information containing more detailed information
about the Policy and the Separate Account is available free by writing us at
our Variable Annuity Service Center or by calling (800) 313-5282.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
A Statement of Additional Information containing more detailed information
about the Policy and Separate Account II is available free by writing us at the
address below or by calling (800) 352-9910.
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To GE Capital Life Assurance Company of New York
Variable Annuity Service Center
6610 W. Broad Street
Richmond, VA 23230
Please mail a copy of the Statement of Additional Information for Separate
Account II, Policy Form P1066 6/97 to:
Name ---------------------------------------------------------------------------
Address -----------------------------------------------------------------------
Street
--------------------------------------------------------------------------
City State Zip
Signature of Requestor
---------------------------------------------------------
Date
<PAGE>
PART B
GE LIFE SEPARATE ACCOUNT II
Statement of Additional Information
For the
Flexible Premium Deferred Variable Annuity Policy
Form P1066 6/97
Offered by
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
125 PARK AVENUE, 6TH FLOOR
NEW YORK, NEW YORK 10017-5529
(914) 253-8822
Variable Annuity Service Center
6610 West Broad Street
Richmond, VA 23230
(800) 313-5282
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the above-named Flexible Premium Variable Deferred
Annuity Policy ("Policy") offered by GE Capital Life Assurance Company of New
York ("the Company", "we", "us", or "our"). You may obtain a copy of the
Prospectus dated May 1, 1999 by us at our Variable Annuity Service Center
at the address or telephone number listed above. Terms used in the current
Prospectus for the Policy are incorporated in this Statement.
This Statement of Additional Information is not a Prospectus and should be read
only in conjunction with the Prospectuses for the Policy and the Funds.
Dated May 1, 1999
<PAGE>
Statement of Additional Information
Table of Contents
Page
The Policies .............................................................3
Transfer of Annuity Units .............................................3
Net Investment Factor .................................................3
Termination of Participation Agreements ..................................3
Calculation of Performance Data ..........................................3
Money Market Investment Subdivisions ..................................4
Other Investment Subdivisions .........................................6
Federal Tax Matters ......................................................6
Taxation of GE Capital Life ...........................................6
IRS Required Distributions ............................................6
General Provisions .......................................................6
Using the Policies as Collateral ......................................6
The Beneficiary .......................................................6
Non-Participating .....................................................6
Misstatement of Age or Sex ............................................6
Incontestability ......................................................7
Statement of Values ...................................................7
Written Notice ........................................................7
Legal Developments Regarding Employment-Related Benefit Plans ............7
Legal Matters ............................................................7
Experts ..................................................................7
Financial Statements .....................................................7
2
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THE POLICIES
TRANSFER OF ANNUITY UNITS
At your request, Annuity Units may be transferred once per calendar year from
the Investment Subdivisions in which they are currently held. However, where
permitted by state law, we reserve the right to refuse to execute any transfer
if any of the Investment Subdivisions that would be affected by the transfer are
unable to purchase or redeem shares of the mutual funds in which the Investment
Subdivisions invest. The number of Annuity Units to be transferred is (a) times
(b) divided by (c) where: (a) is the number of Annuity Units in the current
Investment Subdivision desired to be transferred; (b) is the Annuity Unit Value
for the Investment Subdivision in which the Annuity Units are currently held;
and (c) is the Annuity Unit Value for the Investment Subdivision to which the
transfer is made.
If the number of Annuity Units remaining in an Investment Subdivision after the
transfer is less than 1, we will transfer the amount remaining in addition to
the amount requested. We will not transfer into any Investment Subdivision
unless the number of Annuity Units of that Investment Subdivision after the
transfer is at least 1. The amount of the income payment as of the date of the
transfer will not be affected by the transfer (however, subsequent variable
income payments will reflect the investment experience of the selected
Investment Subdivisions).
Net Investment Factor
The net investment factor measures investment performance of the Investment
Subdivisions of the Separate Account during a Valuation Period. Each Investment
Subdivision has its own net investment factor for a Valuation Period. The net
investment factor of an Investment Subdivision available under the Policy for a
Valuation Period is (a) divided by (b) minus (c) where:
(a)is (1) the value of the net assets of that Investment Subdivision at
the end of the preceding Valuation Period, plus (2) the investment
income and capital gains, realized or unrealized, credited to the net
assets of that Investment Subdivision during the Valuation Period for
which the net investment factor is being determined, minus (3) the
capital losses, realized or unrealized, charged against those assets
during the Valuation Period, minus (4) any amount charged against
that Investment Subdivision for taxes, or any amount we set aside
during the Valuation Period as a provision for taxes attributable to
the operation or maintenance of that Investment Subdivision; and
(b) is the value of the net assets of that Investment Subdivision at the
end of the preceding Valuation Period; and
(c) is a charge no greater than .003857% for each day in the Valuation
Period. This corresponds to 1.25% and .15% per year of the net assets
of that Investment Subdivision for mortality and expense risks, and
for administrative expenses, respectively.
The value of the assets in the Separate Account will be taken at their fair
market value in accordance with generally accepted accounting practices and
applicable laws and regulations.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
the Separate Account contain varying provisions regarding termination. The
following summarizes these provisions:
JANUS ASPEN SERIES. This agreement may be terminated by the parties on six
month advance written notice.
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, AND
VARIABLE INSURANCE PRODUCTS FUND III. ("the Fund") These agreements provide
for termination (1) on one year's advance notice by either party, (2) at
the Company's option if shares of the Fund are not reasonably available to
meet requirements of the policies, (3) at the option of either party if
certain enforcement proceedings are instituted against the other, (4) upon
vote of the policyowners to substitute shares of another mutual fund, (5)
at the Company's option if shares of the Fund are not registered, issued,
or sold in accordance with applicable laws or if the Fund ceases to qualify
as a regulated investment company under the Code, (6) at the option of the
Fund or its principal underwriter if it determines that the Company has
suffered material adverse changes in its business or financial condition or
is the subject of material adverse publicity, (7) at the option of the
Company if the Fund has suffered material adverse changes in its business
or financial condition or is the subject of material adverse publicity, or
(8) at the option of the Fund or its principal underwriter if the Company
decides to make another mutual fund available as a funding vehicle for its
policies.
GE INVESTMENTS FUNDS, INC. This agreement may be terminated at the option
of any party upon six months' written notice to the other parties, unless a
shorter time is agreed to by the parties.
OPPENHEIMER VARIABLE ACCOUNT FUNDS. This agreement may be terminated by
the parties on six months' advance written notice.
FEDERATED INSURANCE SERIES. This agreement may be terminated by any of the
parties on 180 days written notice to the other parties.
THE ALGER AMERICAN FUND. This agreement may be terminated at the option of
any party upon six months' written notice to the other parties, unless a
shorter time is agreed to by the parties.
PBHG INSURANCE SERIES FUND, INC. This agreement may be terminated at the
option of any party upon six months' written notice to the other parties,
unless a shorter time is agreed to by the parties.
GOLDMAN SACHS VARIABLE INSURANCE TRUST. This agreement may be terminated at
the option of any party upon six months' written notice to the other
parties, unless a shorter time is agreed to by the parties.
SALOMON BROTHERS VARIABLE SERIES FUNDS INC. This agreement may be
terminated at the option of any party upon six months' advance written
notice to the other parties, unless a shorter time is agreed to by the
parties.
CALCULATION OF PERFORMANCE DATA
From time to time, we may disclose total return, yield, and other performance
data for the Investment Subdivisions pertaining to the Policies. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.
3
<PAGE>
MONEY MARKET INVESTMENT SUBDIVISION
From time to time, advertisements and sales literature may quote the yield of
the Money Market Investment Subdivision for a seven-day period, in a manner
which does not take into consideration any realized or unrealized gains or
losses on shares of the corresponding money market portfolio or on its portfolio
securities. This current annualized yield is computed by determining the net
change (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation and income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Policy having a balance of one unit in that Money Market
Investment Subdivision at the beginning of the period, dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing the result on a 365-day basis.
The net change in account value reflects: 1) net income from the investment
portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the policy
maintenance charge, administrative expense charge, and the mortality and expense
risk charge. For purposes of calculating current yields for a Policy, an average
per unit policy maintenance charge is used. Current Yield will be calculated
according to the following formula:
Current Yield = ((NCP - ES)/UV) X (365/7)
where:
NCP = the net change in the value of the investment portfolio (exclusive of
realized gains or losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the seven-day
period attributable to a hypothetical account having a balance of one Investment
Subdivision unit.
ES = per unit expenses of the hypothetical account for the seven-day period.
UV = the unit value on the first day of the seven-day period.
The effective yield of a Money Market Investment Subdivision determined on a
compounded basis for the same seven-day period may also be quoted. The effective
yield is calculated by compounding the base period return according to the
following formula:
Effective Yield = (1 + ((NCP - ES)/UV))365/7 - 1
where:
NCP = the net change in the value of the investment portfolio (exclusive of
realized gains or losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the seven-day
period attributable to a hypothetical account having a balance of one Investment
Subdivision unit.
ES = per unit expenses of the hypothetical account for the seven-day period.
UV = the unit value for the first day of the seven-day period.
The yield on amounts held in the Money Market Investment Subdivision normally
will fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. The Money Market Investment Subdivision's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Investment Subdivision's corresponding money market portfolio, the types
and quality of portfolio securities held by that portfolio, and that portfolio's
operating expenses. Because of the charges and deductions imposed under the
Policy, the yield for the Money Market Investment Subdivision will be lower than
the yield for its corresponding Money Market portfolio.
Yield calculations do not take into account the surrender charge under the
Policy, a maximum of 6% of each Premium Payment made during the six years prior
to a full or partial surrender, or charges for the Optional Death Benefit Rider.
OTHER INVESTMENT SUBDIVISIONS
TOTAL RETURN. Sales literature or advertisements may quote total return,
including average annual total return for one or more of the Investment
Subdivisions for various periods of time including 1 year, 5 years and 10 years,
or from inception if any of those periods are not available.
Average annual total return for a period represents the average annual
compounded rate of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
the period. The ending date for each period for which total return quotations
are provided will be for the most recent practicable, considering the type and
media of the communication, and will be stated in the communication.
Average annual total return will be calculated using Investment Subdivision unit
values and deductions for the policy maintenance charge, and the surrender
charge as described below:
1. We calculate unit value for each Valuation Period based on the
performance of the Investment Subdivision's underlying investment
portfolio (after deductions for Fund expenses, the administrative expense
charge, and the mortality and expense risk charge).
2. The policy maintenance charge is $25 per year, deducted at the beginning
of each Policy Year after the first. For purposes of calculating average
annual total return, an average policy maintenance charge (currently 0.1%
of account value attributable to the hypothetical investment) is used.
This charge will be waived if the Account Value is more than $75,000 at
the time the charge is due.
3. The surrender charge will be determined by assuming a surrender of the
Policy at the end of the period. Average annual total return for periods
of six years or less will therefore reflect the deduction of a surrender
charge.
4. Total return does not consider the elective ODB charges.
5. Total return will then be calculated according to the following formula:
TR = (ERV/P)1/N - 1
where:
TR = the average annual total return for the period.
ERV = the ending redeemable value (reflecting deductions as described above)
of the hypothetical investment at the end of the period.
P = a hypothetical single investment of $1,000.
N = the duration of the period (in years).
4
<PAGE>
Standard performance data for the available Investment Subdivisions is not
available at this time. However, non-standard adjusted historical performance
data (reflects all fees and charges) for the portfolios underlying the
available Investment Subdivisions is as follows:
<TABLE>
<CAPTION>
For the For the For the For the From the Date of
1-year 3-year 5-year 10-year Date of Portfolio
period period period period Portfolio Inception
FUNDS ended ended ended ended Inception to
12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth 21.76 23.72 19.20 NA 22.05 09/13/93
Portfolio
Janus Aspen International 10.17 20.26 NA NA 16.70 05/02/94
Growth Portfolio
VIP Overseas Portfolio 5.73 9.39 7.55 8.43 6.97 01/28/87
GE International Equity Fund 10.38 9.37 NA NA 9.40 05/01/95
SPECIALTY
GE Real Estate Securities Fund -23.30 7.08 NA NA 10.27 05/01/95
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth 5.34 11.61 10.93 14.39 13.34 08/15/86
Fund/VA
Alger American Small 8.48 7.11 10.97 18.05 17.09 09/21/88
Capitalization Portfolio
MID-CAP GROWTH
Janus Aspen Aggressive Growth 27.04 14.72 17.24 NA 19.96 09/13/93
Portfolio
Goldman Sachs VIT Mid Cap NA NA NA NA -8.99 04/30/98
Value Fund
PBHG Growth II Portfolio 1.21 NA NA NA 25.16 05/01/97
MID-CAP VALUE
GE Value Equity Fund -0.28 NA NA NA 18.47 05/01/97
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio 28.43 22.46 19.30 NA 18.92 09/13/93
Janus Aspen Capital 50.36 NA NA NA 46.87 05/01/97
Appreciation Portfolio
VIP II Contrafund Portfolio 22.80 22.14 NA NA 26.40 01/03/95
VIP Growth Portfolio 32.23 22.53 19.62 17.61 15.46 10/09/86
VIP III Growth & Income 22.42 NA NA NA 25.92 12/31/96
Portfolio
Oppenheimer Capital 16.88 22.34 19.98 15.10 14.29 04/03/85
Appreciation Fund/VA
GE Premier Growth Equity Fund 29.30 NA NA NA 31.74 12/12/97
Alger American Growth 40.73 25.34 21.78 NA 20.26 01/09/89
Portfolio
LARGE-CAP VALUE
VIP Equity-Income Portfolio 4.62 14.76 16.66 13.89 12.56 10/09/86
VIP III Growth Opportunities 17.49 21.22 NA NA 23.77 01/03/95
Portfolio
GE U.S. Equity Fund 16.30 22.73 NA NA 25.64 01/02/95
GE S&P 500 Index Fund 21.08 24.73 21.02 16.45 15.05 04/14/85
Federated Utility Fund II 6.92 14.16 NA NA 12.29 02/10/94
Federated American Leaders 10.56 20.72 NA NA 18.62 02/10/94
Fund II
Goldman Sachs VIT Growth and NA NA NA NA -1.43 01/12/98
Income Fund
Salomon Investors Fund NA NA NA NA 3.75 02/17/98
PBHG Large Cap Growth 23.44 NA NA NA 25.16 05/01/97
Portfolio
BALANCED
Janus Aspen Balanced Fund 27.07 21.00 17.00 NA 17.55 09/13/93
VIP II Asset Manager Portfolio 8.01 13.69 9.67 NA 11.29 09/06/89
Oppenheimer Multiple -0.31 9.92 9.30 9.56 9.91 02/09/87
Strategies Fund/VA
GE Total Return Fund 10.04 12.12 12.84 11.94 10.90 07/01/85
Salomon Total Return Fund NA NA NA NA -0.93 02/17/98
GLOBAL BOND
GE Global Income Fund 6.31 NA NA NA 5.26 05/01/97
Salomon Strategic Bond Fund NA NA NA NA -0.59 02/17/98
HIGH-YIELD BONDS
Janus Aspen Flexible Income 2.12 6.86 8.18 NA 7.97 09/13/93
Fund
Oppenheimer High Income Fund/VA -6.53 5.89 6.46 11.02 10.57 04/30/86
Federated High Income Bond -4.23 6.99 NA NA 7.32 03/01/94
Fund II
DOMESTIC BONDS
Oppenheimer Bond Fund/VA -0.16 3.71 4.83 7.64 8.01 04/03/85
GE Income Fund 0.97 16.29 NA NA 20.70 01/02/95
MONEY MARKET
GE Money Market Fund -1.67 2.11 2.95 3.66 3.84 06/30/85
</TABLE>
5
<PAGE>
Past performance is not a guarantee of future results.
The Funds have provided the price information used to calculate the total return
of the Investment Subdivisions. While we have no reason to doubt the accuracy of
the figures provided by the Funds, we have not independently verified such
information.
OTHER PERFORMANCE DATA
We may disclose cumulative total return in conjunction with the standard format
described above. The cumulative total return will be calculated using the
following formula:
CTR = (ERV/P) - 1
where:
CTR = the cumulative total return for the period.
ERV = the ending redeemable value (reflecting deductions as
described above) of the hypothetical investment at the end of
the period.
P = a hypothetical single investment of $1,000.
Sales literature may also quote cumulative and/or average annual total return
that does not reflect the surrender charge. This is calculated in exactly the
same way as average annual total return, except that the ending redeemable value
of the hypothetical investment is replaced with an ending value for the period
that does not take into account any charges on withdrawn amounts.
Other non-standard quotations of Investment Subdivision performance may also be
used in sales literature. Such quotations will be accompanied by a description
of how they were calculated.
FEDERAL TAX MATTERS
TAXATION OF GE CAPITAL LIFE
We do not expect to incur any federal income tax liability attributable to
investment income or capital gains retained as part of the reserves under the
Policies. (See Federal Tax Matters section of the Prospectus.) Based upon these
expectations, no charge is being made currently to the Separate Account for
federal income taxes which may be attributable to the Account. We will
periodically review the question of a charge to the Separate Account for federal
income taxes related to the Account. Such a charge may be made in future years
if we believe that we may incur federal income taxes. This might become
necessary if the tax treatment of the Company is ultimately determined to be
other than what we currently believe it to be, if there are changes made in the
federal income tax treatment of annuities at the corporate level, or if there is
a change in our tax status. In the event that we should incur federal income
taxes attributable to investment income or capital gains retained as part of the
reserves under the Policies, the Account Value would be correspondingly adjusted
by any provision or charge for such taxes.
We may also incur state and local taxes (including premium taxes). At present,
these taxes, are not significant. If there is a material change in applicable
state or local tax laws causing an increase in taxes (including premium taxes),
charges for such taxes attributable to Separate Account may be made.
IRS REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the Code requires any Non-Qualified Policy to provide that (a)
if any Owner dies on or after the Maturity Date but prior to the time the entire
interest in the Policy has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that Owner's death; and (b) if any
Owner dies prior to the Maturity Date, the entire interest in the Policy will be
distributed (1) within five years after the date of that Owner's death, or (2)
as Income Payments which will begin within one year of that Owner's death and
which will be made over the life of the Owner's "designated beneficiary" or over
a period not extending beyond the life expectancy of that beneficiary. The
"designated beneficiary" generally is the person who will be treated as the sole
owner of the Policy following the death of the Owner, Joint Owner or, in certain
circumstances, the Annuitant. However, if the "designated beneficiary" is the
surviving spouse of the decedent, these distribution rules may not apply until
the surviving spouse's death (and this spousal exception will not again be
available). If any Owner is not an individual, the death of the Annuitant will
be treated as the death of an Owner for purposes of these rules.
The Non-Qualified Policies contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Policies.
GENERAL PROVISIONS
USING THE POLICIES AS COLLATERAL
A Non-Qualified Policy can be assigned as collateral security. We must be
notified in writing if a Policy is assigned. Any payment made before the
assignment is recorded at the Variable Annuity Service Center will not be
affected. We are not responsible for the validity of an assignment. Your rights
and the rights of a Beneficiary may be affected by an assignment.
A Qualified Policy may not be sold, assigned, transferred, discounted, pledged
or otherwise transferred except under such conditions as may be allowed under
applicable law.
The basic benefits of the Policy are assignable. Additional benefits added by
rider may or may not be available/eligible for assignments.
BENEFICIARIES
You may select one or more primary and contingent Beneficiaries during your
lifetime upon application and by filing a written request with our Variable
Annuity Service Center. Each change of Beneficiary revokes any previous
designation.
NON-PARTICIPATING
The Policy is non-participating. No dividends are payable.
MISSTATEMENT OF AGE OR SEX
If an Annuitant's age or sex was misstated on the policy data page, any policy
benefits or proceeds, or availability thereof, will be determined using the
correct age and sex. If an overpayment has been made, an adjustment including
interest on the amount of the overpayment will be made to the next payment(s).
Any underpayments will be credited with interest on the amount of the
underpayment and will be paid in full with the next payment. The interest rate
used will be 3% per annum, unless otherwise required by law.
6
<PAGE>
INCONTESTABILITY
We will not contest the Policy.
STATEMENT OF VALUES
At least once each year, we will send you a statement of values within 30 days
after each report date. The statement will show Account Value, Premium Payments
and charges made during the report period.
WRITTEN NOTICE
Any written notice should be sent to us at our Home Office at 125 Park Avenue,
6th Floor, New York, NY 10017-5529 or to our Variable Annuity Service Center at
6610 West Broad Street, Richmond, Virginia 23230. The policy number and the
Annuitant's full name must be included.
We will send all notices to the Owner at the last known address on file with the
company.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee for Tax
Deferred Annuity v. Norris, 463 U.S. 1073 (1983), that optional annuity benefits
provided under an employee's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. The Policy contains guaranteed annuity purchase rates for certain optional
payment plans that distinguish between men and women. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris, and Title VII generally, on any employment-related insurance
or benefit program for which a Policy may be purchased.
STATE REGULATION OF GE CAPITAL LIFE
We are a stock life insurance company organized under the laws of New York, and
are subject to regulation by the New York Insurance Department. An annual
statement is filed with the New York Superintendent of Insurance each year
covering the operations and reporting on the financial condition of GE Capital
Life as of December 31 of the preceding year. Periodically, the Superintendent
of Insurance examines the liabilities and reserves of the Company and the
Separate Account and certifies their adequacy, and a full examination of the
Company's operations is conducted by the New York Insurance Department at least
once every five years.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington D.C. has provided advice on
certain legal matters relating to federal securities laws applicable to the
issue and sale of the Policies described in this Prospectus. All matters of New
York law pertaining to the Policy, including the validity of the Policy and GE
Capital Life's right to issue the Policies under New York insurance law, have
been passed upon by Michael J. Furney, Assistant Vice President and Associate
Counsel.
EXPERTS
The financial statements of GE Capital Life Assurance Company of New York as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, have been included herein in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and in the registration statement, upon the authority of said firm as
experts in accounting and auditing.
FINANCIAL STATEMENTS
This Statement of Additional Information contains financial statements for the
Company, as of December 31, 1998 and 1997, and for each of the years in the
three year period then ended December 31, 1998.
The financial statements of GE Capital Life Assurance Company of New York
included herein should be distinguished from the financial statements of the
Separate Account (when presented) and should be considered only as bearing on
the ability of the company to meet its obligation under the Policy.
Such financial statements of the company should not be considered as bearing on
the investment performance of the assets held in the Separate Account.
7
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GE Capital Life Assurance Company of New York:
We have audited the accompanying balance sheets of GE Capital Life Assurance
Company of New York as of December 31, 1998 and 1997, and the related statements
of income, shareholders' interest, and cash flows for each of the years in the
three-year period ended December 31, 1998. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of GE Capital Life Assurance
Company of New York as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Richmond, Virginia
January 22, 1999
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Balance Sheets
December 31, 1998 and 1997
(Dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities available-for-sale, at fair value (amortized cost of $1,506.8
in 1998 and $1,468.2 in 1997) $ 1,530.6 1,490.2
Mortgage loans (net of valuation allowance of $0.9 in 1998 and $0.5 in 1997) 190.7 173.5
Policy loans 1.4 1.4
Short-term investments 13.4 2.5
- --------------------------------------------------------------------------------------------------------------
Total investments 1,736.1 1,667.6
Cash 1.4 1.9
Accrued investment income 30.6 30.3
Deferred acquisition costs 49.4 42.7
Intangible assets 50.5 56.9
Deferred income tax asset 0.5 -
Other assets 12.5 8.1
- --------------------------------------------------------------------------------------------------------------
Total assets $ 1,881.0 1,807.5
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INTEREST
- --------------------------------------------------------------------------------------------------------------
Liabilities:
Future annuity and contract benefits $ 1,510.0 1,446.4
Unearned premiums 12.7 10.5
Liability for policy and contract claims 10.6 6.4
Other policyholder liabilities 25.8 34.3
Accounts payable and accrued expenses 58.3 46.5
Deferred income tax liability - 3.1
- --------------------------------------------------------------------------------------------------------------
Total liabilities 1,617.4 1,547.2
- --------------------------------------------------------------------------------------------------------------
Shareholders' interest:
Net unrealized investment gains 7.1 7.3
- --------------------------------------------------------------------------------------------------------------
Accumulated non-owner changes in equity 7.1 7.3
Common stock ($1,000 par value, 2,000 shares authorized, issued 2.0 2.0
and outstanding)
Additional paid-in capital 259.4 259.4
Accumulated deficit (4.9) (8.4)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' interest 263.6 260.3
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' interest $ 1,881.0 1,807.5
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Statements of Income
Years ended December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net investment income $ 115.9 111.6 102.4
Net realized investment gains (losses) 2.5 2.2 (0.4)
Premiums 83.3 46.9 57.2
Other income 3.0 3.7 4.1
- ------------------------------------------------------------------------------------------------------
Total revenues 204.7 164.4 163.3
Benefits and expenses:
Interest credited 69.3 71.7 67.1
Benefits and other changes in policy reserves 78.7 42.5 54.7
Commissions 17.0 17.6 11.0
General expenses 9.0 11.0 9.3
Amortization of intangibles, net 7.3 8.2 7.1
Increase in deferred acquisition costs, net (9.8) (15.6) (11.6)
- ------------------------------------------------------------------------------------------------------
Total benefits and expenses 171.5 135.4 137.6
- ------------------------------------------------------------------------------------------------------
Income before income taxes 33.2 29.0 25.7
Provision for income taxes 13.7 11.5 9.8
- ------------------------------------------------------------------------------------------------------
Net income $ 19.5 17.5 15.9
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Statements of Shareholders' Interest
Years ended December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
non-owner
Common stock Additional changes Total
-------------------- paid-in other than Accumulated shareholders'
Shares Amount capital earnings deficit interest
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 2,000 $ 2.0 260.8 5.1 (11.1) 256.8
Changes other than transactions with shareholders
Net income - - - - 15.9 15.9
Net unrealized losses on securities (a) - - - (6.4) - (6.4)
------------
Total changes other than transactions with shareholders 9.5
------------
Other - - (1.4) - - (1.4)
Dividend - - - - (15.7) (15.7)
--------- --------- ---------- ----------- ------------ ------------
Balances at December 31, 1996 2,000 2.0 259.4 (1.3) (10.9) 249.2
Changes other than transactions with shareholders
Net income - - - - 17.5 17.5
Net unrealized gains on securities (a) - - - 8.6 - 8.6
------------
Total changes other than transactions with shareholders 26.1
------------
Dividend - - - - (15.0) (15.0)
--------- --------- ---------- ----------- ------------ ------------
Balances at December 31, 1997 2,000 2.0 259.4 7.3 (8.4) 260.3
Changes other than transactions with shareholders
Net income - - - - 19.5 19.5
Net unrealized losses on securities (a) - - - (0.2) - (0.2)
------------
Total changes other than transactions with shareholders 19.3
------------
Dividend - - - - (16.0) (16.0)
--------- --------- ---------- ----------- ------------ ------------
Balances at December 31, 1998 2,000 $ 2.0 259.4 7.1 (4.9) 263.6
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Presented net of deferred taxes of $0.1 million, $(4.6) million and
$3.5 million in 1998, 1997 and 1996, respectively.
See accompanying notes to financial statements.
4
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 19.5 17.5 15.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in future policy benefits 128.5 106.1 108.3
Assumptive reinsurance premiums - - (23.0)
Net realized investment losses (gains) (2.5) (2.2) 0.4
Amortization of investment premiums and discounts 4.7 4.7 7.7
Amortization of intangibles 7.3 8.2 7.1
Deferred income tax benefit (1.9) (1.7) (3.1)
Change in certain assets and liabilities:
Decrease (increase) in:
Accrued investment income (0.3) (1.4) (4.8)
Deferred acquisition costs (9.8) (15.6) (11.6)
Other assets, net (2.8) 10.6 (14.6)
Increase (decrease) in:
Other policy related balances (3.7) 22.8 17.9
Accounts payable and accrued expenses 10.3 (19.6) 45.4
- ---------------------------------------------------------------------------------------------------------------
Total adjustments 129.8 111.9 129.7
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 149.3 129.4 145.6
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales and maturities of investments in
fixed maturities and real estate 457.9 264.9 228.6
Purchases of fixed maturities (498.3) (340.4) (183.6)
Mortgage and policy loan originations (39.7) (40.6) (112.1)
Mortgage and policy loan repayments 22.1 9.2 3.2
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (58.0) (106.9) (63.9)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issue of investment contracts 106.2 151.1 121.6
Redemption and benefit payments on investment contracts (171.1) (175.9) (181.7)
Dividends paid (16.0) (15.0) (15.7)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (80.9) (39.8) (75.8)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10.4 (17.3) 5.9
Cash and cash equivalents at beginning of year 4.4 21.7 15.8
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14.8 4.4 21.7
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the historical operations
and accounts of GE Capital Life Assurance Company of New York (GECLA-NY
or Company).
GE Capital Life Assurance Company of New York is a majority-owned
subsidiary of General Electric Capital Assurance Company (GE Capital
Assurance), which, in turn, is wholly-owned by GE Financial Assurance
Holdings, Inc. (GE Financial Assurance). The remaining minority interest
is owned by Great Northern Insurance Annuity Corporation (GNIAC), which
is also a wholly-owned subsidiary of GE Capital Assurance.
BASIS OF PRESENTATION
These financial statements have been prepared on the basis of generally
accepted accounting principles (GAAP) for stock life insurance
companies, which vary in several respects from accounting practices
prescribed or permitted by the Department of Insurance of the State of
New York where the Company is domiciled. The preparation of financial
statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts and related
disclosures. Actual results could differ from those estimates.
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation. These reclassifications
have no effect on reported net income or shareholders' interest.
PRODUCTS
The Company markets and sells products in the State of New York through
financial institutions and various agencies. The primary products of the
Company are investment type deferred annuities, structured settlements,
immediate annuities, and long-term care policies. During 1998, five
financial institutions accounted for 96% of product sales; of that 96%,
one financial institution accounted for 68% of total product sales.
(Continued)
6
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(1) CONTINUED
REVENUES
Investment income is recorded when earned. Realized investment gains and
losses are calculated on the basis of specific identification. Premiums
on long-duration insurance products are recognized as earned when due
or, in the case of life contingent immediate annuities, when the
contracts are issued. Premiums received under annuity contracts without
significant mortality risk are not reported as revenues but as
liabilities for future annuity and contract benefits. Other income
consists primarily of surrender charges on certain policies. Surrender
charges are recognized as income when the policy is surrendered.
STATEMENTS OF CASH FLOWS
Certificates and other time deposits are classified as short-term
investments on the balance sheets and considered cash equivalents in the
statements of cash flows.
INVESTMENTS
The Company has designated its fixed maturities (bonds, notes and
redeemable preferred stock) as available-for-sale. The fair value for
fixed maturities is based on quoted market prices, where available. For
fixed maturities not actively traded, fair values are estimated using
values obtained from independent pricing services or, in the case of
private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the credit quality, call
features and maturity of the investments, as applicable.
Changes in the market values of investments available-for-sale, net of
the effect on deferred policy acquisition costs, present value of future
profits and deferred federal income taxes, are reflected as unrealized
investment gains or losses in a separate component of shareholders'
interest and, accordingly, have no effect on net income, but are shown
as a component of accumulated non-owner changes in equity. Unrealized
losses that are considered other than temporary are recognized in
earnings through an adjustment to the amortized cost basis of the
underlying securities.
(1) CONTINUED
7
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Investment income on mortgage-backed securities is initially based upon
yield, cash flow and prepayment assumptions at the date of purchase.
Subsequent revisions in those assumptions are recorded using the
retrospective method, whereby the amortized cost of the securities is
adjusted to the amount that would have existed had the revised
assumptions been in place at the date of purchase. The adjustments to
amortized cost are recorded as a charge or credit to investment income.
The Company does not engage in derivatives trading, market-making or
other speculative activities. The Company has no significant open or
outstanding derivative transactions during the years 1998, 1997 or 1996.
The Company engages in certain securities lending transactions, which
require the borrower to provide collateral, primarily consisting of cash
and government securities, on a daily basis, in amounts equal to or
exceeding 102% of the market value of the applicable securities loaned.
Mortgage and policy loans are stated at the unpaid principal balance of
such loans, net of allowances for estimated uncollectible amounts.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs include costs and expenses which vary with
and are primarily related to the acquisition of insurance and investment
contracts, such as commissions, direct advertising and printing, and
certain support costs such as underwriting and policy issue expenses.
Deferred acquisition costs capitalized are determined by actual costs
and expenses incurred by product in the year of issue.
For investment contracts, the amortization of deferred acquisition cost
is based on the present value of the anticipated gross profits resulting
from investments, interest credited, surrender charges, mortality and
maintenance expenses. As actual gross profits vary from projected, the
impact on amortization is included in net income. For insurance
contracts, the acquisition costs are amortized in relation to the
benefit payments or the present value of expected future premiums.
8
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(1) CONTINUED
Recoverability of deferred acquisition costs is evaluated periodically
by comparing the current estimate of expected future gross profits to
the unamortized asset balances. If such comparison indicates that the
expected gross profits will not be sufficient to recover the asset, the
difference will be charged to expense.
INTANGIBLE ASSETS
PRESENT VALUE OF FUTURE PROFITS - In conjunction with the acquisition of
the Company, a portion of the purchase price was assigned to the right
to receive future gross profits arising from existing insurance and
investment contracts. This intangible asset, called the present value of
future profits (PVFP), represents the actuarially determined present
value of the projected future cash flows from the acquired policies.
GOODWILL - Goodwill is amortized over its estimated period of 25 years
of benefit on the straight-line method. Goodwill in excess of associated
expected operating cash flows is considered to be impaired and is
written down to fair value.
FEDERAL INCOME TAXES
The Company is included with GE Capital Assurance in a life insurance
consolidated federal income tax return. Deferred taxes are allocated by
applying the asset and liability method of accounting for deferred
income taxes to members of the group as if each member was a separate
taxpayer. Intercompany balances are settled annually.
REINSURANCE
Premium revenue, benefits, underwriting, acquisition and insurance
expenses are reported net of the amounts relating to reinsurance ceded
to other companies, except for reinsurance costs for universal life
products. Amounts due from reinsurers for incurred and estimated future
claims are reflected in the reinsurance recoverable asset which is
included in other assets on the balance sheet. The cost of reinsurance
is accounted for over the terms of the related treaties using
assumptions consistent with those used to account for the underlying
reinsured policies.
9
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(1) CONTINUED
FUTURE ANNUITY AND CONTRACT BENEFITS
Future annuity and contract benefits consists of the liabilities for
life insurance policies, accident and health, and deferred annuity
contracts. The liability for insurance and accident and health contracts
is calculated based upon actuarial assumptions as to mortality,
morbidity, interest, expense and withdrawals, with experience
adjustments for adverse deviation where appropriate. The liability for
deferred annuity contracts is generally equal to the policyholder's
current account value.
LIABILITY FOR POLICY AND CONTRACT CLAIMS
The liability for policy and contract claims represents the amount
needed to provide for the estimated ultimate cost of settling claims
relating to insured events that have occurred on or before the end of
the respective reporting period. The estimated liability includes
requirements for future payments of (a) claims that have been reported
to the insurer, (b) claims related to insured events that have occurred
but that have not been reported to the insurer as of the date the
liability is estimated, and (c) claim adjustment expenses. Claim
adjustment expenses include costs incurred in the claim settlement
process such as legal fees and costs to record, process, and adjust
claims.
(2) INVESTMENTS
GENERAL
For the years ended December 31, the sources of investment income of the
Company were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 101.1 99.1 95.6
Mortgage loans 15.4 13.6 8.4
- ----------------------------------------------------------------------------------------
Gross investment income 116.5 112.7 104.0
Investment expenses (0.6) (1.1) (1.6)
- ----------------------------------------------------------------------------------------
Net investment income $ 115.9 111.6 102.4
- ----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(2) CONTINUED
For the years ended December 31, sales proceeds and gross realized
investment gains and losses resulting from the sales of investment
securities available-for-sale were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales proceeds $ 153.4 88.0 58.4
Gross realized investments:
Gains 3.2 2.6 0.9
Losses (0.7) (0.4) (1.3)
- ----------------------------------------------------------------------------------------
Net realized investment gains (losses) $ 2.5 2.2 (0.4)
- ----------------------------------------------------------------------------------------
</TABLE>
The additional proceeds from investments presented in the statements of
cash flows result from principal collected on mortgage-backed
securities, maturities, calls and sinking fund payments.
Net unrealized gains and losses on investment securities classified as
available-for-sale are reduced by deferred income taxes and adjustments
to the present value of future profits and deferred acquisition costs
that would have resulted had such gains and losses been realized. Net
unrealized gains and losses on available-for-sale investment securities
reflected as a separate component of shareholders' interest are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net unrealized gains (losses) on fixed maturities available-for-sale
before adjustments $ 23.8 22.0 (5.1)
Adjustments to the present value of future profits and deferred (12.9) (10.8) 3.1
acquisition costs
Deferred income taxes (3.8) (3.9) 0.7
- -----------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on available-for-sale investment securities $ 7.1 7.3 (1.3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(2) CONTINUED
At December 31, the amortized cost, gross unrealized gains and losses,
and fair values of the Company's fixed maturities available-for-sale
were as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. government and agency $ 8.0 0.1 - 8.1
Non U.S. government 5.2 0.3 - 5.5
Non U.S. corporate 63.7 1.8 (2.2) 63.3
U.S. corporate 1,000.2 22.5 (7.7) 1,015.0
Mortgage backed 429.7 10.3 (1.3) 438.7
- -----------------------------------------------------------------------------------------------------------
Total fixed maturities $ 1,506.8 35.0 (11.2) 1,530.6
- -----------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
Fixed maturities:
U.S. government and agency $ 34.5 0.5 - 35.0
Non U.S. government 5.2 0.1 - 5.3
Non U.S. corporate 54.3 1.0 (0.2) 55.1
U.S. corporate 899.8 14.7 (1.5) 913.0
Mortgage backed 474.4 9.4 (2.0) 481.8
- -----------------------------------------------------------------------------------------------------------
Total fixed maturities $ 1,468.2 25.7 (3.7) 1,490.2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(2) CONTINUED
The scheduled maturity distribution of the fixed maturity portfolio at
December 31, 1998 follows. Expected maturities may differ from scheduled
contractual maturities because issuers of securities may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- ----------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 141.3 142.3
Due after one year through five years 477.0 487.0
Due after five years through ten years 221.2 228.3
Due after ten years 237.6 234.3
- ----------------------------------------------------------------------------------
Subtotals 1,077.1 1,091.9
Mortgage-backed securities 429.7 438.7
- ----------------------------------------------------------------------------------
Totals $ 1,506.8 1,530.6
- ----------------------------------------------------------------------------------
</TABLE>
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders
of $0.4 and $0.1 at December 31, 1998 and 1997, respectively.
At December 31, 1998, approximately 23.8%, 11.9% and 19.3% of the
Company's investment portfolio is comprised of securities issued by the
manufacturing, utility and financial industries, respectively, the vast
majority of which are rated investment grade, and which are senior
secured bonds. This portfolio is widely diversified among various
geographic regions in the United States, and is not dependent on the
economic stability of one particular region.
At December 31, 1998, the Company did not hold any fixed maturity
securities, other than securities issued or guaranteed by the U.S.
government, which exceeded 10% of shareholders' interest.
13
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(2) CONTINUED
The credit quality of the fixed maturity portfolio at December 31
follows. The categories are based on the higher of the ratings published
by Standard & Poors or Moody's.
<TABLE>
<CAPTION>
1998 1997
------------------------ --------------------------
Fair Fair
value Percent value Percent
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agencies and treasuries $ 215.3 14.1 % $ 317.9 21.3 %
AAA/Aaa 196.8 12.9 162.9 10.9
AA/Aa 91.7 6.0 94.5 6.4
A/A 457.3 29.9 419.1 28.1
BBB/Baa 444.5 29.0 425.8 28.6
BB/Ba 44.8 2.9 35.4 2.4
B/B 8.5 0.5 3.6 0.2
Not rated 71.7 4.7 31.0 2.1
- -----------------------------------------------------------------------------------------------------------
Totals $ 1,530.6 100.0 % $ 1,490.2 100.0 %
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Bonds with ratings ranging from AAA/Aaa to BBB-/Baa3 are generally
regarded as investment grade securities. Some agencies and treasuries
(that is, those securities issued by the United States government or an
agency thereof) are not rated, but all are considered to be investment
grade securities. Finally, some securities, such as private placements,
have not been assigned a rating by any rating service and are therefore
categorized as "not rated." This has neither positive nor negative
implications regarding the value of the security.
At December 31, 1998 and 1997, there were no fixed maturities in default
as to principal or interest.
MORTGAGE LOANS
At December 31, 1998 and 1997, the Company's mortgage loan portfolio
consisted of 126 and 115, respectively, first mortgage loans on
commercial real estate properties. The loans, which are originated by
the Company through a network of mortgage bankers, are made only on
completed, leased properties and generally have a maximum loan-to-value
ratio of 75% at the date of origination.
14
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(2) CONTINUED
At December 31, 1998 and 1997, respectively, the Company held $40.2 and
$35.1 in mortgages secured by real estate in California, comprising
21.0% and 20.2% of the respective total mortgage portfolio. For the
years ended December 31, 1998, 1997 and 1996, respectively, the Company
originated $9.5, $11.4 and $21.8 of mortgages secured by real estate in
California, which represent 24.0%, 28.0% and 20.0% and of the respective
total originations for those years.
"Impaired" loans are defined under generally accepted accounting
principles as loans for which it is probable that the lender will be
unable to collect all amounts due according to the original contractual
terms of the loan agreement. That definition excludes, among other
things, leases, or large groups of smaller-balance homogeneous loans,
and therefore applies principally to the Company's commercial loans.
There were no impaired loans at December 31, 1998 and 1997.
(3) DEFERRED ACQUISITION COSTS
Activity impacting deferred acquisition costs for the years ended
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unamortized balance at January 1 $ 46.8 31.2 17.4
Transfers in of AMEX reinsurance - - 2.2
Costs deferred 14.4 18.5 12.7
Amortization, net (4.6) (2.9) (1.1)
- ------------------------------------------------------------------------------------------------------------------------------
Unamortized balance at December 31 56.6 46.8 31.2
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of net unrealized investment (gains) losses (7.2) (4.1) 0.8
- ------------------------------------------------------------------------------------------------------------------------------
Recorded balance $ 49.4 42.7 32.0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(4) INTANGIBLE ASSETS
PRESENT VALUE OF FUTURE PROFITS (PVFP)
The method used by the Company to value PVFP is summarized as follows:
(1) identify the future gross profits attributable to certain lines of
business, (2) identify the risks inherent in realizing those gross
profits, and (3) discount those gross profits at the rate of return that
the Company must earn in order to accept the inherent risks.
PVFP is amortized, net of accreted interest, in a manner similar to the
amortization of deferred acquisition costs. Interest accretes at rates
credited to policyholders on underlying contracts. As actual results
vary from projected amounts, the impact on amortization is included in
net income.
Recoverability of PVFP is evaluated periodically by comparing the
current estimate of expected future gross profits to the unamortized
asset balance. If such comparison indicates that the expected gross
profits will not be sufficient to recover PVFP, the difference is
charged to expense.
The following table presents the activity in PVFP for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unamortized balance at January 1 $ 32.2 38.9 34.5
Transfers of AMEX reinsurance - - 10.0
Interest accreted at 5.0% in 1998, 5.6% in 1997 and 5.4% in 1996 1.0 1.4 1.9
Amortization (6.8) (8.1) (7.5)
- --------------------------------------------------------------------------------------------------------------------------
Unamortized balance at December 31 26.4 32.2 38.9
- --------------------------------------------------------------------------------------------------------------------------
Cumulative effect of net unrealized investment (gains) losses (5.8) (6.7) 2.3
- --------------------------------------------------------------------------------------------------------------------------
Recorded balance $ 20.6 25.5 41.2
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(4) CONTINUED
The estimated percentage of the December 31, 1998 balance, before the
effect of unrealized investment gains or losses, to be amortized over
each of the next five years is as follows:
1999 15%
2000 11%
2001 9%
2002 7%
2003 6%
GOODWILL
At December 31, 1998 and 1997, total unamortized goodwill was $29.9 and
$31.4, respectively, which is shown net of accumulated amortization of
$8.5 and $7.0, respectively. Goodwill amortization $1.5, $1.6 and $1.6
for the years ended December 31, 1998, 1997 and 1996, respectively.
Goodwill in excess of associated expected operating cash flows is
considered to be impaired and is written down to fair value (no such
write-downs have been made).
(5) REINSURANCE
In order to limit the amount of loss retention, certain policy risks are
reinsured with other insurance companies. The maximum amount of life
insurance retained on any one life may not exceed $0.2. Reinsurance
contracts do not relieve the Company of its obligations to
policyholders. In the unlikely event that the reinsurers would be unable
to meet their obligations, the Company is liable for the reinsured
claims. The Company monitors both the financial condition of individual
reinsurers and risk concentrations arising from similar geographic
regions, activities and economic characteristics of reinsurers to lessen
the risk of default by such reinsurers.
17
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(5) CONTINUED
During 1995, the Company entered into a reinsurance agreement with an
affiliated company, PHF Life Insurance Company (PHF). Effective December
31, 1995, the Company assumed all liabilities and future premiums
related to PHF's New York universal life, whole life, structured
settlement, accident and health, and deferred annuity business. The
transaction involved transferring reserves valued at $83.1 and fixed
maturities of $82.5, resulting in a loss of $0.6. These investments were
placed in a trust account with Bankers Trust for the benefit of PHF
policyholders allowing PHF to take the reserve credit on this block of
business. The trust totaled $61.3 at December 31, 1998.
Effective April 1, 1996 the accidental death and dismemberment and
long-term care business written by AMEX Assurance Company (AMEX), an
acquired affiliated company, in the state of New York was ceded directly
to the Company on an assumptive basis. Significant assets and
liabilities transferred included investments valued at $23 and reserves
valued at $23 and recorded as assumed premiums and change in policy
reserves, respectively. No gain or loss was recognized as a result of
this transaction.
The effects of reinsurance on premiums written and earned for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
Written Earned
------------------------------ -----------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 82.8 48.2 30.4 80.6 44.5 28.6
Assumed 4.0 3.6 33.8 4.0 3.6 28.8
Ceded (1.7) (1.1) (0.4) (1.3) (1.2) (0.2)
- -----------------------------------------------------------------------------------------------------------
Net Premiums $ 85.1 50.7 63.8 83.3 46.9 57.2
- -----------------------------------------------------------------------------------------------------------
Percentage of amount assumed to net 4.7 7.1 53.0 4.8 7.7 50.0 %
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Reinsurance recoveries recognized as a reduction of benefits amounted to
$10.8, $11.2, and $18.5 during 1998, 1997 and 1996, respectively. These
recoveries were partially offset by certain changes in benefits and
other policy reserves.
18
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(6) FUTURE ANNUITY AND CONTRACT BENEFITS
INVESTMENT CONTRACTS
Investment contracts are broadly defined to include contracts without
significant mortality or morbidity risk. Payments received from sales of
investment contracts are recognized by providing a liability equal to
the current account value of the policyholders' contracts. Interest
rates credited to investment contracts are guaranteed for the initial
policy term with renewal rates determined as necessary by management. At
December 31, 1998 and 1997, investment contracts comprised $1,313.2 and
$1,314.5, respectively.
INSURANCE CONTRACTS
Insurance contracts are broadly defined to include contracts with
significant mortality and/or morbidity risk. The liability for future
benefits of insurance contracts is the present value of such benefits
based on mortality, morbidity, and other assumptions which were
appropriate at the time the policies were issued or acquired. These
assumptions are periodically evaluated for potential premium
deficiencies. Reserves for cancelable accident and health insurance
contracts are based upon unearned premiums, claims incurred but not
reported, and claims in the process of settlement. This estimate is
based on the experience of the insurance industry and the Company,
adjusted for current trends. Any changes in the estimated liability are
reflected in income as the estimates are revised. At December 31, 1998
and 1997, insurance contracts comprised $196.8 and $131.9, respectively.
Interest rate assumptions used in calculating the present value of
future annuity and contract benefits range from 5.7% to 9.9%.
(7) RELATED-PARTY TRANSACTIONS
The Company receives administrative services from certain affiliates for
which progress payments for these services are made monthly. For the
years ended December 31, 1998, 1997 and 1996, these services were valued
at $7.6, $9.8, and $6.1.
19
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(8) INCOME TAXES
The total provision for income taxes for the years ended December 31
consisted of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current federal income tax provision $ 16.7 13.2 13.1
Deferred federal income tax benefit (3.5) (1.7) (2.8)
- ------------------------------------------------------------------------------------------------------------
Subtotal federal provision 13.2 11.5 10.3
Current state income tax provision (benefit) 0.5 - (0.2)
Deferred state income tax benefit - - (0.3)
- ------------------------------------------------------------------------------------------------------------
Subtotal state provision (benefit) 0.5 - (0.5)
- ------------------------------------------------------------------------------------------------------------
Total income tax provision $ 13.7 11.5 9.8
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation of the federal statutory tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 %
State income tax 0.9 - (1.3)
Goodwill amortization 1.6 1.9 2.0
Other, net 3.8 2.8 2.4
- --------------------------------------------------------------------------------------------------------------------------
Effective rate 41.3 % 39.7 % 38.1 %
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(8) CONTINUED
The components of the net deferred income tax benefit (liability) at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Future annuity and contract benefits $ 75.3 25.6
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax assets 75.3 25.6
- ----------------------------------------------------------------------------------------------------------
Liabilities:
Net unrealized gains on investment securities (3.8) (3.9)
Investments (6.8) (5.1)
Present value of future profits (21.6) (8.2)
Deferred acquisition costs (32.9) (10.5)
Other, net (9.7) (1.0)
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities (74.8) (28.7)
- ----------------------------------------------------------------------------------------------------------
Net deferred income tax asset (liability) $ 0.5 (3.1)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company paid $13.6, $12.1 and $14.3, for federal and state income
taxes during the years 1998, 1997 and 1996, respectively.
Based on an analysis of the Company's tax position, management believes
it is more likely than not that the results of future operations and
implementation of tax planning strategies will generate sufficient
taxable income enabling the Company to realize remaining deferred tax
assets. Accordingly, no valuation allowance for deferred tax assets is
deemed necessary.
21
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(9) COMMITMENTS AND CONTINGENCIES
MORTGAGE LOAN COMMITMENTS
As of December 31, 1998 and 1997, the Company was committed to fund
$26.1 and $0, respectively, in mortgage loans.
GUARANTY ASSOCIATION ASSESSMENTS
The Company is required to participate in the guaranty association of
the state of New York. The state guaranty association ensures payment of
guaranteed benefits, with certain restrictions to policyholders of
impaired or insolvent insurance companies, by assessing all other
companies involved in similar lines of business. The insolvency of a
major insurer that wrote significant business in New York could have an
adverse impact on the profitability of the Company. The Company had no
such assessments for the years ending December 31, 1998, 1997 and 1996,
respectively.
LITIGATION
The Company is a defendant in various cases of litigation considered to
be in the normal course of business. The Company believes that the
outcome of such litigation will not have a material effect on its
financial position or results of operations.
22
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments presented in the applicable
notes to the Company's financial statements are estimates of the fair
values at a specific point in time using available market information
and valuation methodologies considered appropriate by management. These
estimates are subjective in nature and involve uncertainties and
significant judgment in the interpretation of current market data.
Therefore, the fair values presented are not necessarily indicative of
amounts the Company could realize or settle currently. The Company does
not necessarily intend to dispose of or liquidate such instruments prior
to maturity.
Financial instruments that, as a matter of accounting policy, are
reflected in the accompanying financial statements at fair value are not
included in the following disclosures. Such items include fixed
maturities. The carrying value of policy loans, short-term investments
and accrued investment income approximates fair value at December 31,
1998 and 1997, respectively.
At December 31, the carrying amounts and fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 1997
------------------------- ----------------------------
Carrying Fair Carrying Fair
amount value amount value
- ------------------------------------------------------------------------------------------------------------
Mortgage loans $ 190.7 207.5 173.5 179.7
Investment contracts 1,302.7 1,265.9 1,306.3 1,297.5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of mortgage loans is estimated by discounting the
estimated future cash flows using interest rates applicable to current
loan originations, adjusted for credit risks.
The estimated fair value of investment contracts is the amount payable
on demand (cash surrender value) for deferred annuities and the net
present value based on interest rates currently offered on similar
contracts for non-life contingent immediate annuities. Fair value
disclosures are not required for insurance contracts.
23
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(11) RESTRICTIONS ON DIVIDENDS
Insurance companies are restricted by states as to the aggregate amount
of dividends they may pay to their parent in any consecutive twelve
month period without regulatory approval. Generally, dividends may be
paid out of earned surplus without approval with thirty days prior
written notice within certain limits. The limits are generally based on
10% of the prior year surplus (net of adjustments in some cases) and
prior year statutory income (net gain from operations, net income
adjusted for realized capital gains, or net investment income).
Dividends in excess of the prescribed limits or the company's earned
surplus are deemed extraordinary and require formal state insurance
commission approval. Based on statutory results as of December 31, 1998,
the Company is able to pay $16.8 in dividends in 1999 without obtaining
regulatory approval.
(12) SUPPLEMENTARY FINANCIAL DATA
The Company files financial statements with state insurance regulatory
authorities and the National Association of Insurance Commissioners
(NAIC) that are prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Statutory accounting practices
differ from GAAP in several respects, causing differences in reported
net income and shareholders' interest. Permitted statutory accounting
practices encompass all accounting practices not so prescribed but that
have been specifically allowed by state insurance authority. The Company
has no significant permitted accounting practices.
Statutory net income for the years ended December 31, 1998, 1997 and
1996 was $24.8, $13.7 and $16.5, respectively. Statutory capital and
surplus as of December 31, 1998 and 1997 was $168.8 and $162.6,
respectively.
The NAIC has adopted Risk-Based Capital (RBC) requirements to evaluate
the adequacy of statutory capital and surplus in relation to risks
associated with: (i) asset quality, (ii) insurance risk, (iii) interest
rate risk, and (iv) other business factors. The RBC formula is
designated as an early warning tool for the states to identify possible
under-capitalized companies for the purpose of initiating regulatory
action. In the course of operations, the Company periodically monitors
its level of RBC. At December 31, 1998 and 1997, the Company exceeded
the minimum required RBC levels.
24
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(13) BUSINESS SEGMENTS
The Company conducts its operations through two business segments: (1)
Wealth Accumulation and Transfer, comprised of products intended to
increase the policyholder's wealth, transfer wealth to beneficiaries or
provide for a means for replacing the income of the insured in the event
of premature death, and (2) Wealth and Lifestyle Protection, comprised
of products intended to protect accumulated wealth and income from the
financial drain of unforeseen events.
The following is a summary of industry segment activity for 1998, 1997
and 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1998 1997
- ------------------------------------------------------------------------- ------------------------------------
Wealth Wealth
accum- Wealth & accumu- Wealth &
lation & lifestyle Consoli- lation & lifestyle Consoli-
transfer protection dated transfer protection dated
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 111.9 4.0 115.9 107.5 4.1 111.6
Net unrealized investment
gains 2.5 - 2.5 2.2 - 2.2
Premiums 48.3 35.0 83.3 20.5 26.4 46.9
Other revenues 3.0 - 3.0 3.7 - 3.7
- ---------------------------------------------------------------------------------------------------------------
Total revenues $ 165.7 39.0 204.7 133.9 30.5 164.4
- ---------------------------------------------------------------------------------------------------------------
Interest credited, benefits
and other changes in
policy reserves 122.0 26.0 148.0 99.1 15.1 114.2
Commissions 8.0 9.0 17.0 8.9 8.7 17.6
Amortization of intangibles 6.3 1.0 7.3 7.4 0.8 8.2
Other operating costs
and expenses 3.2 (4.0) (0.8) (0.1) (4.5) (4.6)
- ---------------------------------------------------------------------------------------------------------------
Total benefits and expenses 139.5 32.0 171.5 115.3 20.1 135.4
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes $ 26.2 7.0 33.2 18.6 10.4 29.0
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 1,787.7 93.3 1,881.0 1,711.9 95.6 1,807.5
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(13) CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996
----------------------------------------
Wealth Wealth &
accumulation lifestyle
& transfer protection Consolidated
- ----------------------------------------------------------------------------
Net investment income $ 99.9 2.5 102.4
Net unrealized investment
losses (0.4) - (0.4)
Premiums 18.5 38.7 57.2
Other revenues 4.1 - 4.1
- ----------------------------------------------------------------------------
Total revenues $ 122.1 41.2 163.3
- ----------------------------------------------------------------------------
Interest credited, benefits
and other changes in
policy reserves 90.1 31.7 121.8
Commissions 6.2 4.8 11.0
Amortization of intangibles 6.2 0.9 7.1
Other operating costs
and expenses 1.5 (3.8) (2.3)
- ----------------------------------------------------------------------------
Total benefits and expenses 104.0 33.6 137.6
- ----------------------------------------------------------------------------
Income before income taxes $ 18.1 7.6 25.7
- ----------------------------------------------------------------------------
Total assets $ 1,628.6 80.4 1,709.0
- ----------------------------------------------------------------------------
</TABLE>
26
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(14) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
During 1998, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement
requires that, upon adoption, all derivative instruments (including
certain derivative instruments embedded in other contracts) be
recognized in the balance sheet at fair value, and that changes in such
fair values be recognized in earnings unless specific hedging criteria
are met. Changes in the values of derivatives that meet these hedging
criteria will ultimately offset related earnings effects of the hedged
items; effects of certain changes in fair value are recorded in equity
pending recognition in earnings. The Company will adopt the Statement on
January 1, 2000. The impact of adoption will be determined by several
factors, including the specific hedging instruments in place and their
relationships to hedged items, as well as market conditions. Management
has not estimated the effects of adoption as it believes that such
determination will not be meaningful until closer to the adoption date.
In December 1997, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP) 97-3, ACCOUNTING BY INSURANCE
AND OTHER ENTERPRISES FOR INSURANCE-RELATED ASSESSMENTS. This SOP
provides guidance on accounting by insurance and other enterprises for
guaranty-fund and certain other insurance related assessments. The SOP
requires enterprises to recognize a liability for assessments when (a)
an assessment has been asserted or information available prior to
issuance of the financial statements indicates it is probable that an
assessment will be asserted, (b) the underlying cause of the asserted or
probable assessment has occurred on or before the date of the financial
statements, and (c) the amount of the loss can be reasonably estimated.
This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998 and will be reported in a manner
similar to a cumulative effect of a change in accounting principle in
the initial year of adoption. Management of the Company does not expect
that this SOP will have a material impact on the Company's financial
position, results of operations, or liquidity.
(15) SUBSEQUENT EVENT
27
<PAGE>
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
On January 1, 1999, GNIAC merged with and into its parent company, GE
Capital Assurance, pursuant to an Agreement and Plan of Merger between
GNIAC and GE Capital Assurance dated May 18, 1998. Prior regulatory
approval of the merger was obtained from the Delaware Department of
Insurance and the Washington Department of Insurance. As a result of
this merger, effective January 1, 1999, the Company is a wholly owned
subsidiary of GE Capital Assurance.
28
