<PAGE> 1
As filed with the Securities and Exchange Commission on
29 April 1996
Registration No. 2-39272
811-2162
Securities and Exchange Commission
Washington, DC 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 41 [ X]
Registration Statement Under the [ X]
Investment Company Act of 1940
Amendment No. 12
General American Separate Account Two
(Exact Name of Registrant)
General American Life Insurance Company
(Name of Depositor)
700 Market Street
St. Louis, MO 63101
(Address of Depositor's Principal Executive office)
Depositor's Telephone Number: (314) 231-1700
Matthew P. McCauley, Esquire
General American Life Insurance Company
700 Market Street
St. Louis, MO 63101
(Name and address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, and Brennan
1275 Pennsylvania Ave., N.W.
Washington, DC 20004-2404
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It is proposed that this filing will become effective (check
appropriate space)
[ ] immediately upon filing pursuant to paragraph (b)
[ X] 29 April 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph a(2) of Rule 485 under
the Securities Act of 1933
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
the Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933. The Registrant filed
the 24f-2 Notice for the fiscal year ended 31 December 1995 on 14
February 1996.
ii
<PAGE> 3
Cross Reference Sheet
Pursuant to Rules 481, and 495, `33 Act
Showing Location in Part A (Prospectus) and Part B (Statement of
Additional Information) of Registration Statement of Information
Required by Form N-4
******************************
PART A
Item of Form N-4 Prospectus Caption
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Questions and
Answers About
the Contract
4. Condensed Financial Information Financial Statements
5. General Description of
(a) Depositor General American
Life Insurance
Company
(b) Registrant General American
Separate Account Two
(c) Portfolio Company General American
Capital Company
(d) Fund Prospectus General American
Capital Company
(e) Voting Rights Voting Rights
(f) Administrators Contract Owner
Inquiries
6. Deductions and Expenses Charges and
Deductions
(a) General Other Charges; Taxes
(b) Sales Load % Surrender Charges
(c) Special Purchase Plan N/A
(d) Commissions Distributor of the
Contracts
(e) Expenses - Registrant Taxes
(f) Fund Expenses Capital Company
Expenses
(g) Organizational Expenses N/A
7. Contracts
(a) Persons with Rights The Contracts;
Distributions Under
the Contracts;
Voting Rights
iii
<PAGE> 4
(b) (i) Allocation of
Purchase Payments Allocation of
Purchase Payments
(ii) Transfers Transfers
(iii) Exchanges N/A
(c) Changes Additions, Deletions
or Substitutions of
Investments
(d) Inquiries Contract Owner
Inquiries
8. Annuity Period Annuity Income
Options
9. Death Benefit Death of Annuitant
Prior to Annuity
Date
10. Purchases and Contract Value
(a) Purchases Contract Application
and Purchase
Payments;
Accumulated Value
(b) Valuation Accumulated Value
(c) Daily Calculation Accumulated Value
(d) Underwriter Distributor of the
Contracts
11. Redemptions
(a) - By Owners Surrenders and
Partial Withdrawals
- By Annuitant Annuity Income
Options
(b) Texas Optional
Retirement Program N/A
(c) Check Delay Surrenders and
Partial Withdrawals
(d) Lapse Can the Contract be
Returned After One
is Delivered?; The
Contract
12. Taxes Federal Tax Matters
13. Legal Proceedings Part B: Legal
Proceedings
14. Table of Contents for the
Statement of Additional
Information Statement of
Additional
Information
iv
<PAGE> 5
PART B
Statement of Additional
Item of Form N-4 Information Caption
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Part A: General
American Life
Insurance Company
and Separate Account
Two
18. Services
(a) Fees and Expenses of
Registrant N/A
(b) Management Contracts N/A
(c) Custodian N/A
Independent Public
Accountant Financial Statements
(d) Assets of Registrant Safekeeping of
Account Assets
(e) Affiliated Persons N/A
(f) Principal Underwriter Distribution of the
Contract
19. Purchase of Securities Distribution of
Being Offered the Contract
20. Underwriters Distribution of the
Contract
21. Money Market Yield Money Market Yield
Calculation
22. Annuity Payments Computation of
Variable Annuity
Income Payments
23. Financial Statements Financial Statements
v
<PAGE> 6
GENERAL AMERICAN SEPARATE ACCOUNT TWO PROSPECTUS
for the
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Offered by
GENERAL AMERICAN LIFE INSURANCE COMPANY
(A Missouri Mutual Company)
700 Market Street
St. Louis, Missouri 63101
1-800-449-6447
=============================================================================
This Prospectus describes the variable portion of certain group and
individual variable annuity contracts offered by General American Life
Insurance Company ("General American"). These contracts, collectively
referred to as the "Contract" or the "Contracts" in this Prospectus, are
designed to aid individuals in long-term financial planning and provide for
the accumulation of capital on a tax-deferred basis for retirement or other
long-term purposes. The Contracts may be purchased with a monthly payment
of $25 ($300 per year).
Prior to the Annuity Date, the Contract Owner ("participant" in group
contracts) may direct that Purchase Payments accumulate on a completely
variable basis, a completely fixed basis, or a combination variable and
fixed basis. The Contract Owner has significant flexibility in determining
the frequency and amount of each Purchase Payment. The Contract Owner may
elect to receive Annuity Payments on a variable basis or fixed basis. The
Contract Owner also has significant flexibility in determining the Annuity
Date on which Annuity Payments are scheduled to commence. Surrenders or
partial withdrawals may be made at any time before the Annuity Date,
although in certain circumstances they are subject to a withdrawal or
surrender charge and tax penalty. Any amount surrendered or withdrawn may
be paid in a lump sum or, after the Contract Owner's election, all or part
may be paid out under an Annuity Income Option. The Contracts provide the
flexibility necessary to permit a Contract Owner to devise an annuity that
best fits his or her needs.
Purchase Payments may be allocated all or in part to one or more of the
Divisions of General American Separate Account Two ("the Separate Account")
or to General American's General Account.
Assets of each Division are invested in corresponding funds offered by two
open-end, diversified, management investment companies: (1) General American
Capital Company, and (2) Variable Insurance Products Fund. Shares of the
funds are purchased, redeemed, and valued on behalf of the Separate Account.
Funds offered by General American Capital Company include the S & P 500
Index Fund, the Money Market Fund, the Bond Index Fund, the Managed Equity
Fund, and the Asset Allocation Fund. Funds offered by Variable Insurance
Products Fund include the Equity-Income Portfolio, the Growth Portfolio, and
the Overseas Portfolio. A full description of the Funds, including the
investment policies, restrictions, risks, and charges is contained in the
Prospectuses of the respective Funds.
The Contract's Accumulated Value will vary in accordance with the investment
performance of the Divisions selected by the Contract Owner. Therefore, the
Contract Owner bears the entire investment risk under this Contract for any
amounts allocated to the Separate Account.
The Contract Owner may also allocate all or part of the Purchase Payments to
the General Account of General American which provides a guaranteed minimum
rate of return. This Prospectus generally describes only the variable
portion of the Contract. For a brief discussion of the fixed portion, see
"The General Account" section.
The Contracts contain a provision for a Right to Examine Period, which
permits the Contract Owner to cancel the Contract within 20 days of receipt
of the Contract.
This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information about
the Contracts and the Separate Account is available free by writing General
American at the address above or by calling (800) 449-6447. The Statement
of Additional Information, which has the same date as this Prospectus, has
been filed with the Securities and Exchange Commission and is incorporated
here by reference. The table of contents of the Statement of Additional
Information is included at the end of this Prospectus.
=============================================================================
This Prospectus Must Be Accompanied by Current Prospectuses for
General American Capital Company and Variable Insurance Products Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is April 29, 1996.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
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<TABLE>
<CAPTION>
=============================================================================================
TABLE OF CONTENTS
=============================================================================================
Page
----
<S> <C>
DEFINITIONS 3
QUESTIONS AND ANSWERS ABOUT THE CONTRACTS 4
Table 1: Separate Account Two Fees and Expenses 6
Table 2: Historical Table of Units and Unit Values--For Qualified Plans 8
Table 3: Historical Table of Units and Unit Values--For Nonqualified Plans 9
Table 4: Table of Units and Unit Values 9
FINANCIAL STATEMENTS 12
GENERAL AMERICAN LIFE INSURANCE COMPANY AND SEPARATE ACCOUNT TWO 12
General American 12
The Separate Account 12
GENERAL AMERICAN CAPITAL COMPANY 13
VARIABLE INSURANCE PRODUCTS FUND 14
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS 14
THE CONTRACTS 15
Contract Application and Purchase Payments 15
Allocation of Purchase Payments 16
Accumulated Value 16
Net Investment Factor 16
Transfers 17
Contract Owner Inquiries 17
CHARGES AND DEDUCTIONS 17
Surrender Charges (Contingent Deferred Sales Charge) 17
Mortality and Expense Risk Charge 18
Taxes 19
Federal Income Tax 19
Expenses - Capital Company and Variable Insurance Products Fund 20
DISTRIBUTIONS UNDER THE CONTRACTS 20
Surrenders and Partial Withdrawals 20
Termination Benefits 20
Annuity Date 21
Death of Annuitant Prior to Annuity Date 21
Annuity Income Options 21
Election of Annuity Income Options 21
The Options Available 21
Value of Variable Annuity Payments 22
Deferment of Payment 22
The Beneficiary 23
Death Benefits 23
Assignments and Transfers 23
FEDERAL TAX MATTERS 24
Introduction 24
Taxation of General American 24
Tax Status of the Contracts 24
Taxation of Annuities 25
Individual Retirement Annuities and Accounts 27
Code Section 403(b) Plans 27
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans 28
Deferred Compensation Plans 28
Restrictions under Qualified Contracts 29
DISTRIBUTOR OF THE CONTRACTS 28
VOTING RIGHTS 28
THE GENERAL ACCOUNT 29
General Account Accumulations 29
Surrender Charges 29
Transfers to the Separate Account 29
General Matters 29
STATEMENT OF ADDITIONAL INFORMATION 30
</TABLE>
2
<PAGE> 8
=============================================================================
DEFINITIONS
=============================================================================
Accumulated Value -- The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Annuitant -- The person or persons whose life is used to determine the
duration of any Annuity Payments and, subject to the provision dealing with
Joint Annuitants, upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuity Date -- The date on which Annuity Payments begin.
Annuity Income Option -- One of several ways in which Annuity Payments may
be made.
Annuity Payment -- One of a series of payments made under an Annuity Income
Option.
Annuity Unit -- An accounting unit of measure used to calculate Variable
Annuity Payments.
Beneficiary -- The person or legal entity that may receive benefits due upon
the Annuitant's death are paid.
Business Day -- A day when both General American and the New York Stock
Exchange are open for business. The following days are not Business Days
for General American: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Friday after Thanksgiving, and Christmas Day.
Capital Company -- General American Capital Company, an open-end,
diversified, management investment company which is advised by General
American Investment Management Company and in which the Separate Account
invests.
Code -- The Internal Revenue Code of 1986, as amended.
Contract Anniversary -- Any anniversary of the Contract Date.
Contract Date -- The date of issue of the Contract.
Contract Year -- A period of 12 months starting with the Contract Date or
any Contract Anniversary.
Contract Owner (or "owner" or "you") -- With respect to individual
Contracts, the person or persons designated as the Contract Owners in the
Contract application, or as subsequently changed by the designated Contract
Owner. With respect to group Contracts, an individual participant under the
Contract.
Division -- A division of Separate Account Two. Each Division invests
exclusively in the shares of a corresponding Fund of either General American
Capital Company or Variable Insurance Products Fund.
Fund (or "Funds") -- A separate investment portfolio of either General
American Capital Company or Variable Insurance Products Fund.
General Account -- All assets owned by General American other than those in
separate accounts.
General American ("We, Us, Our") -- General American Life Insurance Company,
a Missouri mutual insurance company.
Home Office -- The service office of General American Life Insurance
Company, the mailing address of which is P.O. Box 14490, St. Louis, Missouri
63178.
Initial Purchase Payment -- The first payment which the Contract Owner
makes. This payment can be periodic or a single payment provided the
minimum amounts specified in the Contract are satisfied.
Nonqualified Contracts -- Contracts that do not receive favorable treatment
under Sections 401, 403, 408, or 457 of the Code. Earnings on these
contracts currently receive special Federal income tax treatment.
Payee -- The Contract Owner, Annuitant, Beneficiary, or any other person,
estate, or legal entity to whom benefits are to be paid.
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<PAGE> 9
Proof of Death -- (a) a certified death certificate, (b) a certified decree
of a court of competent jurisdiction as to the finding of death; (c) a
written statement by a medical doctor who attended the deceased; or (d) any
other proof satisfactory to General American.
Purchase Payment -- Any premium paid by the Contract Owner.
Qualified Contracts -- Contracts purchased in connection with a retirement
plan that receives favorable tax treatment under section 401, 403, 408, or
457 of the Code.
Right to Examine Period -- The period during which the Contract can be
cancelled and treated as void from the Contract Date.
Separate Account -- Refers to the General American Separate Account Two
which is a separate investment account of General American consisting of
assets set aside by General American, the investment performance of which is
kept separate from that of the general assets of General American.
Valuation Period -- A period between two successive Business Days commencing
at the close of business of the first Business Day and ending at the close
of business of the following Business Day.
Written Notice (or Written Request) --- A notice or request in writing by
the Contract Owner to General American. It is how the Contract Owner lets
General American know of any requests or changes to make to the Contract.
Such a request must be in a format and content acceptable to General
American.
=============================================================================
QUESTIONS AND ANSWERS ABOUT THE CONTRACTS
=============================================================================
NOTE: The following section contains brief questions and answers about the
Contracts. Reference should be made to the body of this Prospectus for more
detailed information. With respect to Qualified Contracts, it should be
noted that the requirements of a particular retirement plan, an endorsement
to the Contract, or limitations or penalties imposed by the Code may impose
limits or restrictions on premiums, surrenders, distributions, or benefits,
or on other provisions of the Contracts, and this Prospectus does not
describe any such limitations or restrictions. (See "Federal Tax Matters").
"You" or "your" refer to the Contract Owner; "we", "us", or "our" refer to
General American Life Insurance Company.
1. What is the purpose of the Contracts?
The Contracts allow you to accumulate funds on a tax-deferred basis and to
receive Annuity Payments when desired, based on the investment experience of
the assets underlying the Contracts. The Contracts are designed for use in
connection with nonqualified and the following qualified retirement plans:
(1) pension and profit sharing plans established by self-employed
individuals for themselves and their employees (HR-10 [Keogh] Plans), (2)
Individual Retirement Account (IRA) Plans under Section 408 of the Code, and
(3) annuity purchase arrangements which are adopted for employees by public
school systems and by organizations that are tax-exempt under Section
501(c)(3) of the Code.
A Contract may be purchased with the proceeds from such plans or from
sources which do not qualify for special tax treatment. The nature of the
source of the funds affects the way annuity investments are taxed but not
the operation of the Contracts. (See "Federal Tax Matters")
The Contract Owner can allocate Purchase Payments to one or more Divisions
of the General American Life Insurance Company Separate Account Two (the
"Separate Account"), each of which will invest in shares of a corresponding
Fund of General American Capital Company ("Capital Company") on Variable
Insurance Products Fund. Because Annuity Payments and Accumulated Values
depend on the investment experience of the selected Divisions, the Contract
Owner bears the entire investment risk under these Contracts for amounts
allocated to the Separate Account. Purchase Payments may also be allocated,
in whole or in part, to the General Account.
2. What is an annuity and why may benefits vary?
An annuity provides for a series of Annuity Payments beginning on the
Annuity Date. The Contract Owner may select from a number of Annuity Income
Options, including Annuity Payments for the life of an Annuitant (or an
Annuitant and another person, the "Joint Annuitant") with or without a
guaranteed number of Annuity Payments, or for a designated period. Annuity
Payments which are guaranteed throughout the payment period are referred to
in this Prospectus as "Guaranteed
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<PAGE> 10
Annuity Payments." Annuity Payments which vary in accordance with the
investment experience of the Division selected by the Contract Owner are
referred to in this Prospectus as "Variable Annuity Payments."
3. What types of investments underlie the Separate Account?
Currently, the Separate Account consists of eight divisions, each of which
invests in shares of a corresponding Fund of Capital Company or Variable
Insurance Products Fund. Capital Company is an open-end, diversified,
management company advised by General American Investment Management Company
and, with respect to the Managed Equity Fund, by Morgan Stanley Asset
Management, Inc. as sub-advisor. Capital Company currently offers purchaser
of these Contracts five of its seven established separate Funds: the S & P
500 Index Fund; the Money Market Fund; the Bond Index Fund; the Managed
Equity Fund; and the Asset Allocation Fund.
Variable Insurance Products Fund is an open-end, diversified, management
investment company. Fidelity Management & Research Company is the manager
of several funds. The three Variable Insurance Products Fund portfolios
currently available are the Equity-Income Portfolio, the Growth Portfolio,
and the Overseas Portfolio.
The assets of each Fund are held separately from the other Funds and each
has distinct investment objectives and policies which are described in the
accompanying Prospectuses of either Capital Company or Variable Insurance
Products Fund. (See "General American Capital Company" and "Variable
Insurance Products Fund")
4. How do I purchase a Contract?
A Contract may be purchased with a planned monthly payment of at least $25.
Subsequent Purchase Payments generally may be made at any time prior to the
Annuity Date as long as the Annuitant is living. You may establish a
schedule of planned Purchase Payments and we will send reminder notices at
the scheduled intervals. The failure to make a planned Purchase Payment
will not itself cause the Contract to lapse. The minimum Purchase Payment
permitted is $25, and the total of all Purchase Payments made in one year
for the same Contract may not exceed twice the annual equivalent of the
Initial Purchase Payment. (See "Contract Application and Purchase
Payments")
5. How do I allocate Purchase Payments?
Purchase Payments may be allocated among one or more of the Divisions of the
Separate Account or to the General Account in accordance with the allocation
percentages selected by you in your Contract application. All allocations
must be in whole percents, involve amounts of at least $25, and total 100%.
Allocations for Additional Purchase Payments may be changed by sending
Written Notice to us. (See "Allocation of Purchase Payments")
Purchase Payments or portions of Purchase Payments allocated to the General
Account will accrue interest at a rate of at least 4% compounded annually
independent of the actual investment experience of the General Account. (See
"The General Account")
6. Can I transfer amounts among the Divisions?
Transfers among the Divisions or to the General Account can be made at any
time. Transfers from the General Account to the Separate Account are
subject to certain limitations. (See "Transfers")
7. Can I get to my money if I need it?
All or part of the Accumulated Value of the Contract may be withdrawn before
the earlier of the Annuitant's death or the Annuity Date. However, amounts
surrendered may be subject to a surrender charge depending on how long the
withdrawn Purchase Payments have been invested in the Contract. WE
GUARANTEE THAT THE AGGREGATE SURRENDER CHARGES WILL NEVER EXCEED 9% OF THE
PURCHASE PAYMENTS. (See "Surrenders and Partial Withdrawals" and "Surrender
Charges") In addition, certain surrenders may be subject to a penalty tax.
(See "Surrenders and Partial Withdrawals" and "Federal Tax Matters")
8. What are the charges and deductions under the Contracts?
We deduct a daily charge equal to a percentage of the value of the net
assets in the Separate Account for the mortality and expense risks assumed
by us and for the cost of administering these Contracts. The effective
annual rate of this charge is 1.00% (estimated at .80% for mortality risk
and .20% for expense risk).
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<PAGE> 11
In order to permit investment of the entire Purchase Payment, we currently
do not deduct sales charges at the time of investment. However, a surrender
charge, as described in question #7 above, is imposed on certain full or
partial surrenders of the Contracts to cover certain expenses relating to
the sale of the Contracts, including commissions to registered
representatives and other promotional expenses. (See "Surrender Charges")
9. What Annuity Income Options are available under the Contracts?
The Contract Owner may receive Annuity Payments on a variable basis or a
fixed basis. The Contract Owner also has flexibility in choosing the
Annuity Date.
Seven Annuity Income Options are included in the Contract: (l) life annuity;
(2) life annuity, with 60, 120, 180, or 240 monthly installments guaranteed;
(3) unit refund life annuity; (4) joint and last survivor income for life;
(5) income for a fixed period which may be from 3 to 30 years; (6) income of
a fixed amount, not less than $75 per annum per $1,000 of the original
amount due; and (7) interest income (available only to Nonqualified
contracts). (See "Annuity Income Options")
10. Can a Contract be returned after one is delivered?
The Contracts contain a provision for a Right to Examine Period which
permits a Contract Owner to cancel the Contract by returning it to us at our
Home Office, or to the agent through whom it was purchased, within 20 days
of receipt of the Contract. The Contract Owner will then receive from us
the Purchase Payments made on the Contract. In some states, applicable law
requires that the refund equal the Accumulated Value in any Separate Account
and any Purchase Payments allocated to the Fixed Account.
11. Who do I call if I have questions about my annuity?
Any questions about procedures or your Contract will be answered by our
Variable Annuity Administration Department, P.O. Box 14490, St. Louis,
Missouri 63178-4490, (800) 449-6447. All inquiries should include the
Contract number and the Annuitant's name. In addition, confirmations will
be mailed to the Contract Owner for any cash transactions that take place,
and quarterly reports will be sent showing the Accumulated Value in each
Division, the Accumulated Value in the General Account, and any Purchase
Payments, charges, transfers, or surrenders during the time period covered.
Tables
The tables which follow reflect certain historical information for the
Separate Account throughout the periods indicated. The investment policies,
objectives and restrictions applicable to the Separate Account prior to its
reorganization into a unit investment trust on February 23, 1988 are
virtually identical to those of the Managed Equity Fund of Capital Company.
Accordingly this historical information is substantially identical to the
results which would have occurred if the Separate Account had invested its
net assets in the Managed Equity Fund of Capital Company from its inception.
<TABLE>
TABLE 1
Variable Annuity Contracts
Fees and Expenses for Separate Account Two
General American Capital Company and Variable Insurance Products Fund
<CAPTION>
Deferred sales load (% of amount withdrawn):
<S> <C>
First year 9.00%
Second year 8.00%
Third year 7.00%
Fourth year 6.00%
Fifth year 5.00%
Sixth year 4.00%
Seventh year 3.00%
Eighth year 2.00%
Ninth year 1.00%
</TABLE>
This sales charge is levied only when sums are withdrawn from any Division
of Separate Account Two or the General Account. The first 10% of the
account value withdrawn in any Contract year will not have a contingent
deferred sales load applied to it.
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<PAGE> 12
Separate account annual fees (all Divisions) -
Mortality and expense risk: 1.00%
<TABLE>
General American Capital Company Annual Fund Operating Expenses (expressed as a percentage of average net assets):
<CAPTION>
Investment Administration Total Fund
Fund Advisory Fees Fees Operating Expenses
- ---- ------------- -------------- -------------------
<S> <C> <C> <C>
S & P 500 Index Fund 0.250% 0.050% 0.300%
Money Market Fund 0.125% 0.080% 0.205%
Bond Index Fund 0.250% 0.050% 0.300%
Managed Equity Fund<F*> 0.500% 0.100% 0.600%
Asset Allocation Fund 0.500% 0.100% 0.600%
<FN>
<F*>Investment advisory fees applicable to the Managed Equity Fund decline
ratably on the average daily net assets in excess of $10 million (see the
General American Capital Company Prospectus).
</TABLE>
Examples
If you surrendered your contract after the end of the applicable time
period, you would pay the following aggregate expenses on a $1,000
investment, assuming 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S & P 500 Index Fund $ 97.24 $111.46 $125.25 $156.77
Money Market Fund 96.35 108.70 120.45 146.03
Bond Index Fund 97.24 111.46 125.25 156.77
Managed Equity Fund 100.03 120.14 140.27 190.01
Asset Allocation Fund 100.03 120.14 140.27 190.01
</TABLE>
If you do not surrender your contract after the end of the applicable time
period, you would pay the following aggregate expenses on the same
investment:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S & P 500 Index Fund $13.24 $41.21 $71.29 $156.77
Money Market Fund 12.28 38.25 66.23 146.03
Bond Index Fund 13.24 41.21 71.29 156.77
Managed Equity Fund 16.27 50.49 87.08 190.01
Asset Allocation Fund 16.27 50.49 87.08 190.01
</TABLE>
If you annuitize after the end of the applicable time period, you would pay
the following aggregate expenses on the same investment:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S & P 500 Index Fund $ 97.24 $111.46 $71.29 $156.77
Money Market Fund 96.35 108.70 66.23 146.03
Bond Index Fund 97.24 111.46 71.29 156.77
Managed Equity Fund 100.03 120.14 87.08 190.01
Asset Allocation Fund 100.03 120.14 87.08 190.01
</TABLE>
Variable Insurance Products Fund Annual Expenses (expressed as percentage of
average net assets):
<TABLE>
<CAPTION>
Total
Fund Management Fees Other Expenses Annual Expenses
- ---- --------------- -------------- ---------------
<S> <C> <C> <C>
Equity-Income Portfolio 0.51% 0.10% 0.61%
Growth Portfolio 0.61% 0.09% 0.70%
Overseas Portfolio 0.76% 0.15% 0.91%
</TABLE>
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<PAGE> 13
The above fees reflect charges incurred by these portfolios in 1995. Fees
assessed against the portfolios are based on the monthly average net assets
of all the mutual funds advised by Fidelity Management & Research Company
("FMR") and may fluctuate from year to year (See the Variable Insurance
Products Fund Prospectus).
Examples
If you surrendered your Contract after the end of the applicable time
period, you would pay the following aggregate expenses on a $1,000
investment, assuming 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity-Income Portfolio $100.12 120.43 140.77 191.10
Growth Portfolio 100.95 123.02 145.23 200.86
Overseas Portfolio 102.90 129.02 155.55 223.27
</TABLE>
If you do not surrender your Contract after the end of the applicable time
period, you would pay the following aggregate expenses on the same
investment:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity-Income Portfolio $ 16.37 50.80 87.61 191.10
Growth Portfolio 17.28 53.57 92.30 200.86
Overseas Portfolio 19.40 60.00 103.16 223.27
</TABLE>
If you annuitize after the end of the applicable time period, you would pay
the following aggregate expenses on the same investment:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity-Income Portfolio $100.12 120.43 87.61 191.10
Growth Portfolio 100.95 123.02 92.30 200.86
Overseas Portfolio 102.90 129.02 103.16 223.27
</TABLE>
The purpose of the table above is to help you understand the costs and
expenses that a variable annuity contract owner will bear directly or
indirectly. The examples above are not a representation of actual past or
future expenses, and actual expenses may be higher or lower than those
shown. Note that the expense amounts in the examples are aggregate amounts
for the total number of years indicated. Neither the table nor the examples
reflect any premium taxes that may be applicable to a contract; such taxes
currently range from 0% to 3.5%. The above table and examples reflect only
the charges for contracts currently offered by this Prospectus and not other
contracts that may be mentioned in the discussion of Prior Contracts. For
further details, see Charges and Deductions.
The initial value of an accumulation unit in the Separate Account was set at
$10.00 as of May 28, 1971. Tables 2 and 3 show accumulation unit values and
the numbers of units outstanding for the period from January 1, 1980 through
February 23, 1988. During that time, the Separate Account invested solely
and directly in common stocks. On February 23, 1988, the net assets of the
Separate Account were exchanged for shares in the Managed Equity Fund of
General American Capital Company, and the investment advisory fee for these
assets was increased from .25% to a sliding scale with a maximum of .50%, as
an annual percentage of net assets (see the General American Capital Company
Prospectus). There can be no assurance that the investment experience of
the Managed Equity Fund in the future will be comparable to past experience.
8
<PAGE> 14
<TABLE>
<CAPTION>
TABLE 2
Separate Account Two
Historical Table of Units and Unit Values
For Qualified Plans
1980 1981 1982 1983 1984 1985 1986 1987 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $ 8.23 $ 9.94 $ 9.92 $12.09 $13.25 $13.15 $16.68 $19.73 $20.03
------ ------ ------ ------ ------ ------ ------ ------ ------
End of period $ 9.94 $ 9.92 $12.09 $13.25 $13.15 $16.68 $19.73 $20.03 $21.30<F*>
====== ====== ====== ====== ====== ====== ====== ====== ======
Number of units
outstanding at end of
period (in thousands) 175 169 138 162 162 148 170 255 263<F*>
</TABLE>
<TABLE>
<CAPTION>
TABLE 3
Separate Account Two
Historical Table of Units and Unit Values
For Nonqualified Plans
1980 1981 1982 1983 1984 1985 1986 1987 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $ 9.30 $10.73 $10.91 $12.63 $13.77 $14.30 $18.16 $21.47 $21.80
------ ------ ------ ------ ------ ------ ------ ------ ------
End of period $10.73 $10.91 $12.63 $13.77 $14.30 $18.16 $21.47 $21.80 $23.18<F*>
====== ====== ====== ====== ====== ====== ====== ====== ======
Number of units
outstanding at end of
period (in thousands) 27 49 50 52 50 48 49 49 28<F*>
<FN>
<F*>Unit values and units outstanding represent the values and number of units
at the date of reorganization, February 23, 1988.
</TABLE>
Table 4 shows unit values and the number of units of the Separate Account
invested in the Funds of General American Capital Company. There can be no
assurance that the investment experience of these Funds in the future will
be comparable to past experience.
<TABLE>
<CAPTION>
TABLE 4
Separate Account Two
Table of Units and Unit Values
S & P 500 Index
Fund Division <F1>
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $11.01 $14.15 $13.47 $17.37 $18.48 $20.09 $20.12
------ ------ ------ ------ ------ ------ ------ ------
End of period $11.01 $14.15 $13.47 $17.37 $18.48 $20.09 $20.12 $27.27
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 36 97 133 236 366 599 636 657
Nonqualified Plan 7 23 67 109 152 241 265 297
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Money Market
Fund Division
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $10.44 $11.33 $12.16 $12.78 $13.12 $13.39 $13.82
------ ------ ------ ------ ------ ------ ------ ------
End of period $10.44 $11.33 $12.16 $12.78 $13.12 $13.39 $13.82 $14.50
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 6 28 188 179 181 115 93 106
Nonqualified Plan 5 15 79 101 85 73 58 57
</TABLE>
<TABLE>
<CAPTION>
Bond Index
Fund Division <F2>
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $10.27 $11.22 $12.12 $13.68 $14.43 $15.78 $14.99
------ ------ ------ ------ ------ ------ ------ ------
End of period $10.27 $11.22 $12.12 $13.68 $14.43 $15.78 $14.99 $17.66
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 5 22 33 50 116 161 146 146
Nonqualified Plan 2 17 58 67 48 61 58 85
</TABLE>
<TABLE>
<CAPTION>
Managed Equity Fund Division
Qualified
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $21.30 $22.11 $28.73 $27.62 $34.56 $36.54 $39.42 $37.68
------ ------ ------ ------ ------ ------ ------ ------
End of period $22.11 $28.73 $27.62 $34.56 $36.54 $39.42 $37.68 $49.83
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 207 194 192 216 217 210 188 164
Nonqualified Plan N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
10
<PAGE> 16
<TABLE>
<CAPTION>
Managed Equity Fund Division
Nonqualified
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $23.18 $24.06 $31.27 $30.05 $37.61 $39.76 $42.90 $41.00
------ ------ ------ ------ ------ ------ ------ ------
End of period $24.06 $31.27 $30.05 $37.61 $39.76 $42.90 $41.00 $54.22
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan N/A N/A N/A N/A N/A N/A N/A N/A
Nonqualified Plan 26 25 25 25 25 24 20 17
</TABLE>
<TABLE>
<CAPTION>
Managed Equity Fund Division
'88 Series
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $10.83 $11.54 $14.99 $14.39 $17.99 $19.00 $20.48 $19.56
------ ------ ------ ------ ------ ------ ------ ------
End of period $11.54 $14.99 $14.39 $17.99 $19.00 $20.48 $19.56 $25.84
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 6 21 56 101 158 197 204 215
Nonqualified Plan 0 7 20 27 40 56 68 75
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Fund Division
---------------------------------------------------------
1988<F*> 1989 1990 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $10.61 $12.60 $12.78 $15.16 $16.01 $17.37 $16.52
------ ------ ------ ------ ------ ------ ------ ------
End of period $10.61 $12.60 $12.78 $15.16 $16.01 $17.37 $16.52 $21.08
====== ====== ====== ====== ====== ====== ====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 9 33 94 140 223 332 320 317
Nonqualified Plan 4 16 35 66 119 166 180 168
<FN>
<F1> The name of the S & P 500 Index Fund was changed from "Equity Index
Fund" effective May 1, 1994.
<F2> The name of the Bond Index Fund was changed from "Intermediate Bond
Fund" effective October 1, 1992. The name change reflects a change in
investment policies and objectives of the Fund.
<F*> At inception of Separate Account Divisions on May 16, 1988, except for the
Managed Equity Fund Division, which began on February 24, 1988.
</TABLE>
11
<PAGE> 17
<TABLE>
<CAPTION>
Equity-Income Fund Division
1994 1995
---- ----
<S> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $10.55
------ ------
End of period $10.55 $14.12
====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 315 552
Nonqualified Plan 82 207
<CAPTION>
Growth Fund Division
1994 1995
---- ----
<S> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $9.90
------ -----
End of period $ 9.90 $13.27
====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 356 646
Nonqualified Plan 116 261
<CAPTION>
Overseas Fund Division
1994 1995
---- ----
<S> <C> <C>
Accumulation unit value:
Beginning of period $10.00 $9.95
------ -----
End of period $ 9.95 $10.80
====== ======
Number of units outstanding
at end of period
(in thousands)
Qualified Plan 240 266
Nonqualified Plan 52 77
</TABLE>
12
<PAGE> 18
=============================================================================
FINANCIAL STATEMENTS
=============================================================================
The consolidated financial statements for General American (as well as the
auditors' report thereon) are in the Statement of Additional Information.
Financial statements for the Separate Account are also in the Statement of
Additional Information.
=============================================================================
GENERAL AMERICAN LIFE INSURANCE COMPANY AND
SEPARATE ACCOUNT TWO
=============================================================================
General American
General American Life Insurance Company is a mutual insurance company. It
was chartered in 1933 and since then has continuously engaged in the
business of life insurance, annuities, and accident and health insurance.
General American's National Headquarters (Home Office) is located at 700
Market Street, St. Louis. Missouri 63101. The telephone number is
314-231-1700. It is licensed to do business in 49 states of the U.S., the
District of Columbia, Puerto Rico, and is registered in Canada and licensed in
the Provinces of Alberta, British Columbia, Manitoba, New Brunswick,
Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec, and
Saskatchewan.
General American conducts a conventional life insurance business. Assets
derived from such business should be considered by purchasers of variable
annuity contracts only as bearing upon the ability of General American to
meet its obligations under the variable annuity contracts and should not be
considered as bearing on the investment performance of the Separate Account.
The Separate Account
The Separate Account was established on October 22, 1970, pursuant to
authorization by the Board of Directors of General American. Although it is
an integral part of General American and not a separate corporation, the
Separate Account is registered as a unit investment trust with the
Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act"). Such registration does not involve supervision of the
management or investment practices or policies of the Separate Account or of
General American by the Securities and Exchange Commission.
Payments are received into the Separate Account from individual and group
variable annuity contracts entitled to tax benefits under Sections 401,
403(b), and 408 of the Code and also from individual variable annuity
contracts not entitled to any special tax benefits. Such payments are
pooled together and invested separately from the General Account of General
American (the general assets of the insurance company other than separate
account assets). The persons participating in the variable portion of these
Contracts look to the investment experience of the assets in the Separate
Account.
Under Missouri law and the Investment Company Act of 1940, the net assets of
the Separate Account are held for the exclusive benefit of the Contract
Owners and the persons entitled to installments that reflect the investment
results of the Separate Account. The net assets of the Separate Account
with respect to the Contracts issued in connection therewith are not
chargeable with liabilities due to any other business General American
conducts.
On February 23, 1988, pursuant to the vote of Contract Owners, the Separate
Account was changed from a management investment company with a single
equity investment portfolio, to a unit investment trust with various
Divisions. As restructured, the Separate Account no longer has a Management
Committee. Additional Divisions may be established at the discretion of
General American.
13
<PAGE> 19
=============================================================================
GENERAL AMERICAN CAPITAL COMPANY
=============================================================================
General American Capital Company ("Capital Company") is an open-end,
diversified, management investment company that was organized as a Maryland
corporation on November 5, 1985, and commenced operations on October 1, 1987.
General American Investment Management Company ("Investment Management
Company") is the adviser to Capital Company. Investment Management Company
provides investment advisory services to Capital Company in accordance with
the policies, programs, and guidelines established by the Board of Directors
of Capital Company. Each Fund pays Investment Management Company a monthly
fee for managing its investments and business affairs.
The sub-advisor for the Managed Equity Fund is Morgan Stanley Asset
Management, Inc., 1221 Avenue of the Americas, 21st floor, New York, New
York 10020 ("Morgan Stanley"). Morgan Stanley is a Delaware corporation.
Affiliated companies of Morgan Stanley have been in the investment
management business with respect to stocks since 1935. Investment
Management Company is responsible for payment of the fee of the sub-advisor
out of the fees which it collects from the Managed Equity Fund.
Capital Company currently operates seven separate investment Funds, but only
the five listed below are available as Separate Account Two Division
choices: the S & P 500 Index Fund; the Money Market Fund; the Bond Index
Fund; the Managed Equity Fund; and the Asset Allocation Fund. Five of the
eight Divisions of the Separate Account invest in Funds of Capital Company.
The assets of each Fund are separate from the others and each Fund has
separate investment objectives and policies. As a result, each Fund
operates as a separate investment portfolio and the investment performance
of one Fund has no effect on the investment performance of any other Fund.
The names and investment objectives of the Funds are as follows:
S & P 500 Index Fund: The investment objective of this Fund is to provide
investment results that parallel the price and yield performance of publicly
traded common stocks in the aggregate. The Fund uses the Standard and
Poor's 500 Stock Price<F*> Index as its standard for performance comparison.
The Fund attempts to duplicate the performance of the index and includes
dividend income as the other component of the Fund's total return.
<F*>The term Standard and Poor's 500 Stock Price Index is a registered
trademark of the Standard and Poor's Corporation.
Money Market Fund: The investment objective of this Fund is the highest
level of current income that is consistent with the preservation of capital
and maintenance of liquidity. This Fund invests primarily in high-quality,
short-term money market instruments.
Bond Index Fund: The investment objective of this Fund is to provide a rate
of return that reflects the performance of the publicly traded bond market
as a whole. The Fund uses the Lehman Brothers Government/Corporate Bond
Index as its standard for performance comparison.
Managed Equity Fund: The investment objective of this Fund is long-term
growth of capital, obtained by investing primarily in common stocks.
Securing moderate current income is a secondary objective.
Asset Allocation Fund: The investment objective of this Fund is a high rate
of long-term total return composed of capital growth and income payments.
Preservation of capital is the secondary objective and chief limit on
investment risk. The Fund will invest only in those types of securities
that are suitable investments for the other Capital Company Funds. The
Asset Allocation Fund may invest solely in common stocks, bonds, money
market instruments, or in combinations consistent with guidelines
established from time to time by Capital Company's Board of Directors.
There is no assurance that any of these Funds will attain its stated
objective.
Additional information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in
the current Prospectus for Capital Company, which is attached to this
Prospectus. Capital
14
<PAGE> 20
Company's Prospectus should be read carefully before any decision is made
concerning the allocation of Purchase Payments to a Division that corresponds
to a particular Fund.
Capital Company is registered with the SEC as an open-end, diversified,
management investment company. Registration with the SEC does not involve
supervision of the management or investment practices or policies of Capital
Company by the SEC. Shares of Capital Company will be sold to separate
accounts of General American other than the Separate Account, including
those which receive and invest premiums under variable life insurance
policies issued by General American. It is conceivable that in the future
it may be disadvantageous for both variable annuity separate accounts and
variable life insurance separate accounts to invest simultaneously in
Capital Company, although currently neither General American nor Capital
Company foresees any such disadvantages to owners of either variable annuity
contracts or variable life insurance policies. Capital Company's Board of
Directors intends to monitor events in order to identify any material
conflicts between such owners and to determine what action, if any, should
be taken in response thereto. See the Prospectus for General American
Capital Company for more details.
=============================================================================
VARIABLE INSURANCE PRODUCTS FUND
=============================================================================
Variable Insurance Products Fund ("VIP") is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. It currently has five separate investment portfolios,
but only the three listed below are currently available as Separate Account
Two Division choices. Variable Insurance Products Fund shares are purchased
by many different insurance companies to fund benefits under variable
insurance and annuity policies. Fidelity Management & Research Company
(FMR) of Boston, Massachusetts, is the Manager of the Portfolios.
The names and investment objectives and policies of each VIP fund available
through the Separate Account are summarized below:
Equity-Income Portfolio: The investment objective of this Fund is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, FMR will also consider the
potential for capital appreciation. The Fund's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard
& Poor's 500 Composite Stock Price Index.
Growth Portfolio: The investment objective of this Fund is to seek capital
appreciation. It normally does so through purchases of common stocks,
although its investments are not restricted to any one type of security.
Capital appreciation may also be found in other types of securities,
including bonds and preferred stocks.
Overseas Portfolio: The investment objective of this Fund is to seek
long-term growth of capital primarily through investments in foreign
securities. The Overseas Portfolio provides a means to diversify a Fund by
participating in companies and economies outside of the United States.
There is no assurance that any of the Funds will achieve its stated
objective.
It is conceivable that in the future it may be disadvantageous for Funds to
offer shares to separate accounts of various insurance companies to serve as
the investment medium for their respective variable products. The Board of
Trustees of FMR, the respective advisors of each Fund, and the Company and
any other insurance companies participating in VIP are required to monitor
events to identify any material irreconcilable conflicts that may possibly
arise, and to determine what action, if any, should be taken in response to
those events or conflicts. A more detailed description of the VIP Funds,
including the investment policies, restrictions, risks, and charges of each,
is in the Prospectus for Variable Insurance Products Fund, which must
accompany or precede this Prospectus and which should be read carefully.
=============================================================================
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
=============================================================================
General American reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held
by the Separate Account or that the Separate Account may purchase. General
American reserves the right to eliminate the shares of any of the Funds of
Capital Company or VIP and to substitute shares of another Fund of Capital
Company, or VIP, or of another registered open-end, diversified, management
investment company. Such a change might
15
<PAGE> 21
occur if the shares of a Fund are no longer available for investment, or if in
its judgment further investment in any Fund becomes inappropriate in view of
the purposes of the Separate Account. General American will not replace any
shares attributable to a Contract Owner's interest in a Division of the
Separate Account without notice to the Contract Owner and prior approval of
the SEC, to the extent required by the 1940 Act or other applicable law.
Nothing contained in this Prospectus shall prevent the Separate Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by Contract Owners.
General American also reserves the right to establish additional Divisions
of the Separate Account, each of which would invest in a new Fund of Capital
Company, or in shares of another investment company, with a specified
investment objective. New Divisions may be established when, in the sole
discretion of General American, marketing needs or investment conditions
warrant, and any new Division will be made available to existing Contract
Owners on a basis to be determined by General American. To the extent
approved by the SEC, General American may also eliminate or combine one or
more Divisions, substitute one Division for another Division, or transfer
assets between Divisions if, in its sole discretion, marketing, tax, or
investment conditions warrant.
In the event of a substitution or change, General American may make such
changes it considers necessary in the Contracts by appropriate endorsement.
General American will notify all Contract Owners of any such changes.
If deemed by General American to be in the best interests of persons having
voting rights under the Contracts, and to the extent any necessary SEC
approvals or Contract Owner votes are obtained, the Separate Account may be:
(a) operated as a management company under the 1940 Act; (b) deregistered
under that Act in the event such registration is no longer required; or (c)
combined with other separate accounts of General American. To the extent
permitted by applicable law, General American may also transfer the assets
of the Separate Account associated with the Contracts to another separate
account.
=============================================================================
THE CONTRACTS
=============================================================================
The Contracts consist of a group variable annuity contract for use in Tax
Sheltered Annuity (Section 403[b] annuity) Plans, and individual variable
annuity contracts for use in HR-10 (Keogh) Plans, Individual Retirement
Account (IRA) Plans, Simplified Employee Pension Plans, and nonqualified
retirement plans. The group Contract is a master group contract issued to
either an employer or trust and covers all participants, each of whom
receives a certificate which summarizes the provisions of the master group
Contract and evidences participation in the plan adopted by the particular
employer or trust. Individual Contracts are complete within themselves and
are issued to self-employed individuals and their employees (HR-10 Plans),
to individuals purchasing an IRA Plan or Simplified Employee Pension Plan,
and to individuals as annuity contracts that are not entitled to any special
tax benefits. The rights and benefits of the Contracts are described below
and in the Contracts; however, General American reserves the right to make
any modification to conform the Contracts to, or to give the Contract Owner
the benefit of, any Federal or state statute or any rule or regulation of
the United States Treasury Department.
The Contracts contain a provision which permits the Contract Owner to cancel
the Contract during the Right to Examine Period by returning the Contract to
General American's Home Office, or to the agent through whom it was
purchased. This Right to Examine Period extends for the 20 days after the
Contract Owner receives the Contract. Upon cancellation, the Contract is
treated as void from the Contract Date and the Contract Owner will receive
the Purchase Payments made on the Contract. In some states, applicable law
requires that the refund equal the Accumulated Value in any Separate Account
and any Purchase Payments allocated to the Fixed Account.
Contract Application and Purchase Payments
Individuals wishing to purchase a Contract must complete an application and
provide an Initial Purchase Payment. If the application can be accepted in
the form received, the Initial Purchase Payment will be credited within two
Business Days after receipt of the application. Acceptance is subject to
General American's rules, and General American reserves the right to reject
any application or Initial Purchase Payment. In addition, the Annuitant's
age on the Contract Date can not be greater than insurance age 79 (attained
age 78 1/2).
General American may retain the Initial Purchase Payment for up to five
Business Days while attempting to complete an application that is not in
good order (missing information, etc.). If the application cannot be made
in good order within five Business Days, the Initial Purchase Payment
16
<PAGE> 22
will be returned immediately unless the prospective Contract Owner consents in
writing to General American's retaining the Initial Purchase Payment until
the application is in good order.
All Purchase Payments received at the Home Office before the close of the
New York Stock Exchange (3:00 p.m. St. Louis time) on any business day, will
be considered received on that business day.
The Initial Purchase Payment for a Contract must be a planned monthly
payment of at least $25. Purchase Payments after the first may be made at
any time prior to the Annuity Date as long as the Annuitant is living.
Purchase Payments after the first must be paid to General American at its
Home Office. A Contract Owner may establish a schedule of planned Purchase
Payments for which he or she will be billed by General American at regular
intervals. Failure to pay planned Purchase Payments, however, will not
itself cause the Contract to lapse.
A Contract Owner may make unscheduled Purchase Payments at any time in any
amount, or skip planned Purchase Payments, subject to the minimum and
maximum Purchase Payment limitations described below. A Contract Owner may
elect to make Purchase Payments by means of a pre-authorized check ("PAC")
procedure. Under a PAC procedure, amounts will be deducted each month from
the Contract Owner's checking account and applied as a Purchase Payment
under a Contract.
The minimum Purchase Payment permitted is $25. The maximum Purchase Payment
is the annual equivalent of twice the Initial Purchase Payment. For
example, if you established a Planned Purchase Payment of $50.00 per month,
the total of all Purchase Payments in any Contract Year could not exceed
$1200. Any Purchase Payments in excess of this amount will be accepted only
after notice to and written consent from General American.
Additional Purchase Payments on Qualified Contracts are limited to proceeds
from certain qualified plans. Additional Purchase Payments are credited to
the Contract and increase the amount of the Accumulated Value as of the next
close of business (on a Business Day) following receipt of the payment to
General American at its Home Office.
Allocation of Purchase Payments
The Contract Owner specifies in the Contract application how Purchase
Payments will be allocated. The Contract Owner may allocate each Purchase
Payment to one or more of the Divisions and the General Account as long as
such portions are in whole number percentages, total 100%, and involve
amounts of at least $25. The Contract Owner may choose to allocate nothing
to a particular Division or the General Account. The Contract Owner may
change the allocation instructions for future additional Purchase Payments
by sending a Written Notice.
The Purchase Payment will then be allocated among the Divisions and General
Account in accordance with the Contract Owner's instructions.
Accumulated Value
The Accumulated Value will be determined on a daily basis. On the
investment start date (the date the Initial Purchase Payment is applied to
the General Account and/or the Divisions of the Separate Account, which is
the date the Initial Purchase Payment is received at General American's Home
Office), the Accumulated Value in a Division will equal the portion of any
Purchase Payment allocated to the Division.
Thereafter, on each Business Day, the Accumulated Value in a Division of the
Separate Account will equal:
(i) The Accumulated Value in the Division on the preceding Business Day,
multiplied by the Division Net Investment Factor (defined below) for the
current Valuation Period; plus
(ii) Any Purchase Payments received during the current Valuation Period
which are allocated to the Division; plus
(iii) Any amounts transferred to the Division from the General Account or
from another Division during the current Valuation Period; minus
(iv) That portion transferred from the Division to the General Account, or
another Division during the current Valuation Period (including any
transfer charges); minus
(v) Any partial withdrawals from the Division during the current Valuation
Period; minus
(vi) Any withdrawal or surrender charges incurred during the current
Valuation Period in connection with a partial withdrawal.
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Net Investment Factor
The Net Investment Factor measures the investment performance of a Division
during a Valuation Period. The Net Investment Factor for each Division for a
Valuation Period is calculated as follows:
(i) The value of the assets at the end of the preceding Valuation Period;
plus
(ii) The investment income and capital gains-realized or
unrealized-credited to the assets in the Valuation Period for which the
Net Investment Factor is being determined; minus
(iii) The capital losses, realized or unrealized, charged against those
assets during the Valuation Period; minus
(iv) Any amount charged against each Division for taxes, or any amount set
aside during the Valuation Period as a reserve for taxes attributable
to the operation or maintenance of each Division; minus
(v) A charge not to exceed 0.002740% of the assets for each day in the
Valuation Period. This corresponds to 1% per year for mortality and
expense risk; divided by
(vi) The value of the assets at the end of the preceding Valuation Period.
The Accumulated Value is expected to change from Valuation Period to
Valuation Period, reflecting the investment experience of the selected Funds
of Capital Company or Variable Insurance Products as well as the daily
deduction of charges.
For Contracts issued prior to the reorganization of the Separate Account
into a unit investment trust, a daily adjustment to values held in the
Division of the Separate Account that invests in the Managed Equity Fund
will be made to offset fully the effect of any and all additional expenses
(other than advisory expenses for the Managed Equity Fund) of a type or in
an amount which would not have been borne by the Separate Account prior to
the reorganization.
Transfers
You may transfer amounts as follows:
1) Between the General Account and one or more of the Divisions of the
Separate Account; or
2) Among the Divisions of the Separate Account.
These transfers will be subject to the following rules:
1) We must receive a Written Request for transfer.
2) Transfers from or among the Divisions of the Separate Account may be made
at any time and must be at least $100.00 or the entire amount of a Division,
if smaller.
3) Transfers from the General Account to the Separate Account may be made
once each year on the Contract's anniversary date and must be at least
$100.00 but no more than 25% of the amount in the General Account prior to
the transfer.
We may revoke or modify the transfer privilege at any time, including the
minimum amount for a transfer and the transfer charge, if any.
Contract Owner Inquiries
General American performs all administrative functions in connection with
the Contracts such as underwriting, record keeping, Contract Owner service,
and reporting. Contract Owner inquiries should be addressed to General
American's Variable Annuity Administration Department, P.O. Box 14490, St.
Louis, Missouri 63178-4490, or made by calling (800) 449-6447. All
inquiries should include the Contract number and the Annuitant's name.
=============================================================================
CHARGES AND DEDUCTIONS
=============================================================================
No deductions are made from the Initial Purchase Payment unless a state
premium tax is due. (See "Taxes") Therefore, the full amount of the Initial
Purchase Payment less any applicable state tax is invested in one or more of
the Divisions of the Separate Account and/or the General Account to increase
the potential for investment gain.
Surrender Charges (Contingent Deferred Sales Charge)
In May of 1982, or shortly thereafter depending on date of approval from
state regulatory authorities, General American began offering Contracts
which imposed surrender charges (sometimes referred to as a contingent
deferred sales charge). Prior to that time, Contracts offered by General
American imposed sales charges on Purchase Payments. For the older
Contracts sold prior to May of 1982, a sales charge equal to 4.75% on all
Purchase Payments is imposed to cover sales and
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distribution expenses. An administrative charge of $10 per year is also
imposed during the accumulation period, and a $5 charge is imposed whenever
funds are transferred between the General Account and Separate Account.
For the newer Contracts, since no deduction for a sales charge is made from
Purchase Payments, a surrender charge is imposed on certain surrenders and
withdrawals to cover certain expenses relating to the sale of the Contracts,
including commissions to registered representatives and other promotional
expenses.
Upon surrender of the contract or partial withdrawal of funds on deposit,
General American will apply surrender charge. The surrender charge
percentage is based on the age of the Contract as shown in the following
schedule:
<TABLE>
<CAPTION>
Surrender Charge
Contract Year Percentage
------------- ----------
<S> <C>
1 9%
2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
</TABLE>
For partial withdrawals, the surrender charge is calculated by multiplying
the surrender charge percentage by the actual amount disbursed to the
Contract Owner. The total amount deducted from the Accumulated Value of the
Contract is the sum of the surrender charge and the disbursed amount. If
the sum of the disbursed amount and the surrender charge exceed the
Accumulated Value of the Contract, the withdrawal will be considered a full
surrender. Upon full surrender, the surrender charge is calculated by
multiplying the surrender charge percentage by the Contract's Accumulated
Value. The difference between the Accumulated Value and the surrender
charge is disbursed to the Contract Owner.
The surrender charge will never exceed 9% of total net Purchase Payments.
There will be no surrender charge after the ninth Contract Year. In
addition, surrender charges are not applied in the event of death,
disability, or annuitization after five Contract years. If a Contract Owner
is within the nine year surrender charge period (the first nine Contract
Years), an amount may be withdrawn up to 10% of the account value
(determined as of the date we receive the withdrawal request) per Contract
year without incurring a surrender charge. Any percentages of account value
previously withdrawn during a Contract Year are subtracted from 10% in
calculating the remaining percentage of account value that is available for
withdrawal during the same Contract Year.
The age of the Contract, rather than the length of time a certain sum has
been in the General Account or Separate Account, determines the amount of
the surrender charge in cases of withdrawal, so no attempt is made to
identify which dollars are being withdrawn.
The surrender charge may not initially be adequate to recover all
distribution costs. Any shortfall will be borne by General American from
its general assets, including profits derived from the Separate Account
mortality and expense risk, if any.
General American offers to its officers and full time employees, (including
employees of its subsidiary companies), individual variable annuity
contracts available with a surrender charge of six percent the first
Contract Year declining by one percent per year until it disappears.
The surrender charge will be allocated pro rata among the Divisions and the
General Account, based on the values held in the Divisions and the General
Account prior to the withdrawal. In the case of a surrender, the surrender
charge is deducted from the amount paid to the Contract Owner.
Reduction of Surrender Charge for Group or Sponsored Arrangements.
Contracts may be sold to members of a class of associated individuals or to
a trustee, an employer, or some other entity representing such a class. The
Company may waive or reduce the surrender charge on such policies in
recognition of the fact that sales efforts and administrative costs are
generally lower for such groups and sales compensation may be adjusted. The
amount of any reduction will depend upon factors such as: the expected
number of participants and the amount of premium payments anticipated; the
nature of the group or association; the expected persistency and the
possibility of favorable mortality; and the amount and timing of the payment
and any selling costs.
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<PAGE> 25
General American will determine the amount of reduction which is appropriate
and may change the surrender charge attributable to future premiums if it
does so on a basis which is uniform with respect to all similar Contract
Owners. The Company may also modify the criteria for qualification for
sales charge reductions as experience is gained, subject to the limit that
such reductions will not be unfavorably discriminatory against the interest
of any Contract Owner.
Mortality and Expense Risk Charge
During both the accumulation period and the annuity period, charges to cover
mortality and expense risk are made each business day as a percentage of the
Accumulated Value of the Contract. The charge for mortality and expense
risk is 1% annually (estimated at .8% for mortality risk and .2% for expense
risk).
The mortality risk assumed by General American is that Annuitants may live
longer than the time estimated when the risk in the contract were
established. General American agrees to continue to pay annuity
installments, determined in accordance with the annuity tables and other
provisions contained in the Contract, and in accordance with the option
selected (See "Annuity Income Options"), to each Annuitant regardless of how
long he lives and regardless of how long all Annuitants as a group live.
The expense risk assumed by General American is that if the charge for
mortality and expenses is not sufficient to cover administrative expenses,
the deficiency will be met from General American's General Account.
Further, General American can modify a group Contract prospectively, with
respect to future participants, after the Contract has been in force for at
least three years. No modifications can affect the Annuitants in any manner
without an Annuitant's written consent, unless such modification is deemed
necessary to give the Contract Owner or Annuitants the benefit of Federal or
state statutes or Treasury Department rules or regulations.
In addition, General American assures that the Separate Account will not be
charged with any further expenses other than taxes applicable to the
Separate Account. There are currently no taxes assessed against the
Separate Account with respect to funds held under Qualified and Nonqualified
Contracts (See "Federal Tax Matters").
Taxes
Under the laws of certain jurisdictions, taxes are charged on so-called
"annuity considerations." In the case of applicable Contracts, "annuity
considerations" could include either the Purchase Payment or the Accumulated
Value of such contracts. Such taxes range from 0% to 3.50%. The list of
jurisdictions imposing premium tax follows:
<TABLE>
<CAPTION>
STATE ANNUITY PREMIUM TAX RATES
State Qualified Contracts Nonqualified Contracts
----- ------------------- ----------------------
<S> <C> <C>
California .50% 2.35%
District of Columbia 2.25% 2.25%
Kansas 0% 2.00%
Kentucky 2.00% 2.00%
Maine 0% 2.00%
Nevada 0% 3.50%
Puerto Rico 1.00% 1.00%
South Dakota 0% 1.25%
West Virginia 1.00% 1.00%
Wyoming 0% 1.00%
</TABLE>
Note: The above premium tax rates are in effect as of January 1,
1996.
States not listed above currently have no premium tax on the purchase
of group and individual variable annuity contracts for use with Tax
Sheltered Annuity (Section 403 [b] annuity) Plans, H.R. 10 (Keogh) Plans, or
Individual Retirement Account (IRA) Plans. However, premium tax
statutes are subject to amendment by legislative act and to judicial and
administrative interpretations, both of which may affect the above list of
states levying such taxes and the applicable tax rates. Particularly because
a portion of the premium tax charge may be made at the time Annuity
Payments commence, the above list of tax rates may not be those in effect at
the time the premium tax charge is made.
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<PAGE> 26
Laws relating to premium taxes and the interpretations of such laws
are subject to changes that may affect the deductions, if any, made under
Contracts for such taxes. Some jurisdictions permit payment of
premium tax on the Accumulated Value that is applied to provide an
Annuity. In those places, General American does not make any separate
deductions for premium tax from Purchase Payments, as it is permitted to
do under the Contracts, but defers any separate deductions for such taxes
until the Accumulated Value is applied to provide Annuity Payments.
(Although General American may be required in some of these jurisdictions to
pay premium tax currently on surrender charges, it presently
intends to pay the taxes out of the deductions and charges made against all
Contracts.) General American plans, where permissible, to defer any separate
deductions for premium tax until the Accumulated Value is applied
to provide Annuity Payments, at which time the amount of any applicable
premium tax will be measured by the Accumulated Value. However, in
many jurisdictions the premium tax are applied to Purchase
Payments, and in those cases the deductions for such taxes will be made when
the payments are received. Thus, General American reserves the right to
make a separate deduction from each Purchase Payment, or from the
Accumulated Value, depending on which method or combination of methods
results in the appropriate deduction for applicable premium tax.
Federal Income Tax
General American does not expect to incur any Federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Contracts. (See "Federal Tax Matters") Based upon these
expectations, no charge is being made currently to the Separate Account for
corporate Federal income taxes which may be attributable to the Separate
Account.
General American will periodically review the question of a charge to the
Separate Account for corporate Federal income taxes related to the Separate
Account. Such a charge may be made in future years for any Federal income
taxes incurred by General American. This might become necessary if the tax
treatment of General American is ultimately determined to be other than what
General American currently believes 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 General American's tax status. In the event that
General American should incur Federal income taxes attributable to
investment income or capital gains retained as part of the reserves under
the Contracts, the Unit Values of the Divisions would be correspondingly
adjusted by any provision or charge for such taxes.
Expenses - Capital Company and Variable Insurance Products Fund
The value of the assets in the Separate Account will reflect the value of
the applicable Capital Company or VIP Fund shares and, therefore, the fees
and expenses paid by them. A complete description of the expenses and
deductions from the Funds is in the applicable Capital Company or VIP Fund
prospectus.
=============================================================================
DISTRIBUTIONS UNDER THE CONTRACTS
=============================================================================
Surrenders and Partial Withdrawals
The Contract Owner may surrender the Contract or make a partial withdrawal
to receive all or part of the Accumulated Value, at any time before the
Annuity Date and while the Annuitant is living, by sending a Written
Request. The amount available for surrender or partial withdrawal is the
Accumulated Value at the time of the Valuation Period during which the
Written Request is received, less any surrender or withdrawal charges. In
the event of a partial withdrawal, the amount of any withdrawal charge will
be deducted from the remaining Accumulated Value and not from the amount
withdrawn. The amount payable upon surrender or withdrawal may be paid in a
lump sum to the Contract Owner, or, if elected, all or any part may be paid
out under an Annuity Income Option. (See "Annuity Income Options")
The minimum amount that can be withdrawn is $100. In the absence of
specific direction from the Contract Owner, amounts will be withdrawn from
the Divisions and the General Account on a pro rata basis.
A partial withdrawal results in cancellation of an appropriate number of
accumulation units; a surrender requires surrender of the Contract and
cancellation of all accumulation units. Any surrender or withdrawal within
the first nine Contract Years
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<PAGE> 27
will result in the application of a surrender charge except that the Contract
Owner may withdraw up to 10% of the Accumulated Value without the application
of the surrender charge (See "Charges and Deductions").
The amount payable on surrender or withdrawal will ordinarily be paid within
seven days after receipt by General American at its Home Office of the
Written Request on a duly executed form which may be obtained from the Home
Office or by a letter signed by the Annuitant (or the Contract Owner if
other than Annuitant) exactly as his or her name appears on the Contract,
stating his or her address, the Contract number and the amount of the
payment requested. The letter must be signed by any person whose consent is
required by reason of any special endorsement. If the Contract Owner's address
of record has been changed within the preceding thirty days, all signatures on
the letter must be guaranteed by a bank or trust company or by a member firm
of a national securities exchange. Payment may be postponed and the right of
redemption suspended as described under "Deferment of Payment".
If, at the time the Contract Owner makes a surrender or withdrawal request,
he or she has not provided General American with a written election not to
have Federal income taxes withheld, General American must by law withhold
such taxes from the taxable portion of any surrender or withdrawal.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early surrenders or withdrawals. (See "Federal Tax Matters-Taxation of the
Contracts")
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account and because certain surrenders and
withdrawals are subject to a surrender or withdrawal charge, the total
amount paid under surrender of the Contract (taking into account any prior
withdrawals) may be more or less than the total Purchase Payments made.
Termination Benefits
Participants under a Tax Sheltered Variable Annuity Contract have certain
rights if they terminate their participation prior to the Annuity Date.
Upon termination of participation prior to the Annuity Date, the participant
may elect with respect to the Accumulation Value in his or her individual
account:
(a) to have the Accumulated Value applied to provide Annuity Payments
under one of the annuity income options described below, or
(b) to leave the Accumulated Value in the Contract, in which case the
number of accumulation units in his or her Individual Account will remain
fixed, but the value thereof will vary as described in the Section
"Accumulated Value", or
(c) to receive the Accumulated Value on the basis of the accumulation unit
value next determined after the Written Request for surrender is received
by General American at its Home Office; or
(d) to convert to an Individual Variable Annuity Contract, if appropriate
individual Contracts are issued by General American on the effective date
of termination, on the basis set forth by General American at the time
of such conversion.
Annuity Date
The Contract Owner should specify an Annuity Date in the application. The
Annuity Date is the date that Annuity Payments are scheduled to commence
under the Contract, unless the Contract has been surrendered or an amount
has been paid as proceeds to the designated Beneficiary prior to that date.
The Contract Owner may advance or defer the Annuity Date. An Annuity Date
may be changed only by Written Request during the Annuitant's lifetime, and
such a request must be made at least 30 days before the then-scheduled
Annuity Date. The Annuity Date and Annuity Income Options available for
Qualified Contracts may also be controlled by endorsements, the Plan, or
applicable law.
Death of Annuitant Prior to Annuity Date
If the Annuitant dies prior to the Annuity Date, the Accumulated Value of
the Contract or individual account will be paid to the Beneficiary. The
Accumulated Value will be the value next determined following receipt by
General American of due Proof of Death of the Annuitant as well as proof
that the Annuitant died prior to the Annuity Date. The Beneficiary may
receive the amount payable in a lump sum cash benefit or under one of the
Annuity Income Options.
Annuity Income Options
(a) Election of Annuity Income Options
The Annuity Income Options, with the exception of Option 7, may be selected
on either a variable annuity or a guaranteed annuity basis, or a combination
of the two. In the absence of an election to the contrary, the variable
Accumulated Value will
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<PAGE> 28
be applied to provide variable annuity installments and the guaranteed
Accumulated Value will be applied to provide guaranteed annuity installments.
The minimum amount which may be applied under an option is $5,000 and the
minimum annuity installment is $50 (or any lower amount required by state
law). If the Accumulated Value is less than $5,000 when the Annuity Date
arrives, General American will make a lump sum payment of such amount to the
Contract Owner. If at any time installments are, or become less than $50,
General American has the right to change the frequency of payments to
intervals that will result in installments of at least $50.
(b) The Options Available
Option 1-Life Annuity-An Annuity payable monthly during the lifetime of the
Payee, ceasing with the last payment due prior to the death of the Payee.
However, since there is no provision for a minimum number of payments or for
payments to a survivor, it would be possible under this form of settlement
for the Annuitant to receive only one payment if he or she died prior to the
due date of the second payment, two if he or she died prior to the due date
of the third payment, etc.
Option 2-Life Annuity with 60, 120, 180, or 240 Monthly Payments
Guaranteed-An Annuity payable monthly during the lifetime of the Payee,
including the risk that if, at the death of the Payee, payments have been made
for less than 60 months, 120 months, 180 months, or 240 months, as elected,
payments shall be continued to the Beneficiary during the remainder of the
elected period. A Beneficiary entitled to receive payments may elect that the
present value of the current dollar amount of the remaining assured number
of annuity payments, commuted on the basis of 4% interest compounded
annually, be paid in a lump sum.
Option 3-Unit Refund Life Annuity-An Annuity payable monthly during the
lifetime of the Payee ceasing with the last payment due prior to the death
of the Payee, provided that, at the death of the Payee, the Beneficiary will
receive an additional payment of the then dollar value of the number of
Annuity Units equal to the excess, if any of (a) over (b) where (a) is the
total amount applied under the option divided by the annuity unit value at
the Annuity Date and (b) is the number of Annuity Units represented by each
payment multiplied by the number of payments made.
For example, if $19,952.07 were applied under this option for a male at age
65 on the Annuity Date, the annuity unit value in the appropriate Division
on such date was $12.071, the number of Annuity Units represented by each
payment was ten, thirteen Annuity payments were paid prior to the date of
death, and the value of an Annuity Unit on the date of death was $12.818,
the amount paid to the Beneficiary would be $19,520.44.
Option 4-Joint and Survivor Income for Life-An Annuity payable monthly
during the joint lifetime of the Payee and a secondary Payee, and thereafter
during the remaining lifetime of the survivor, ceasing with the last payment
due prior to the death of the survivor. Since there is no provision for a
minimum number of payments, it would be possible under this form of
settlement for the Annuitants to receive only one payment if both died prior
to the due date of the second payment, two if both died prior to the due
date of the third payment, etc.
Option 5-Income for a Fixed Period-The amount due may be paid in annual,
semiannual, quarterly, or monthly payments over a specified number of years,
not less than three nor more than 30. When a variable annuity basis is
selected, a mortality and expense risk charge continues to be assessed, even
though General American incurs no mortality risk under this option. The
person considering this option should consult his tax advisor about the
possibility that such selection might be held to be "constructive receipt"
of the entire contract value and result in adverse tax treatment.
Option 6-Income of a Fixed Amount-The amount due may be paid in equal
annual, semiannual, quarterly, or monthly payments of a designated dollar
amount (not less than $75 per annum per $1,000 of the original amount due)
until the remaining balance is less than the amount of one payment. To
determine the remaining balance at the end of any Business Day, such balance
at the end of the previous Business Day is decreased by the amount of any
payment paid since the last Business Day and the result multiplied by the
net investment factor for each Division involved for the current Business
Day. If the remaining balance at any time is less than the amount of one
payment, such balance will be paid and will be the final payment under the
option. When a variable annuity basis is selected, a mortality and expense
risk charge continues to be assessed, even though General American incurs no
mortality risk under this option. The person considering this option should
consult his tax advisor about the possibility that such selection might be
held to be "constructive receipt" of the entire contract value and result
in adverse tax treatment.
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<PAGE> 29
Option 7-Interest Income (available only to Nonqualified Annuities)-The
amount due may be left on deposit with General American in its General
Account and a sum will be paid annually, semiannually, quarterly, or
monthly, as selected, which shall not be less than 4% per annum for the
period multiplied by the amount remaining on deposit.
(c) Value of Variable Annuity Payments
The value of Variable Annuity Payments will reflect the investment
experience of the chosen Division. The annuity tables that are contained in
the Contract, and are used to calculate the value of Variable Annuity
Payments, are based on an assumed interest rate of 4%. If the actual net
investment experience exactly equals the assumed interest rate, then the
Variable Annuity Payments will remain the same (equal to the first Annuity
Payment). However, if actual investment experience exceeds the assumed
interest rate, the Variable Annuity Payments will increase; conversely, they
will decrease if the actual experience is lower.
The value of all payments (both guaranteed and variable) will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater
for life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
The method of computation of Variable Annuity Payments is described in more
detail in the Statement of Additional Information.
Deferment of Payment
Payment of any cash withdrawal or lump sum death benefit due from the
Separate Account will occur within seven days from the date the election
becomes effective, except that General American may be permitted to defer
such payment if: (l) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise
restricted; or (2) an emergency exists as defined by the Securities and
Exchange Commission or the Commission requires that trading be restricted;
or (3) the Securities and Exchange Commission permits a delay for the
protection of Contract Owners.
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The Beneficiary
The Beneficiary is the person or persons who will receive any proceeds
payable in the event of the death of the Annuitant, in accordance with this
provision. The original Beneficiary is shown in the application. Subject
to any assignment of a Contract, the Beneficiary designation may be changed
during the lifetime of the Annuitant by filing a proper Written Request
acceptable to General American at its Home Office. If the joint and
survivor option is selected, the Annuitant may not change the designation of
a joint Annuitant after payments begin. General American reserves the right
to require the Contract for endorsement. A change of Beneficiary
designation will not become effective unless accepted in writing by General
American at its Home Office, at which time it will be effective as of the
date of the request, but without prejudice to General American on account of
any benefit paid before receipt of such request at its Home Office. A
Beneficiary who becomes entitled to receive benefits under this Contract may
also designate, in the same manner, a Beneficiary to receive any benefits
which may become payable under this Contract by reason of death. If a
Beneficiary has not been designated by a Payee or if a Beneficiary
designated by a Payee is not living on the date a lump sum death benefit is
payable, or on the date any payments are to be continued, as a result of the
death of such Payee, the Company will pay the lump sum death benefit for the
commuted value of the payments to the former Payee's spouse. If the spouse
is not living at the death of the Payee, then payments will be made equally
to the Payee's children who survive the Payee. If the children are not
surviving, then payments will be made to either the surviving father or
mother or to both equally if both survive. If none of the above survive the
Payee, then payments will be made to his or her executors or administrators.
Death Benefits
When General American receives due proof of the death of the Annuitant that
occurs before the Annuity Date, it will pay to the Beneficiary the
Accumulated Value of the Contract. If the Contract Owner dies before the
retirement date, this Contract will no longer be in force. General American
will pay the Contract Owner's interest in the Contract to the Beneficiary in
a lump sum upon receiving proof of the Contract Owner's death.
This payment must be made within five (5) years after the date of the death
of the Annuitant.
If, however, the Contract Owner or the Beneficiary make a written choice of
one of the two options described below, and if the choice is clear to
General American, the company will treat the proceeds as the Contract Owner
or the Beneficiary have chosen. The two options are:
(i) Leave the proceeds of the Contract with General American as provided
under Option 6 of the Annuity Provisions Section of this Contract. Any
amount remaining unpaid under Option 6 will, however, be paid in a lump sum
to the Beneficiary before the end of the fifth year after the Contract
Owner's death.
(ii) Buy an immediate annuity for the Beneficiary, who will be the owner
and Annuitant. Payments under the Annuity, or under any other method of
payment General American makes available, must be for the life of the
Beneficiary, or for a number of years that is not more than the life
expectancy of the Beneficiary at the time of the Contract Owner's death (as
determined for Federal tax purposes), and must begin within one year after
the Contract Owner's death.
However, if the Contract Owner dies before the Annuity Date and the Contract
Owner's spouse is the Beneficiary, no proceeds will be paid to him or her.
Instead, this Contract may continue with the Contract Owner's surviving
spouse as the new owner.
If the Contract Owner dies and no Beneficiary survives him or her before the
Annuity Date, payment of the proceeds will be made in a lump sum to the
Contract Owner's estate.
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Assignments and Transfers
With respect to individual Nonqualified Contracts, an assignment or transfer
of the Contract or of any interest in it will not bind General American
unless (1) it is made as a written instrument, (2) the original instrument
or a certified copy is filed at our Home Office, and (3) we send the
Contract Owner a receipt. General American is not responsible for the
validity of the assignment. If a claim is based on an assignment or
transfer, proof of interest of the claimant may be required. A valid
assignment will take precedence over any claim of a Beneficiary.
With respect to all other Contracts, the Contract Owner may not transfer,
sell, assign, discount or pledge a Contract for a loan or a security for the
performance of an obligation or any other purpose, to any person other than
to us at our Home Office.
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=============================================================================
FEDERAL TAX MATTERS
=============================================================================
Introduction
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
The following discussion is a general description of the Federal income tax
considerations relating to the Contract and is not intended as tax advice.
Any person concerned about these tax implications should consult a competent
tax advisor before initiating any transaction. This discussion is based
upon General American's understanding of the present Federal income tax laws
as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation of the
present Federal income tax laws or of the current interpretation by the
Internal Revenue Service. Moreover, no attempt has been made to consider
any applicable state or other tax laws.
The Contract may be purchased on a nonqualified basis ("Nonqualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). Qualified Contracts are
intended to be purchased in connection with plans entitled to special income
tax treatment under Sections 401, 408, and 457 of the Code or as tax
sheltered annuities under Section 403(b) of the Code. The ultimate effect
of Federal income taxes on the amounts held under a contract, on Annuity
Payments, and on the economic benefit to the Contract Owner, the Annuitant,
or the Beneficiary depends on the type of retirement plan and on the tax and
employment status of the individual concerned. In addition, certain
requirements must be satisfied in purchasing a Qualified Contract and
receiving distributions from a Qualified Contract in order to continue
receiving favorable tax treatment. Therefore, a purchaser of a Qualified
Contract should seek competent legal and tax advice regarding the
suitability of the Contract for his or her situation, the applicable
requirements and the tax treatment of the rights and benefits of a Contract.
The following discussion assumes that Qualified Contract is purchased with
proceeds from and/or contributions under retirement plans that qualify for
the intended special Federal income tax treatment.
Taxation of General American
General American is taxed as a life insurance company under Part I of
Subchapter L of the Code. Since the operations of the Separate Account form
a part of General American, the Separate Account will not be taxed
separately as a "regulated investment company" under Subchapter M of the
Code. Investment income and realized capital gains are automatically
applied to increase reserves under the Contract. Under existing Federal
income tax law, General American believes that the investment income and
realized net capital gains of the Separate Account will not be taxed to the
extent that such income and gains are applied to increase the reserves under
the Contract.
Accordingly, General American does not anticipate that it will incur any
Federal income tax liability attributable to the Separate Account and,
therefore, General American does not intend to make provisions for any such
taxes. However, if changes in the Federal tax laws or interpretations
thereof result in General American being taxed on income or gains
attributable to the Separate Account, then General American may impose a
charge against the Separate Account (with respect to some or all Contracts)
in order to set aside amounts to pay such taxes.
Tax Status of the Contracts
(a) Diversification.
Section 817(h) of the Code requires that with respect to Nonqualified
Contracts, the investments of the Divisions be "adequately diversified" in
accordance with Treasury Department regulations in order for the Contracts
to qualify as annuity contracts under Federal tax law. General American
intends for the Separate Account, through the Funds, to comply with the
diversification requirements prescribed by the Treasury Department in Treas.
Reg. Sec. 1.817-5.
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<PAGE> 33
(b) Investor Control.
The Treasury Department has from time to time suggested that under some
circumstances the owner of a variable contract will be deemed to be in
control over the investments of a separate account supporting the contract,
which may cause the owner, rather than the insurance company, to be treated
as the owner of the assets in the separate account. If a contract owner is
considered the owner of the assets of a separate account, income and gains
from that account would be included in the owner's gross income. The
Treasury Department also has stated on past occasions that it will issue
regulations or rulings addressing this issue.
The ownership rights under the Contract are different in certain respects
from those described by the IRS in rulings in which it was determined that
contract owners were not owners of separate account assets. For example, a
Contract Owner has the choice of more Divisions and narrower investment
strategies in which to allocate net Purchase Payments and Accumulation
Value, and may be able to transfer among Divisions more frequently than in
such rulings. These differences could result in a Contract Owner being
treated as the owner of the assets of the Separate Accounts. In addition,
General American does not know what standards will be set forth, if any,
in the additional regulations or rulings which the Treasury Department
has stated it expects to issue. General American therefore reserves the
right to modify the Contract as necessary to attempt to prevent a Contract
Owner from being considered the owner of a pro rata share of the assets
of the Separate Accounts.
(c) Required Distributions.
In order to be treated as an annuity contract for federal income tax
purposes, Section 72(s) of the Code requires any Nonqualified Contract to
provide that (a) if any Contract Owner dies on or after the Annuity Date but
prior to the time the entire interest in the Contract 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 Contract Owner's death; and (b) if any Contract Owner dies prior to the
Annuity Date, the entire interest in the Contract will be distributed within
five years after the date of that Contract Owner's death. These
requirements will be considered satisfied as to any portion of the Contract
Owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of
that beneficiary, provided that such distributions begin within one year of
that Contract Owner's death. The Contract Owner's "designated beneficiary"
is the person designated by such Contract Owner as a Beneficiary and to whom
ownership of the Contract passes by reason of death and must be a natural
person. However, if the Contract Owner's "designated beneficiary" is the
surviving spouse of the Contract Owner, the Contract may be continued with
the surviving spouse as the new Contract Owner.
The Nonqualified Contracts 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. General American
intends 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. There are other rules that apply to Qualified
Contracts.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for Federal income tax purposes.
Taxation of Annuities
(a) In General.
Section 72 of the Code governs taxation of annuities in general. General
American believes that a Contract Owner who is a natural person generally is
not taxed on increases in the value of a Contract until distribution occurs
by withdrawing all or part of the account value (e.g., partial withdrawals,
surrenders or Annuity Payments under the Annuity Income Option elected).
For this purpose, the assignment, pledge, or agreement to assign or pledge
any portion of the account value (and in the case of a Qualified Contract,
any portion of an interest in the qualified plan) generally will be treated
as a distribution. The taxable portion of a distribution (in the form of a
single sum payment or an annuity) is taxable as ordinary income.
Any Contract Owner who is not a natural person generally must include in
income any increase in the excess of the Contract's Accumulated Value over
the investment in the Contract (defined below) during the taxable year.
There are some exceptions to this rule and a prospective Contract Owner that
is not a natural person may wish to discuss these with a competent tax
advisor.
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<PAGE> 34
The following discussion generally applies to a Contract owned by a natural
person.
(b) Withdrawals and Surrenders.
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
investment in the Contract to the individual's total accrued benefit or the
balance under the retirement plan. The investment in the Contract generally
equals the amount of any premium payments paid by or on behalf of any
individual with after-tax dollars. For a Contract issued in connection with
qualified plans, the investment in the Contract can be zero. Special tax
rules may be available for certain distributions from a Qualified Contract.
With respect to Nonqualified Contracts, partial withdrawals - including any
withdrawals under the systematic withdrawal plan - are generally treated as
taxable income to the extent that the account value immediately before the
withdrawal exceeds the investment in the Contract at that time. Full
surrenders are treated as taxable income to the extent that the amount
received exceeds the investment in the Contract.
(c) Annuity Payments.
Although the tax consequences may vary depending on the Annuity Payment
elected under the Contract, in general, only the portion of the Annuity
Payment that represents the amount by which the Accumulated Value exceeds
the investment in the Contract will be taxed; after the investment in the
Contract is recovered, the full amount of any additional Annuity Payments is
taxable.
For variable Annuity Payments, the taxable portion is generally determined
by an equation that establishes a specific dollar amount of each payment
that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic
payments. However, the entire distribution will be taxable once the
recipient has recovered the dollar amount of his or her investment in the
Contract.
For fixed Annuity Payments, in general, there is no tax on the portion of
each payment which represents the same ratio that the investment in the
Contract bears to the total expected value of the Annuity Payments for the
term of the payments; however, the remainder of each Annuity Payment is
taxable. In all cases, after the investment in the Contract is recovered,
the full amount of any additional Annuity Payment is taxable.
(d) Penalty Tax.
In the case of a distribution pursuant to a Nonqualified Contract, there may
be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on
distributions: (1) made on or after the date on which the Contract Owner
attains age 59 1/2; (2) made as a result of death or disability of the
Contract Owner; (3) received in substantially equal periodic payments as a
life annuity or a joint and survivor annuity for the lives or life
expectancies of the Contract Owner and a "designated beneficiary;" (4) from
a qualified plan; (5) allocable to investment in the Contract before August
14, 1982; (6) under a qualified funding asset (as defined in Code Section
130(d)); or (7) under an immediate annuity (as defined in Code Section
(u)(4)). Other tax penalties may apply to certain distributions under a
Qualified Contract, including a penalty similar to the penalty for
distributions from Nonqualified Contracts described above.
(e) Taxation of Death Benefit Proceeds
Amounts may be distributed from a Contract because of the death of a
Contract Owner or an Annuitant. Generally, such amounts are includable
in the income of the recipient as follows: (1) if distributed in a lump
sum, they are taxed in the same manner as a full surrender of the Contract,
as described above, or (2) if distributed under an annuity option, they are
taxed in the same manner as annuity payments, as described above. For these
purposes, the investment in the contract is not affected by the owner's or
annuitant's death. That is, the investment in the contract remains the
amount of any purchase payments paid which were not excluded from gross
income.
(f) Transfers, Assignments or Exchanges of the Contract.
In general, a transfer of ownership of a Contract, the collateral assignment
of a Contract, the designation of an Annuitant or Beneficiary who is not also
the Contract Owner, or the exchange of a Contract may result in certain tax
consequences to the Contract Owner. For example, when a Contract is assigned
as collateral for a loan, the entire excess of the Contract's account value
over the investment in the contract becomes taxable as ordinary income, and,
if the Contract Owner is under the age of 59 1/2, a penalty tax equal to
10% of the taxable amount may also be imposed. Increases in the value of a
Contract that has been assigned will continue to be taxable annually to the
Contract Owner until the assignment is released.
Any Contract Owner contemplating any such transfer, assignment, designation,
or exchange should contact a competent tax adviser for advice with respect
to the potential tax effects of such a transaction.
(g) Multiple Contracts.
All Nonqualified Annuity contracts that are issued by General American (or
its affiliates) to the same Contract Owner during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in gross income under Section 72(e) of the Code. In addition,
the Treasury Department has specific authority to issue regulations that
prevent the avoidance of Section 72(e) through the serial purchase of
annuity contracts or otherwise. Congress has also indicated that the
Treasury Department may have authority to treat the combination purchase of
an immediate annuity contract and a separate deferred annuity contract as a
single annuity contract under its general authority to prescribe rules as
may be necessary to enforce the Federal income tax laws.
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(h) Withholding.
Pension and annuity distributions generally are subject to withholding from
the recipient's Federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients,
however, generally are provided the opportunity to elect not to have tax
withheld from distributions. Different rules may apply to United States
citizens or expatriates living abroad and, effective January 1, 1993, to
certain distributions under Qualified Contracts. In addition, some states
have enacted legislation requiring withholding.
(i) Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely
modified the Federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities
that did not have "substantial life contingencies" by taxing income as
it is credited to the annuity. Although as of the date of this Prospectus
Congress is not considering any legislation regarding the taxation of
annuities, there is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as the IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it
also possible that any change could be effective prior to the date of
any such change.
(j) Other Tax Consequences.
As noted above, the foregoing discussion of the Federal income tax
consequences under the Contract is not exhaustive and special rules are
provided with respect to other tax situations not discussed in the
Prospectus. Further, the Federal income tax consequences discussed here
reflect General American's understanding of current law and the law may
change. Federal estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of distributions under the Contract
depend on the individual circumstances of each Contract Owner or recipient
of the distribution. A competent tax advisor should be consulted for
further information.
(k) Qualified Contracts.
The Qualified Contract is designed for use with several types of retirement
plans. The tax rules applicable to participants and beneficiaries in
retirement plans vary according to the type of plan and the terms and
conditions of the plan. Special favorable tax treatment may be available
for certain types of contributions and distributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances.
We make no attempt to provide more than general information about use of the
Contracts with the various types of retirement plans. Owners and
participants under retirement plans, as well as Annuitants and
Beneficiaries, are cautioned that the rights of any person to any benefits
under Qualified Contracts may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract
issued in connection with such a plan. Some retirement plans are subject
to distribution and other requirements that are not incorporated in the
administration of the Contracts. Contract Owners are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts satisfy applicable law. Purchasers of Contracts for
use with any retirement plan should consult a competent legal counsel and
tax advisor regarding the suitability of the Contract.
Individual Retirement Annuities and Accounts
The Contract is designed for use with individual retirement annuities and
individual retirement accounts. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program know as an
Individual Retirement Annuity or Individual Retirement Account (each
hereinafter referred to as "IRA"). Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis into
an IRA. The sale of a Contract for use with an IRA may be subject to
special disclosure requirements of the Internal Revenue Service. Purchasers
of the Contract for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other applicable
agencies. Such purchasers will have the right to revoke the purchase within
seven days of the earlier of the establishment of the IRA or the purchase.
If a Qualified Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan, Contract Owners, Annuitants and
Beneficiaries are cautioned that 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 Contract. A
Qualified Contract will be amended as necessary to conform to the
requirements of the Code.
Code Section 403(b) Plans
Under Code Section 403(b), payments made by public school systems and
certain tax exempt organizations to purchase annuity contracts for their
employees are excludable from the gross income of the employee, subject to
certain limitations. However, these payments may be subject to FICA (Social
Security) taxes.
Code Section 403(b) (11) restricts the distribution under Code Section
403(b) annuity contracts of: (1) elective contributions made in years
beginning after December 31, 1988; (2) earnings on those contributions; and
(3) earnings in such years on amounts held as of the last year beginning
before January 1, 1989. Distribution of those amounts may only occur upon
death of the employee, attainment of age 59 1/2, separation from service,
disability, or financial hardship. Income attributable to elective
contributions may not be distributed in the case of hardship. Distributions
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<PAGE> 36
prior to age 59 1/2 due to separation from service or financial hardship are
subject to the nondeductible 10% penalty tax for premature distributions, in
addition to Federal income tax.
The Investment Company Act of 1940 (the "1940 Act") has distribution
requirements which differ from the requirements of Code Section 403(b) set
forth above. However, these Contracts are being offered in reliance upon,
and in compliance with, the provisions of no-action letter number IP-6-88
issued by the Securities and Exchange Commission to the American Council of
Life Insurance. The no-action letter allows the Separate Account to apply
the restrictions created by Code Section 403(b)(11) as long as specified
steps, such as this disclosure, are taken to ensure Contract Owners are
aware of the Code restrictions. General American believes it is in
compliance with the provisions of the no-action letter.
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans
Code Section 401(a) permits employers to establish various types of
retirement plans for employees, and permit self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Contracts to provide
benefits under the plans. Adverse tax consequences to the plan, to the
participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments.
Deferred Compensation Plans
Code Section 457 provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. The plans may
permit a participant to specify the form of investment for the deferred
compensation account. All investments are owned by the sponsoring employer
and are subject to the claims of the general creditors of the employer.
Distributions are taxable in full. Depending on the terms of the particular
plan, the employer may be entitled to draw on deferred amounts for purposes
unrelated to its Section 457 plan obligations. These plans are subject to
various restrictions on contributions and distributions.
Restrictions under Qualified Contracts
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under
the terms of the plans in respect of which Qualified Contracts are issued.
=============================================================================
DISTRIBUTOR OF THE CONTRACTS
=============================================================================
Walnut Street Securities, Inc. ("Walnut Street"), Suite 300, 670 Mason Ridge
Center Drive, St. Louis, Missouri 63141 is the principal underwriter and the
distributor of the Contracts. Walnut Street is a wholly owned subsidiary of
General American. Walnut Street has entered into contracts with various
broker-dealers and registered representatives affiliated with Walnut Street to
aid in the distribution of the Contracts. Commissions paid to dealer(s) in
varying amounts are not expected to exceed 3.75% of Purchase Payments for such
Contracts, under normal circumstances. For distribution of the Contracts,
General American paid commissions of $958,803.12 to Walnut Street in 1995.
=============================================================================
VOTING RIGHTS
=============================================================================
To the extent required by law, the General American Capital Company Fund or
the Variable Insurance Products Fund shares held in the Divisions of the
Separate Account will be voted by General American at shareholder meetings
of such Funds in accordance with instructions received from persons having
voting interests in the corresponding Divisions of the Separate Account.
The Contract Owner holds a voting interest in each Division to which the
Accumulated Value is allocated or Annuity Payments are generated. If,
however, the 1940 Act or any regulation thereunder should be amended, or if
the present interpretation thereof should change, and, as a result, General
American determines that it is allowed to vote the Fund shares in its own
right, General American may elect to do so.
The number of votes which are available to a Contract Owner will be
calculated separately for each Division of the Separate Account. That
number will be determined by applying his or her percentage interest, if
any, in a particular Division to the total number of votes attributable to
the Division.
The number of votes is equal to the number of dollars: (a) during the
accumulation period, in the Accumulated Value attributable to a Division
divided by the net asset value of a share of the corresponding Fund; and (b)
during the annuity period, in the reserve credited to the Annuity Units held
in the Division(s) under the variable annuity settlement option in effect
divided by the net asset value of a share of the corresponding Fund.
Generally, during the annuity period the number of votes applicable to the
Annuitant will decrease.
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At most Fund shareholder meetings, votes may be cast in person or by proxy
and fractional votes will be counted.
The number of votes of a Division which are available will be determined as
of the date established by the corresponding Fund for determining
shareholders eligible to vote at the meeting. Voting instructions will be
solicited by written communication from us prior to such meeting in
accordance with procedures established.
Fund shares as to which no timely instructions are received or shares held
by General American as to which Contract Owners have no beneficial interest
will be voted in proportion to the voting instructions which are received
with respect to all Contracts participating in that Fund. Voting
instructions to abstain on any item to be voted upon will be applied on a
pro rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Division will receive proxy
material, reports, and other materials relating to the appropriate Fund.
To the extent that General American, as shareholder of the Funds, is
entitled to vote any Fund's interest in the Trust, it will do so on the same
basis as described above.
=============================================================================
THE GENERAL ACCOUNT
=============================================================================
Contributions and transfers to the General Account under the Contracts
become part of the assets of General American which support annuity and
insurance obligations. The General Account includes all of General
American's assets, except those assets segregated in separate accounts.
General American has sole discretion to invest the assets of the General
Account, subject to applicable law. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered under
the Securities Act of 1933, nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General
Account nor any interests therein are subject to the provisions of these
statutes and, as a result, the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this Prospectus relating to
the General Account. However, disclosures about the General Account may be
subject to certain generally applicable provisions of the Federal securities
laws relating to the accuracy and completeness of statements made in
Prospectuses.
General Account Accumulations
General American guarantees that it will credit interest at an effective
annual rate of at least 4% to Purchase Payments or portions of Purchase
Payments allocated or transferred to the General Account under the
Contracts. General American may, AT ITS SOLE DISCRETION, credit a higher
rate of interest to the General Account, or to amounts allocated or
transferred to the General Account. Subject to any applicable surrender
charges, General American guarantees that the Accumulated Value held in the
General Account will equal all amounts allocated or transferred to the
General Account, plus any interest credited thereto, less any amounts
surrendered or transferred from the General Account. Any interest held in
the General Account does not entitle a Contract Owner to share in the
investment experience of the General Account.
Surrender Charges
Surrender charges may be applied to withdrawals from the General Account.
(See "Surrender Charges")
Transfers to the Separate Account
Transfers from the General Account to the Divisions of the Separate Account
may be made only to the extent allowed by General American. (See
"Transfers")
General Matters
General American may delay the payment of a surrender or partial withdrawal
from the General Account for up to six months from receipt of Written
Request. If payment is delayed, the amount due will continue to be credited
with the rate of interest then credited to the General Account until the
payment is made.
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=============================================================================
STATEMENT OF ADDITIONAL INFORMATION
=============================================================================
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus, The following
is the Table of Contents for that Statement:
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
THE CONTRACTS S-3
Computation of Variable Annuity Income Payments S-3
Joint Annuitant S-5
IRS Required Distributions S-5
MONEY MARKET YIELD CALCULATION S-5
GENERAL MATTERS S-6
Participating S-7
Incorrect Age or Sex S-7
Annuity Data S-7
Quarterly Reports S-7
Incontestability S-7
Ownership S-7
Reinstatement S-8
DISTRIBUTION OF THE CONTRACT S-8
SAFEKEEPING OF ACCOUNT ASSETS S-8
STATE REGULATION S-8
RECORDS AND REPORTS S-9
LEGAL PROCEEDINGS S-9
OTHER INFORMATION S-9
FINANCIAL STATEMENTS S-9
</TABLE>
33
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PART B Registration No. 2-39272
811-2162
GENERAL AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACT
Offered by
General American Life Insurance Company
(A Mutual Insurance Company domiciled in Missouri)
700 Market Street
St. Louis, MO 63101
***********************
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the group and individual
variable annuity contracts ("Contracts" or "Contract" as syntax
requires) offered by General American Life Insurance Company. You
may obtain a copy of the current Prospectus by calling
800-449-6447 or writing to: Variable Annuity Administration
Department, P.O. Box 14490, St. Louis, MO 63178-4490. Terms
defined in the current Prospectus for the Contract are used in the
same way in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE
CONTRACTS.
Dated: 29 April 1996
S-1
<PAGE> 40
TABLE OF CONTENTS
Page
THE CONTRACTS S-3
Computation of Variable Annuity Income Payments S-3
Joint Annuitant S-5
IRS Required Distribution S-5
MONEY MARKET YIELD CALCULATION S-5
GENERAL MATTERS S-6
Participating S-7
Incorrect Age or Sex S-7
Annuity Data S-7
Quarterly Reports S-7
Incontestability S-7
Ownership S-7
Reinstatement S-8
DISTRIBUTION OF THE CONTRACT S-8
SAFEKEEPING OF ACCOUNT ASSETS S-8
STATE REGULATION S-8
RECORDS AND REPORTS S-9
LEGAL PROCEEDINGS S-9
OTHER INFORMATION S-9
FINANCIAL STATEMENTS S-9
S-2
<PAGE> 41
THE CONTRACTS
The following provides additional information about the Contracts
which supplements the description in the Prospectus and may be of
interest to the Contract Owners.
Computation of Variable Annuity Income Payments
(a) Computation of the Value of an Annuity Unit
The table of contractual guaranteed annuity rates is based on an
assumed interest rate. The assumed interest rate is 4% for all
contracts issued on or after 1 May 1982; 3.5% for tax-qualified
contracts issued prior to 1 May 1982; and 3% for non-tax-qualified
contracts issued prior to 1 May 1982.
As a starting point, the value of a Separate Account Two annuity
unit was established at $10.00 as of the end of the business day
on 4 January 1971. For contracts issued prior to 1 May 1982, the
value of the annuity unit at the end of any subsequent business
day is determined by multiplying such value for the preceding
business day by the product of (a) the daily reduction factor
(described below) once for each calendar day expiring between the
end of the sixth preceding business day and the end of the fifth
preceding business day and (b) the net investment factor for the
fifth business day preceding such business day.
The daily reduction factors referred to above are .99989256 for
all contracts issued on or after 1 May 1982; .99990575 for
tax-qualified contracts issued prior to 1 May 1982; and .99991902
for non-tax-qualified contracts issued before 1 May 1982.
These daily reduction factors are necessary to neutralize the
assumed net investment rate built into the annuity tables.
Calculations are performed as of the fifth preceding business day
to permit calculation of amounts and the mailing of checks in
advance of their due date.
This may be illustrated by the following hypothetical example.
Assuming that the net investment factor for the fifth preceding
business day was 1.00176027, and assuming that the annuity unit
value for the preceding business day was $10.20, then the annuity
unit for the current business day is $10.22, determined as
follows:
1.00176027 $10.200000
X .99989256 X 1.00165264
1.00165264 $10.216857
S-3
<PAGE> 42
(b) Determination of the Amount of the First Annuity
Installment
When annuity installments begin, the accumulated value of the
Contract is established. This is the sum of the products of the
values of an accumulation unit in each Division on the fifth
business day preceding the annuity commencement date and the
number of accumulation units credited to the Contract as of the
annuity commencement date.
The Contract contains tables indicating the dollar amount of the
first annuity installment under each form of variable annuity for
each $1,000 of value of the Contract. The amount of the first
annuity installment depends on the option chosen and the sex (if
applicable) and age of the annuitant.
The first annuity installment is determined by multiplying the
benefit per $1,000 of value shown in the tables in the contract by
the number of thousands of dollars of accumulated value of the
contract (individual account).
If a greater first installment would result, General American will
compute the first installment on the same mortality basis as is
used in determining such installments under individual variable
annuity contracts then being issued for a similar class of
annuitants.
(c) Determination of the Fluctuating Values of the Annuity
Installments
The dollar amount of the first annuity installment, determined as
described above, is translated into annuity units by dividing that
dollar amount by the value of an annuity unit on the due date of
the first annuity installment. The number of annuity units
remains fixed and the amount of each subsequent annuity
installment is determined by multiplying this fixed number of
annuity units by the value of an annuity unit on the date the
installment is due.
If in any month after the first the application of the above net
investment factors produces a net investment increment exactly
equivalent to the assumed annualized rate of 4%, then the payment
in that month will not change. Since it is unlikely that it will
be exactly equivalent, installments will vary up or down depending
upon whether such investment increment is greater or less than the
assumed annualized rate of 4%. A higher assumption would mean a
higher initial annuity payment but a more slowly rising series of
S-4
<PAGE> 43
subsequent annuity payments (or a more rapidly falling series of
subsequent annuity payments if the value of an annuity unit is
decreasing). A lower assumption would have the opposite effect.
Joint Annuitant
The Contract Owner may, by Written Request at least 30 days prior
to the Annuity Date, name a Joint Annuitant. An Annuitant or
Joint Annuitant may not be replaced.
The Annuity Date shall be specified in the application. If the
Annuitant or Joint Annuitant dies after the Annuity Date, the
survivor shall be the sole Annuitant. Another Joint Annuitant may
not be designated. Payment to a Beneficiary shall not be made
until the death of the surviving Annuitant.
IRS Required Distributions
If any Contract Owner dies before the entire interest in the
Contract is distributed, the value of the Contract must be
distributed to the designated Beneficiary as described in this
section so that the Contracts qualify as annuities under the
Internal Revenue Code.
If the death occurs on or after the Annuity Date, 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
death. If the death occurs before the Annuity date, the entire
interest in the Contract will be distributed within five years
after date of death or be used to purchase an immediate annuity
under which payments will begin within one year of the Contract
Owner's death and will be made for the life of the "Owner's
Designated Beneficiary" or for a period not extending beyond the
life expectancy of that beneficiary.
If any portion of the deceased Contract Owner's interest is payable
to (or for the benefit of) the surviving spouse of the Contract Owner,
the Contract may be continued with the surviving spouse as the New
Contract Owner.
MONEY MARKET YIELD CALCULATION
In accordance with regulations adopted by the Securities and
Exchange Commission, General American is required to disclose the
current annualized yield for the Division investing in the Money
Market Fund of Capital Company (the "Money Market Division") 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 Money Market
S-5
<PAGE> 44
Fund 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) in the value of a hypothetical
account having a balance of one unit of the Money Market Division
at the beginning of such seven-day 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 this quotient on a 365-day basis. The net change in
account value reflects the deductions for administrative expenses
of services and the mortality and expense risk charge and income
and expenses accrued during the period. Because of these
deductions, the yield for the Money Market Division of the
Separate Account will be lower than the yield for the Money Market
Fund of Capital Company.
The Securities and Exchange Commission also permits General
American to disclose the effective yield of the Money Market
Division for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the
unannualized base period return by adding one to the base period
return, raising the sum to a power equal to 365 divided by seven,
and subtracting one from the result.
The yield on amounts held in the Money Market Division 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 Division's
actual yield is affected by changes in interest rates on money
market securities, average portfolio maturity of the Money Market
Fund, the types and quality of portfolio securities held by the
Money Market Fund, and its operating expenses.
GENERAL MATTERS
Participating
The Contracts share in General American's divisible surplus while
they are in force prior to the annuity commencement date. Each
year General American will determine the share of divisible
surplus, if any, accruing to the Contracts. Investment results
are credited directly through the changes in the value of the
accumulation units and annuity units. Also, most mortality and
expense savings are credited directly through decreases in the
appropriate charges. Therefore, the Company expects little or no
divisible surplus to be credited to a contract. If any divisible
surplus is credited to a contract, the Contract Owner may
S-6
<PAGE> 45
choose to take the distribution in cash, reduce the stipulated
payment, or leave the distribution with General American to
accumulate with interest.
Incorrect Age or Sex
If the age at issue or sex of the Annuitant as shown in the
Contract is incorrect, any benefit payable under a supplemental
agreement will be such as the premiums paid would have purchased
at the correct age at issue and sex. After General American
begins paying monthly income installments, appropriate adjustment
will be made in any remaining installments.
Annuity Data
General American will not be liable for obligations which depend
on receiving information from a Payee until such information is
received in a form satisfactory to General American.
Quarterly Reports
Quarterly, General American will give the Contract Owner a report
of the current Accumulated Value allocated to each Division; the
current Accumulated Value allocated to the General Account; and
any Purchase Payments, charges, transfers, or surrenders during
that period. This report will also give the Contract Owner any
other information required by law or regulation. The Contract
Owner may ask for a report like this at any time. The quarterly
reports will be distributed without charge. General American
reserves the right to charge a fee for additional reports.
Incontestability
General American cannot contest this Contract, except for
nonpayment of stipulated payments or premiums, after it has been
in force during the lifetime of the Annuitant for a period of two
years from the date of issue. This provision will not apply to
any supplemental agreement relating to total and permanent
disability benefits.
Ownership
The Owner of the Contract on the Contract Date is the Annuitant,
unless otherwise specified in the application. The Owner may
specify a new Owner by Written Notice at any time thereafter.
During the Annuitant's lifetime all rights and privileges under
this Contract may be exercised solely by the Owner.
S-7
<PAGE> 46
Reinstatement
A Contract may be reinstated if a stipulated payment is in default
and if the Accumulated Value has not been applied under the
surrender provision. Reinstatement may be made during the
lifetime of the Annuitant but before the Annuity Date by the
payment of one stipulated payment. Benefits provided by any
supplemental agreement attached to this Contract may be reinstated
by providing evidence of insurability satisfactory to General
American. The reinstatement provisions incorporated in such
supplemental agreement must be complied with.
DISTRIBUTION OF THE CONTRACT
Walnut Street Securities, Inc. ("Walnut Street"), the principal
underwriter of the Contracts, is registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934
as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
The Contracts are offered to the public through individuals
licensed under the federal securities laws and state insurance
laws who have entered into agreements with Walnut Street. The
offering of the Contracts is continuous and Walnut Street does not
anticipate discontinuing the offering of the Contracts. However,
Walnut Street does reserve the right to discontinue the offering
of the Contracts.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by General
American. The assets are kept physically segregated and held
separate and apart from General American's general account assets.
Records are maintained of all purchases and redemptions of
eligible Fund shares held by each of the Divisions of the Separate
Account.
STATE REGULATION
General American is a mutual life insurance company organized
under the laws of Missouri, and is subject to regulation by the
Missouri Division of Insurance. An annual statement is filed with
the Missouri Commissioner of Insurance on or before March 1 of
each year covering the operations and reporting on the financial
condition of General American as of December 31 of the preceding
calendar year. Periodically, the Missouri Commissioner of
Insurance examines the financial condition of General American,
including the liabilities and reserves of the Separate Account.
S-8
<PAGE> 47
In addition, General American is subject to the insurance laws
and regulations of all the states where it is licensed to operate.
The availability of certain contract rights and provisions depends
on state approval and filing and review processes. Where required
by state law or regulation, the Contracts will be modified
accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be
maintained by General American. As presently required by the
Investment Company Act of 1940 and regulations promulgated
thereunder, General American will mail to all Contract Owners at
their last known address of record, at least semi-annually,
reports containing such information as may be required under that
Act or by any other applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a
party or to which the assets of the Separate Account are subject.
General American is not involved in any litigation that is of
material importance in relation to its total assets or that
relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and
Exchange Commission, under the Securities Act of 1933 as amended,
with respect to the Contracts discussed in this Statement of
Additional Information. Not all of the information set forth in
the Registration Statement, amendments, and exhibits thereto has
been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information
concerning the content of the Contracts and other legal
instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be
made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The financial statements of General American, which are included
in this Statement of Additional Information, should be considered
only as bearing on the ability of General American to meet its
obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the
Separate Account.
S-9
<PAGE> 48
The financial statements of General American and the Separate
Account have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, who serve as independent accountants
for the Separate Account.
The audited financial statements of General American have been
prepared in accordance with accounting practices prescribed or
permitted by the Department of Insurance of the State of Missouri
which are currently considered generally accepted accounting
principles for mutual life companies.
S-10
<PAGE> 49
Independent Auditors' Report
----------------------------
The Board of Directors and Contractholders
General American Life Insurance Company:
We have audited the statements of assets and liabilities,
including the schedule of investments, of the S & P 500 Index,
Money Market, Bond Index, Managed Equity, Asset Allocation,
Equity-Income, Growth, and Overseas Fund Divisions of General
American Separate Account Two as of December 31, 1995, and the
related statements of operations for the year then ended, the
statements of changes in net assets for each of the years in the
two year period ended December 31, 1995 and the condensed
financial information for each of the periods presented. These
financial statements and financial highlights are the
responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial
statements and condensed financial information 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 and condensed financial information are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. Investments owned at December 31, 1995
were verified by audit of the statements of assets and
liabilities of the underlying portfolios of General American
Capital Company and confirmation by correspondence with respect
to the Variable Insurance Products Fund sponsored by Fidelity
Investments. 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 and financial highlights
referred to above present fairly, in all material respects, the
financial position of the S & P 500 Index, Money Market, Bond
Index, Managed Equity, Asset Allocation, Equity-Income, Growth,
and Overseas Fund Divisions of General American Separate Account
Two as of December 31, 1995, and the results of their operations
for the year then ended, and changes in their net assets for each
of the years in the two year period ended December 31, 1995, and
financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 14, 1996
<PAGE> 50
<TABLE>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<CAPTION>
S & P 500 MONEY BOND MANAGED ASSET
INDEX MARKET INDEX EQUITY ALLOCATION
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in General American Capital Company,
at market value (see Schedule of Investments) $26,025,232 $2,326,145 $4,044,464 $16,638,107 $10,202,483
Receivable from General American Life Insurance Company 0 36,330 25,084 0 14,928
----------- ---------- ---------- ----------- -----------
Total assets 26,025,232 2,362,475 4,069,548 16,638,107 10,217,411
----------- ---------- ---------- ----------- -----------
Liabilities:
Payable to General American Life
Insurance Company 8,987 0 0 13,494 0
----------- ---------- ---------- ----------- -----------
Total net assets $26,016,245 $2,362,475 $4,069,548 $16,624,613 $10,217,411
=========== ========== ========== =========== ===========
Net assets represented by:
Tax sheltered annuities in accumulation period 17,921,485 1,541,103 2,570,834 13,709,150 6,673,402
Individually purchased annuities in accumulation period 8,094,760 821,372 1,498,714 2,876,666 3,544,009
Variable annuities in payment period 0 0 0 38,797 0
----------- ---------- ---------- ----------- -----------
Total net assets $26,016,245 $2,362,475 $4,069,548 $16,624,613 $10,217,411
=========== ========== ========== =========== ===========
Tax sheltered units held - 88 Series 657,294 106,312 145,560 214,899 316,581
Individually purchased units held - 88 Series 296,886 56,662 84,857 75,180 168,125
Tax sheltered units held - 82 Series -- -- -- 164,470 --
Individually purchased units held - 82 Series -- -- -- 17,230 --
Tax sheltered accumulation unit value - 88 Series $ 27.27 $ 14.50 $ 17.66 $ 25.84 $ 21.08
Individually purchased accumulation unit value - 88 Series 27.27 14.50 17.66 25.84 21.08
Tax sheltered accumulation unit value - 82 Series -- -- -- 49.83 --
Individually purchased accumulation unit value - 82 Series -- -- -- 54.22 --
Cost of investments $19,986,862 $2,392,336 $4,060,534 $16,313,557 $ 9,807,880
=========== ========== ========== =========== ===========
See accompanying notes to financial statements.
<PAGE> 51
<CAPTION>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1995
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
-------------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments in Fidelity Variable Insurance Products
Fund, at market value (see Schedule of Investments) $10,672,010 $11,980,597 $3,699,175
Receivable from General American Life Insurance Company 57,491 60,962 4,226
----------- ----------- ----------
Total assets 10,729,501 12,041,559 3,703,401
----------- ----------- ----------
Liabilities:
Payable to General American Life
Insurance Company 0 0 0
----------- ----------- ----------
Total net assets $10,729,501 $12,041,559 $3,703,401
=========== =========== ==========
Net assets represented by:
Tax sheltered annuities in accumulation period 7,799,631 8,575,431 2,869,043
Individually purchased annuities in accumulation period 2,929,870 3,466,128 834,358
Variable annuities in payment period 0 0 0
----------- ----------- ----------
Total net assets $10,729,501 $12,041,559 $3,703,401
=========== =========== ==========
Tax sheltered units held - 88 Series 552,367 646,415 265,638
Individually purchased units held - 88 Series 207,492 261,276 77,251
Tax sheltered units held - 82 Series -- -- --
Individually purchased units held - 82 Series -- -- --
Tax sheltered accumulation unit value - 88 Series $ 14.12 $ 13.27 $ 10.80
Individually purchased accumulation unit value - 88 Series 14.12 13.27 10.80
Tax sheltered accumulation unit value - 82 Series -- -- --
Individually purchased accumulation unit value - 82 Series -- -- --
Cost of investments $ 8,916,367 $ 9,884,678 $3,478,349
=========== =========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 52
<TABLE>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
S & P 500 MONEY BOND MANAGED ASSET
INDEX MARKET INDEX EQUITY ALLOCATION
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment income<F*> $ -- $ -- $ -- $ -- $ --
Expenses:
Mortality and expense charge (220,101) (22,896) (35,027) (136,599) (90,276)
---------- ---------- -------- ---------- ----------
Net investment income (expense) (220,101) (22,896) (35,027) (136,599) (90,276)
---------- ---------- -------- ---------- ----------
Net realized gain on investments:
Proceeds from sales 2,034,057 1,796,165 597,675 2,256,296 1,596,785
Cost of investments sold 798,560 1,606,922 406,075 183,533 758,994
---------- ---------- -------- ---------- ----------
Total realized gain on investments 1,235,497 189,243 191,600 2,072,763 837,791
---------- ---------- -------- ---------- ----------
Net unrealized gain (loss) on investments:
Unrealized gain (loss) on investments,
beginning of year 469,580 (9,472) (430,388) (1,825,543) (1,034,307)
Unrealized gain (loss) on investments, end of year 6,038,370 (66,191) (16,070) 324,550 394,602
---------- ---------- -------- ---------- ----------
Net unrealized gain (loss) on investments 5,568,790 (56,719) 414,318 2,150,093 1,428,910
---------- ---------- -------- ---------- ----------
Net gain (loss) on investments 6,804,287 132,524 605,918 4,222,856 2,266,701
---------- ---------- -------- ---------- ----------
Increase in net assets resulting
from operations $6,584,186 $ 109,628 $570,891 $4,086,257 $2,176,425
========== ========== ======== ========== ==========
<FN>
<F*>See Note 2C
See accompanying notes to financial statements.
<PAGE> 53
<CAPTION>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF OPERATIONS (continued)
FOR THE YEAR ENDED DECEMBER 31, 1995
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
------------- ------------- -------------
<S> <C> <C> <C>
Investment income:
Dividend income and capital gains distributions $ 414,089 $ 27,812 $ 23,394
Expenses:
Mortality and expense charge (73,416) (81,194) (33,036)
---------- ---------- --------
Net investment income (expense) 340,673 (53,382) (9,642)
---------- ---------- --------
Net realized gain on investments:
Proceeds from sales 384,392 433,278 635,709
Cost of investments sold 316,411 341,583 629,878
---------- ---------- --------
Total realized gain on investments 67,981 91,695 5,831
---------- ---------- --------
Net unrealized gain on investments:
Unrealized gain (loss) on investments,
beginning of period 77,921 143,971 (69,419)
Unrealized gain on investments, end of period 1,755,643 2,095,919 220,826
---------- ---------- --------
Net unrealized gain on investments 1,677,722 1,951,948 290,245
---------- ---------- --------
Net gain on investments 1,745,703 2,043,643 296,076
---------- ---------- --------
Increase in net assets resulting
from operations $2,086,376 $1,990,261 $286,434
========== ========== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 54
<TABLE>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
S & P 500 MONEY BOND
INDEX MARKET INDEX
FUND DIVISION FUND DIVISION FUND DIVISION
------------------------- ----------------------- ----------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment expenses $ (220,101) $ (178,300) $ (22,896) $ (23,195) $ (35,027) $ (33,770)
Net realized gain on investments 1,235,497 1,032,431 189,243 39,305 191,600 317,564
Net unrealized gain (loss) on investments 5,568,790 (823,210) (56,719) 54,826 414,318 (463,446)
----------- ----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets
resulting from operations 6,584,186 30,921 109,628 70,936 570,891 (179,652)
Net deposits into (withdrawals from)
Separate Account 1,302,367 1,217,676 169,484 (498,908) 453,985 (276,286)
----------- ----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets 7,886,553 1,248,597 279,112 (427,972) 1,024,876 (455,938)
Net assets, beginning of year 18,129,692 16,881,095 2,083,363 2,511,335 3,044,672 3,500,610
Net assets, end of year $26,016,245 $18,129,692 $2,362,475 $2,083,363 $4,069,548 $3,044,672
=========== =========== ========== ========== ========== ==========
<CAPTION>
MANAGED ASSET
EQUITY ALLOCATION
DIVISION FUND DIVISION
------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment expenses $ (136,599) $ (126,954) $ (90,276) $ (90,541)
Net realized gain on investments 2,072,763 2,852,375 837,791 876,195
Net unrealized gain (loss) on investments 2,150,093 (3,350,160) 1,428,910 (1,250,167)
----------- ----------- ----------- ----------
Increase (decrease) in net assets
resulting from operations 4,086,257 (624,739) 2,176,425 (464,513)
Net deposits into (withdrawals from)
Separate Account (726,729) (605,478) (214,397) 76,449
----------- ----------- ----------- ----------
Increase (decrease) in net assets 3,359,528 (1,230,217) 1,962,028 (388,064)
Net assets, beginning of year 13,265,085 14,495,302 8,255,383 8,643,447
Net assets, end of year $16,624,613 $13,265,085 $10,217,411 $8,255,383
=========== =========== =========== ==========
See accompanying notes to financial statements.
<PAGE> 55
<CAPTION>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
STATEMENTS OF CHANGES IN NET ASSETS (continued)
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD ENDED DECEMBER 31, 1994
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
1995 1994 <F**> 1995 1994 <F**> 1995 1994 <F**>
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (expense) $ 340,673 $ 45,163 $ (53,382) $ (12,553) $ (9,642) $ (12,920)
Net realized gain (loss) on investments 67,981 (13,583) 91,695 (15,262) 5,831 (1,599)
Net unrealized gain (loss) on investments 1,677,722 77,921 1,951,948 143,971 290,245 (69,419)
----------- ---------- ----------- ---------- ---------- ----------
Increase (decrease) in net assets resulting
from operations 2,086,376 109,501 1,990,261 116,156 286,434 (83,938)
Net deposits into Separate Account 4,455,975 4,077,649 5,381,006 4,554,136 510,609 2,990,296
----------- ---------- ----------- ---------- ---------- ----------
Increase in net assets 6,542,351 4,187,150 7,371,267 4,670,292 797,043 2,906,358
Net assets, beginning of period 4,187,150 0 4,670,292 0 2,906,358 0
Net assets, end of period $10,729,501 $4,187,150 $12,041,559 $4,670,292 $3,703,401 $2,906,358
=========== ========== =========== ========== ========== ==========
<FN>
<F**> The Equity-Income Fund and the Growth Fund began operations on January 6, 1994.
The Overseas Fund began operations on January 11, 1994.
See accompanying notes to financial statements.
</TABLE>
<PAGE> 56
GENERAL AMERICAN SEPARATE ACCOUNT TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1 - Organization
General American Life Insurance Company (General American) markets
life insurance and health and pension arrangements to the public.
General American Separate Account Two (the Separate Account) is a
part of General American and is available to tax qualified and
non-tax qualified retirement plans for investment purposes in
variable annuity contracts. The Separate Account was reorganized
as a unit investment trust, registered under the Investment Company
Act of 1940, pursuant to a plan of reorganization approved by its
contractholders on February 23, 1988. To provide Separate Account
contractholders the opportunity to invest in a more diversified
mutual fund portfolio, four additional fund divisions were also
established on this date. Existing contractholders' units in the
Separate Account remained unchanged after the reorganization.
Each Fund Division invests exclusively in shares of a single fund
of either General American Capital Company (the Capital Company) or
Variable Insurance Products Fund, which are open-end diversified
management investment companies. The funds of the General American
Capital Company, sponsored by General American, are the S & P 500
Index Fund, Money Market Fund, Bond Index Fund, Managed Equity
Fund, and Asset Allocation Fund Divisions. The name of the Bond
Index Fund was changed from the Intermediate Bond Fund effective
October 1, 1992. The name change reflected a change in investment
policies and objectives of the Fund. The name of the S & P 500
Index Fund was changed from the Equity Index Fund effective May 1,
1994. The funds of the Variable Insurance Products Fund, sponsored
by Fidelity Investments, are the Equity-Income, Growth, and the
Overseas Fund Divisions. Contractholders have the option of
directing their pension deposits into one or all of these Funds as
well as into the general account of General American. The unit
values for the Separate Account 88 Series for the above divisions
began at $10.00 on May 16, 1988 (date of first deposits into these
fund divisions), except for the Managed Equity Fund Division, which
began at $10.00 on February 23, 1988; the Equity-Income and Growth
Fund Divisions which began at $10.00 on January 6, 1994; and the
Overseas Fund Division which began at $10.00 on January 11, 1994.
Note 2 - Significant Accounting Policies
The following is a summary of significant accounting policies
followed by the Separate Account in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
<PAGE> 57
GENERAL AMERICAN SEPARATE ACCOUNT TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
A. Investments
The Separate Account's investments in the eight Funds are
valued daily based on the net asset values of the
respective Fund shares held as reported to General
American by General American Capital Company and Variable
Insurance Products. The specific identification method
is used in determining the cost of shares sold on
withdrawals by the Separate Account. Share transactions
are recorded on the trade date, which is the same as the
settlement date.
B. Federal Income Taxes
Under current Federal income tax law, the investment
income and capital gains from sales of investments of the
Separate Account are not taxable. Therefore, no Federal
income tax expense has been provided.
C. Distribution of Income and Realized Capital Gains
General American Capital Company follows the federal
income tax practice known as consent dividending,
whereby substantially all of its net investment income
and realized gains are deemed to be passed through to
the Separate Account. As a result, General American
Capital Company does not pay any dividends or capital
gain distributions. During December of each year,
accumulated investment income and capital gains of the
underlying Capital Company Fund are allocated to the
Separate Account by increasing the cost basis and
recognizing a capital gain in the Separate Account.
The Variable Insurance Products Funds intends to pay
out all of its net investment income and net realized
capital gains for each year. Dividends from the funds
are distributed at least annually on a per share basis
and are recorded on the ex dividend date. Normally,
net realized capital gains, if any, are distributed
each year for each fund. Such income and capital gain
distributions are automatically reinvested in
additional shares of the funds.
<PAGE> 58
GENERAL AMERICAN SEPARATE ACCOUNT TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
D. Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the period. Actual results could differ from
those estimates.
Note 3 - Policy Charges
General American assumes the mortality and expense risks and
provides certain administrative services related to operating the
Separate Account, for which the Separate Account is charged a daily
rate of .002740% of net assets of each Fund Division of the
Separate Account, which equals an annual rate of 1% for those net
assets. For contracts issued prior to the date of reorganization
and invested in the Managed Equity Fund, daily adjustments to
values in the Separate Account are made to offset fully the effect
of a .10% administrative fee charged to the Managed Equity Fund by
General American. Since the Separate Account invests in shares of
the Capital Company, as opposed to direct investments in publicly
traded common stocks, the Separate Account is not charged an
investment advisory fee.
Under Separate Account contractual arrangements, General American
is entitled to collect payment for sale charges and annuity taxes.
Variable annuity contracts written prior to May 1, 1982 have a
front-end sales charge of 4.75% applied to each contribution.
Contracts written after April 30, 1982 are subject to a deferred
sales charge contingent upon surrender of the contract or partial
withdrawal of funds on deposit. The sales charge is 9% during the
first contract year, decreasing by 1% per year thereafter; the
contingent deferred sales charge is waived in the event of death,
disability or annuitization after the fifth contract year. The
amount of sales charges, transfer charges, surrender charges and
premium taxes for 1995 and 1994 are disclosed in Note 6.
<PAGE> 59
GENERAL AMERICAN SEPARATE ACCOUNT TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 4 - Purchases and Sales of Capital Company Shares
During the year ended December 31, 1995, purchases including net
realized gain and income from distribution and proceeds from sales
of General American Capital Company shares were as follows:
<TABLE>
<CAPTION>
Asset
S & P 500 Index Money Bond Index Managed Allocation
Fund Market Fund Fund Equity Fund Fund
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Purchases $ 3,786,844 $ 2,044,524 $ 1,195,301 $ 3,090,015 $ 2,075,518
=============== =========== =========== =========== ===========
Sales $ 2,034,057 $ 1,796,165 $ 597,675 $ 2,256,296 $ 1,596,785
=============== =========== =========== =========== ===========
</TABLE>
During the year ended December 31, 1995, purchases (including
dividend reinvestment) and proceeds from sales of Variable
Insurance Products Fund shares were as follows:
<TABLE>
<CAPTION>
Equity-
Income Growth Overseas
Fund Fund Fund
-------------- ----------- -----------
<S> <C> <C> <C>
Purchases $ 5,126,307 $ 5,704,056 $ 1,137,058
============== =========== ===========
Sales $ 384,392 $ 433,278 $ 635,709
============== =========== ===========
</TABLE>
<PAGE> 60
Note 5 - Accumulation Unit Activity
The following is a summary of the accumulation unit activity for the year
ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
S & P 500 INDEX MONEY MARKET BOND INDEX MANAGED EQUITY ASSET ALLOCATION
FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION FUND DIVISION
--------------- ------------- ------------- ----------------------- ----------------
88 Series Other
Tax sheltered annuities: 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
------ ------ ------ ------ ------ ------ ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net deposits 117 206 93 100 32 52 41 72 7 14 59 145
Net withdrawals (96) (169) (80) (122) (32) (67) (30) (65) (31) (36) (62) (157)
Outstanding units, beginning of period 636 599 93 115 146 161 204 197 188 210 320 332
--- --- -- --- --- --- --- --- --- --- --- ---
Outstanding units, end of period 657 636 106 93 146 146 215 204 164 188 317 320
=== === === == === === === === === === === ===
Individually purchased annuities:
Net deposits 57 46 53 31 34 13 19 21 2 1 15 35
Net withdrawals (25) (22) (54) (46) (7) (16) (12) (9) (5) (5) (27) (21)
Outstanding units, beginning of period 265 241 58 73 58 61 68 56 20 24 180 166
--- --- -- -- -- -- -- -- -- -- --- ---
Outstanding units, end of period 297 265 57 58 85 58 75 68 17 20 168 180
=== === == == == == == == == == === ===
<PAGE> 61
Note 5 - Accumulation Unit Activity (continued)
The following is a summary of the accumulation unit activity for the year ended
December 31, 1995 and the period ended December 31, 1994 (in thousands):
<CAPTION>
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
-------------------- -------------------- -------------------
Tax sheltered annuities: 1995 1994<F**> 1995 1994<F**> 1995 1994<F**>
---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net deposits 274 406 326 423 84 256
Net withdrawals (37) (91) (36) (67) (58) (16)
Outstanding units, beginning of period 315 0 356 0 240 0
--- - --- - --- -
Outstanding units, end of period 552 315 646 356 266 240
=== === === === === ===
Individually purchased annuities:
Net deposits 136 90 173 119 46 79
Net withdrawals (11) (8) (28) (3) (21) (27)
Outstanding units, beginning of period 82 0 116 0 52 0
-- - --- - -- -
Outstanding units, end of period 207 82 261 116 77 52
=== == === === == ==
<FN>
<F**> The Equity-Income Fund and the Growth Fund began operations on January 6, 1994.
The Overseas Fund began operations on January 11, 1994.
</TABLE>
<PAGE> 62
Note 6 - Summary of Gross and Net Deposits into Separate Account
Deposits into the Separate Account are used to purchase shares in the Capital
Company or Fidelity's Variable Insurance Products Funds. Net deposits
represent the amounts available for investment in such shares after the
deduction of sales charges, premium taxes, transfer charges, and surrender
charges.
<TABLE>
<CAPTION>
S & P 500 INDEX MONEY MARKET BOND INDEX
FUND DIVISION FUND DIVISION FUND DIVISION
---------------------- -------------------- ----------------------
Tax sheltered annuities: 1995 1994 1995 1994 1995 1994
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $1,936,671 $2,578,672 $936,472 $ 446,100 $322,756 $ 555,647
Transfers between fund divisions
and General American (506,278) (896,277) (351,328) (280,711) (182,288) (608,090)
Surrenders and withdrawals (847,512) (942,828) (399,992) (453,436) (139,647) (174,126)
---------- ---------- -------- --------- -------- ---------
Total gross deposits, transfers, and
surrenders between fund divisions 582,881 739,567 185,152 (288,047) 821 (226,569)
Deductions:
Sales charges and premium taxes 42 50 35 22 0 0
Transfer charges 0 0 0 0 0 0
Surrender charges 15,376 12,003 1,994 4,233 1,789 2,672
---------- ---------- -------- --------- -------- ---------
15,418 12,053 2,029 4,255 1,789 2,672
Total deposits into (deductions from)
Separate Account $ 567,463 $ 727,514 $183,123 $(292,302) $ (968) $(229,241)
========== ========== ======== ========= ======== =========
<CAPTION>
MANAGED EQUITY ASSET ALLOCATION
FUND DIVISION FUND DIVISION
---------------------------------------------- ---------------------
88 Series Other
Tax sheltered annuities: 1995 1994 1995 1994 1995 1994
-------- -------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $785,374 $997,047 $ 169,261 $ 272,073 $937,459 $1,483,221
Transfers between fund divisions
and General American (220,967) (472,344) (108,544) (620,908) (556,127) (1,155,652)
Surrenders and withdrawals (293,856) (341,038) (1,056,414) (502,475) (371,984) (497,585)
-------- -------- ----------- --------- -------- ----------
Total gross deposits, transfers, and
surrenders between fund divisions 270,551 183,665 (995,697) (851,310) 9,348 (170,016)
Deductions:
Sales charges and premium taxes 0 0 415 444 190 9
Transfer charges 0 0 0 15 0 0
Surrender charges 1,520 1,288 8,990 5,329 8,385 11,087
-------- -------- ----------- --------- -------- ----------
1,520 1,288 9,405 5,788 8,575 11,096
Total deposits into (deductions from)
Separate Account $269,031 $182,377 $(1,005,102) $(857,098) $ 773 $ (181,112)
======== ======== =========== ========= ======== ==========
<CAPTION>
S & P 500 INDEX MONEY MARKET BOND INDEX
FUND DIVISION FUND DIVISION FUND DIVISION
-------------------- -------------------- ---------------------
Individually purchased annuities: 1995 1994 1995 1994 1995 1994
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $943,540 $632,584 $649,767 $ 67,690 $222,046 $166,332
Transfers between fund divisions
and General American 61,700 (38,899) (658,693) (228,380) 281,773 (185,251)
Surrenders and withdrawals (263,284) (100,442) (3,946) (45,916) (47,619) (28,056)
-------- -------- -------- --------- -------- --------
Total gross deposits, transfers, and
surrenders between fund divisions 741,956 493,243 (12,872) (206,606) 456,200 (46,975)
Deductions:
Sales charges and premium taxes 498 783 578 0 123 70
Transfer charges 0 0 0 0 0 0
Surrender charges 6,554 2,298 189 0 1,124 0
-------- -------- -------- --------- -------- --------
7,052 3,081 767 0 1,247 70
Total deposits into (deductions from)
Separate Account $734,904 $490,162 $(13,639) $(206,606) $454,953 $(47,045)
======== ======== ======== ========= ======== ========
<CAPTION>
MANAGED EQUITY ASSET ALLOCATION
FUND DIVISION FUND DIVISION
---------------------------------------------- ----------------------
88 Series Other
Individually purchased annuities: 1995 1994 1995 1994 1995 1994
-------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $217,821 $341,873 $ 13,955 $ 20,680 $ 255,198 $422,692
Transfers between fund divisions
and General American 10,366 (79,106) (147,835) 11,646 (395,823) (16,044)
Surrenders and withdrawals (65,017) (53,873) (18,167) (168,722) (71,018) (148,034)
-------- -------- --------- --------- --------- --------
Total gross deposits, transfers, and
surrenders between fund divisions 163,170 208,894 (152,047) (136,396) (211,643) 258,614
Deductions:
Sales charges and premium taxes 0 0 246 2,322 213 784
Transfer charges 0 0 15 5 0 0
Surrender charges 0 0 1,520 928 3,314 269
-------- -------- --------- --------- --------- --------
0 0 1,781 3,255 3,527 1,053
Total deposits into (deductions from)
Separate Account $163,170 $208,894 $(153,828) $(139,651) $(215,170) $257,561
======== ======== ========= ========= ========= ========
<PAGE> 63
Note 6 - Summary of Gross and Net Deposits into Separate Account, (continued)
<CAPTION>
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
------------------------ ------------------------ ----------------------
Tax sheltered annuities: 1995 1994 <F**> 1995 1994 <F**> 1995 1994 <F**>
---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $1,797,268 $1,240,380 $1,922,233 $1,600,981 $528,589 $ 914,645
Transfers between fund divisions
and General American 1,421,286 2,038,851 1,851,078 1,879,291 (197,929) 1,580,368
Surrenders and withdrawals (291,800) (44,289) (187,549) (33,031) (81,204) (31,005)
---------- ---------- ---------- ---------- -------- ----------
Total gross deposits, transfers, and
surrenders between fund divisions 2,926,754 3,234,942 3,585,762 3,447,241 249,456 2,464,008
Deductions:
Sales charges and premium taxes 70 29 84 44 15 27
Transfer charges 0 0 0 0 0 0
Surrender charges 3,695 300 3,758 439 1,716 455
---------- ---------- ---------- ---------- -------- ----------
3,765 329 3,842 483 1,731 482
Total deposits into (deductions from)
Separate Account $2,922,989 $3,234,613 $3,581,920 $3,446,758 $247,725 $2,463,526
========== ========== ========== ========== ======== ==========
<CAPTION>
EQUITY-INCOME GROWTH OVERSEAS
FUND DIVISION FUND DIVISION FUND DIVISION
------------------------- ------------------------ -----------------------
Individually purchased annuities: 1995 1994 <F**> 1995 1994 <F**> 1995 1994 <F**>
---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits $ 913,195 $599,953 $1,140,731 $ 752,641 $180,449 $611,375
Transfers between fund divisions
and General American 668,950 265,568 797,821 365,162 250,118 (84,374)
Surrenders and withdrawals (47,017) (22,223) (138,019) (10,232) (165,926) (37)
---------- -------- ---------- ---------- -------- --------
Total gross deposits, transfers, and
surrenders between fund divisions 1,535,128 843,298 1,800,533 1,107,571 264,641 526,964
Deductions:
Sales charges and premium taxes 197 188 141 190 62 191
Transfer charges 0 0 0 0 0 0
Surrender charges 1,945 74 1,306 3 1,695 3
---------- -------- ---------- ---------- -------- --------
2,142 262 1,447 193 1,757 194
Total deposits into (deductions from)
Separate Account $1,532,986 $843,036 $1,799,086 $1,107,378 $262,884 $526,770
========== ======== ========== ========== ======== ========
<FN>
<F**> The Equity-Income Fund and the Growth Fund began operations on January 6, 1994.
The Overseas Fund began operations on January 11, 1994.
</TABLE>
<PAGE> 64
<TABLE>
General American Separate Account Two
Financial Highlights Information
Table 1
<CAPTION>
Tax Qualified Plan Non-Tax Qualified Plan
Units outstanding, Units outstanding,
Accumulation unit value: Accumulation unit value: end of period end of period
Beginning of period<F*> End of period (in thousands) (in thousands)
------------------------ ------------------------ ------------------ ----------------------
<S> <C> <C> <C> <C>
S & P 500 Index Fund Division<F**>
1995 20.12 27.27 657 297
1994 20.09 20.12 636 265
1993 18.48 20.09 599 241
1992 17.37 18.48 366 152
1991 13.47 17.37 236 109
1990 14.15 13.47 133 67
1989 11.01 14.15 97 23
1988 10.00 11.01 36 7
Money Market Fund Division
1995 13.82 14.50 106 57
1994 13.39 13.82 93 58
1993 13.12 13.39 115 73
1992 12.78 13.12 181 85
1991 12.16 12.78 179 101
1990 11.33 12.16 188 79
1989 10.44 11.33 28 15
1988 10.00 10.44 6 5
Bond Index Fund Division<F***>
1995 14.99 17.66 146 85
1994 15.78 14.99 146 58
1993 14.43 15.78 161 61
1992 13.68 14.43 116 48
1991 12.12 13.68 50 67
1990 11.22 12.12 33 58
1989 10.27 11.22 22 17
1988 10.00 10.27 5 2
Managed Equity Fund Division
Tax Qualified
1995 37.68 49.83 164 N/A
1994 39.42 37.68 188 N/A
1993 36.54 39.42 210 N/A
1992 34.56 36.54 217 N/A
1991 27.62 34.56 216 N/A
1990 28.73 27.62 192 N/A
1989 22.11 28.73 194 N/A
1988 21.30 22.11 207 N/A
Non-Tax Qualified
1995 41.00 54.22 N/A 17
1994 42.90 41.00 N/A 20
1993 39.76 42.90 N/A 24
1992 37.61 39.76 N/A 25
1991 30.05 37.61 N/A 25
1990 31.27 30.05 N/A 25
1989 24.06 31.27 N/A 25
1988 23.18 24.06 N/A 26
88 Series
1995 19.56 25.84 215 75
1994 20.48 19.56 204 68
1993 19.00 20.48 197 56
1992 17.99 19.00 158 40
1991 14.39 17.99 101 27
1990 14.99 14.39 56 20
1989 11.54 14.99 21 7
1988 10.83 11.54 6 0
Asset Allocation Fund Division
1995 16.52 21.08 317 168
1994 17.37 16.52 320 180
1993 16.01 17.37 332 166
1992 15.16 16.01 223 119
1991 12.78 15.16 140 66
1990 12.60 12.78 94 35
1989 10.61 12.60 33 16
1988 10.00 10.61 9 4
Equity-Income Fund Division
1995 10.55 14.12 552 207
1994 10.00 10.55 315 82
Growth Fund Division
1995 9.90 13.27 646 261
1994 10.00 9.90 356 116
Overseas Fund Division
1995 9.95 10.80 266 77
1994 10.00 9.95 240 52
<FN>
<F*> At the date of first deposits into Separate Account on May 16, 1988, except for the Managed Equity Fund,
which began on February 24, 1988; the Equity Fund and the Growth Fund which began on January 6, 1994;
and the Overseas Fund which began on January 11, 1994.
<F**> The name of the S&P 500 Index Fund was changed from the Equity Fund effective May 1, 1994.
<F***> The name of the Bond Index Fund was changed from the Intermediate Bond Fund effective October 1, 1992.
The name change reflects a change in investment policies and objectives of the Fund.
See accompanying notes to financial statements.
</TABLE>
<PAGE> 65
<TABLE>
GENERAL AMERICAN SEPARATE ACCOUNT TWO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<CAPTION>
No. of Shares Market Value
------------- ------------
<S> <C> <C>
S&P 500 Index Fund
General American Capital Company <F*> 1,078,128 $26,025,232
Money Market Fund
General American Capital Company <F*> 142,333 $ 2,326,145
Bond Index Fund
General American Capital Company <F*> 196,424 $ 4,044,464
Managed Equity Fund
General American Capital Company <F*> 795,027 $16,638,107
Asset Allocation Fund
General American Capital Company <F*> 439,763 $10,202,483
Equity-Income Fund
Variable Insurance Products Fund 553,815 $10,672,010
Growth Fund
Variable Insurance Products Fund 410,294 $11,980,597
Overseas Fund
Variable Insurance Products Fund 216,961 $ 3,699,175
<FN>
<F*> These funds use consent dividending. See Note 2C.
See accompanying notes to financial statements.
</TABLE>
<PAGE> 66
GENERAL AMERICAN LIFE INSURANCE COMPANY
Financial Statements and Schedule
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
General American Life Insurance Company:
We have audited the accompanying statements of assets, liabilities,
contingency reserves, and policyholders' surplus of General American Life
Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, policyholders' surplus, and contingency reserves
and cash flow for each of the years in the three-year period ended
December 31, 1995. 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 General American Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles (see note 2 to the financial statements).
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information
included in the accompanying schedule is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
KPMG PEAT MARWICK LLP
March 12, 1996
1
<PAGE> 68
GENERAL AMERICAN LIFE INSURANCE COMPANY
<TABLE>
Statements of Assets, Liabilities, Contingency
Reserves, and Policyholders' Surplus
December 31, 1995 and 1994
(In thousands of dollars)
<CAPTION>
===================================================================================================
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Invested assets:
Bonds $3,822,820 3,223,167
Mortgage loans 1,674,037 1,565,710
Real estate 226,663 231,554
Stocks 335,203 266,776
Market value appreciation of subsidiaries 190,790 285,340
Loans to policyholders 1,328,376 1,152,518
Short-term investments 294 4,912
Other invested assets 47,802 35,121
Cash and cash equivalents (13,511) 57,991
- ---------------------------------------------------------------------------------------------------
Total invested assets 7,612,474 6,823,089
Accrued investment income 102,848 91,169
Premiums deferred and uncollected 81,624 75,454
Other assets 126,997 106,455
Separate accounts 1,642,220 1,239,311
- ---------------------------------------------------------------------------------------------------
Total assets $9,566,163 8,335,478
===================================================================================================
<CAPTION>
===================================================================================================
LIABILITIES, CONTINGENCY RESERVES, AND POLICYHOLDERS' SURPLUS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Policyholders' liabilities:
Policy reserves $5,182,888 4,662,012
Pension funds 1,105,202 1,018,588
Policy and contract claims 90,955 87,904
Dividends - accumulated, due and provided 219,539 201,334
Premiums received in advance and premium deposits 35,844 24,592
- ---------------------------------------------------------------------------------------------------
Total policyholders' liabilities 6,634,428 5,994,430
Commissions, expenses, and taxes 93,655 90,590
Amounts due - reinsurance 18,280 42,690
Notes payable 100,000 -
Funds held under coinsurance 89,573 -
Other 191,943 236,400
Separate accounts 1,619,807 1,219,124
- ---------------------------------------------------------------------------------------------------
Total liabilities 8,747,686 7,583,234
- ---------------------------------------------------------------------------------------------------
Contingency reserves:
Asset valuation reserve 202,727 235,351
Interest maintenance reserve 25,967 20,560
- ---------------------------------------------------------------------------------------------------
Total contingency reserves 228,694 255,911
- ---------------------------------------------------------------------------------------------------
Policyholders' surplus:
Reserve for group insurance 44,783 43,529
Surplus notes 107,000 107,000
Unassigned funds 438,000 345,804
- ---------------------------------------------------------------------------------------------------
Total policyholders' surplus 589,783 496,333
- ---------------------------------------------------------------------------------------------------
Total liabilities, contingency reserves, and policyholders' surplus $9,566,163 8,335,478
===================================================================================================
See accompanying notes to financial statements.
</TABLE>
2
<PAGE> 69
GENERAL AMERICAN LIFE INSURANCE COMPANY
<TABLE>
Statements of Operations, Policyholders' Surplus,
and Contingency Reserves
Years ended December 31, 1995, 1994, and 1993
(In thousands of dollars)
<CAPTION>
==================================================================================================================
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Premiums $1,661,172 1,485,704 1,040,403
Net investment income 546,243 501,863 485,705
Reinsurance ceded and other income 170,871 250,072 141,564
- ------------------------------------------------------------------------------------------------------------------
Total revenue 2,378,286 2,237,639 1,667,672
- ------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Benefits 929,206 896,036 899,896
Increase in reserves 504,069 425,976 6,490
Net transfers to separate accounts 254,128 307,470 159,688
Commissions 118,525 174,030 157,159
General and administrative expenses 268,759 246,890 255,024
- ------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 2,074,687 2,050,402 1,478,257
- ------------------------------------------------------------------------------------------------------------------
Gain from operations 303,599 187,237 189,415
Dividends to policyholders 242,688 127,576 89,111
- ------------------------------------------------------------------------------------------------------------------
Net gain from operations after dividends to policyholders
and before federal income taxes 60,911 59,661 100,304
Provision for federal income tax 8,577 35,390 23,753
- ------------------------------------------------------------------------------------------------------------------
Net gain from operations 52,334 24,271 76,551
Capital gains (losses), net of federal income tax 194,793 (49,158) (21,552)
Net capital losses (gains) transferred to the interest maintenance
reserve (10,165) 11,012 (13,330)
- ------------------------------------------------------------------------------------------------------------------
Net gain (loss) 236,962 (13,875) 41,669
- ------------------------------------------------------------------------------------------------------------------
Other policyholders' surplus changes:
Unrealized capital gains and losses, net (96,021) (499) 215,479
Additions from (to) contingency reserves 27,217 23,664 (95,430)
Repayment of nonrecourse transfer agreement - (35,949) (13,000)
Surplus notes - 107,000 -
Change in surplus as a result of reinsurance (38,922) - -
Amortization of intangible assets (35,865) - -
Other items, net 79 (28,190) 65
- ------------------------------------------------------------------------------------------------------------------
(143,512) 66,026 107,114
- ------------------------------------------------------------------------------------------------------------------
Increase in policyholders' surplus 93,450 52,151 148,783
Policyholders' surplus, beginning of year 496,333 444,182 295,399
- ------------------------------------------------------------------------------------------------------------------
Policyholders' surplus, end of year $ 589,783 496,333 444,182
==================================================================================================================
Contingency reserves:
Addition (to) from policyholders' surplus (27,217) (23,664) 95,430
Contingency reserves, beginning of year 255,911 279,575 184,145
- ------------------------------------------------------------------------------------------------------------------
Contingency reserves, end of year $ 228,694 255,911 279,575
==================================================================================================================
See accompanying notes to financial statements.
</TABLE>
3
<PAGE> 70
GENERAL AMERICAN LIFE INSURANCE COMPANY
<TABLE>
Statements of Cash Flow
Years ended December 31, 1995, 1994, and 1993
(In thousands of dollars)
<CAPTION>
===================================================================================================
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
Cash received:
Premiums $1,642,922 1,492,175 1,136,015
Net investment income 536,488 501,683 460,617
Reinsurance ceded and other income 128,585 137,201 123,004
- ---------------------------------------------------------------------------------------------------
Total cash received from operations 2,307,995 2,131,059 1,719,636
- ---------------------------------------------------------------------------------------------------
Benefits paid:
Life, accident, and health claims (409,325) (437,729) (468,595)
Benefits to policyholders (286,423) (242,016) (505,911)
Dividends to policyholders (223,111) (100,038) (100,642)
- ---------------------------------------------------------------------------------------------------
Total benefits paid (918,859) (779,783) (1,075,148)
- ---------------------------------------------------------------------------------------------------
Operating charges paid:
Commissions, expenses, and taxes (324,113) (410,154) (424,545)
Net transfers to separate accounts (255,890) (321,268) (145,855)
Federal income taxes (96,814) (5,393) (23,415)
- ---------------------------------------------------------------------------------------------------
Total operating charges paid (676,817) (736,815) (593,815)
- ---------------------------------------------------------------------------------------------------
Other, net 28,955 153,082 45,343
- ---------------------------------------------------------------------------------------------------
Net cash provided by operations 741,274 767,543 96,016
- ---------------------------------------------------------------------------------------------------
Cash flows from investments:
Proceeds from investments sold, matured, or repaid:
Bonds 1,135,681 751,219 1,258,702
Stocks 77,208 34,761 56,437
Mortgage loans 206,188 135,503 102,050
Net decrease in loans to policyholders - - 62,600
Sale of GenCare 353,750 - -
Other invested assets 25,757 65,848 60,256
- ---------------------------------------------------------------------------------------------------
Total investment proceeds 1,798,584 987,331 1,540,045
- ---------------------------------------------------------------------------------------------------
Cost of investments acquired:
Bonds (1,787,628) (1,031,372) (1,440,513)
Stocks (230,287) (27,182) (100,599)
Mortgage loans (353,242) (309,433) (109,719)
Net increase in loans to policyholders (175,858) (132,739) -
Other invested assets (164,345) (363,016) (89,491)
- ---------------------------------------------------------------------------------------------------
Total investments acquired (2,711,360) (1,863,742) (1,740,322)
- ---------------------------------------------------------------------------------------------------
Net cash used in investments (912,776) (876,411) (200,277)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of surplus notes - 107,000 -
Proceeds from issuance of notes payable 100,000 - -
- ---------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (71,502) (1,868) (104,261)
Cash and cash equivalents, beginning of year 57,991 59,859 164,120
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ (13,511) 57,991 59,859
===================================================================================================
See accompanying notes to financial statements.
</TABLE>
4
<PAGE> 71
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1995, 1994, and 1993
===============================================================================
(1) ORGANIZATION
General American Life Insurance Company (General American or the Company) is
a mutual life insurance company originally incorporated as a stock company
under the laws of Missouri in 1933, and which began operations as a mutual
company in 1936. The Company's principal lines of business are: Individual
Life Insurance and Annuities, Group Life and Health Insurance, Group Pension,
and Investments.
General American distributes its products and services primarily through a
nationwide network of general agencies, independent brokers and group sales,
and claims offices. General American is licensed to do business in all 50
states, 12 Canadian provinces, Puerto Rico, and the District of Columbia.
Through its subsidiaries, the Company is also expanding its operations in
Europe, Pacific Rim countries, and Latin America.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company include General American Life
Insurance Company and, on the equity method of accounting, the following
majority-owned unconsolidated subsidiaries: Reinsurance Group of America,
Incorporated (RGA); Paragon Life Insurance Company; Conning Asset Management
(CAM); COVA Corporation (COVA); General American Holding Company; Security
Equity Life Insurance Company; General Life Insurance Company of America, and
National American Life Insurance Company of Texas (NALICOT). The financial
statements have been prepared on the basis of accounting practices prescribed
or permitted by the Department of Insurance of the State of Missouri and in
conformity with the practices of the National Association of Insurance
Commissioners (NAIC) which are currently considered generally accepted
accounting principles (GAAP) for mutual life insurance companies.
In accordance with Missouri State Insurance Law and Regulations, General
American's subsidiaries are not consolidated for regulatory filing purposes.
The preparation of financial statements requires management to make estimates
and assumptions which affect the reported amounts of assets and liabilities
as of the date of the balance sheets and the statements of operations,
policyholders' surplus and contingency reserves. Actual results could differ
from these estimates. Accounts that the Company deems to be sensitive to
changes in estimates include policy reserves and policy and contract claims,
as well as certain investments.
NEW ACCOUNTING STANDARDS
In April 1993, the Financial Accounting Standards Board (FASB), issued
Interpretation No. 40, Applicability of Principles to Mutual Life Insurance
and Other Enterprises. This interpretation requires mutual life insurance
companies that have traditionally issued statutory basis financial statements
that have been reported to be in conformity with GAAP, to apply all
authoritative accounting pronouncements in preparing those statements,
effective for periods beginning after December 15, 1994.
In January 1995, the FASB issued Statement of Financial Accounting Standards
No. 120 (SFAS 120), Accounting and Reporting by Mutual Life Insurance
Enterprises for Certain Long-Duration Participating
5 (Continued)
<PAGE> 72
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Contracts and the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 95-1 (SOP 95-1), Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises, which together
defines the GAAP model for mutual life insurance enterprises. These
pronouncements define the enterprises and method of accounting for certain
participating life insurance contracts of mutual and stock life insurance
companies that meet the criteria defined in SOP 95-1. SFAS 120 also defers
implementation of Interpretation No. 40 to be concurrent with implementation
of SFAS 120. SFAS 120 and SOP 95-1 are effective for financial statements
issued for fiscal years beginning after December 15, 1995.
In connection with the adoption of SFAS 120, the Company plans to adopt the
following accounting standards:
- SFAS 109, Accounting for Income Taxes
- SFAS 114, Accounting by Creditors Impairment of a Loan
- SFAS 115, Accounting for Certain Debt and Equity Securities
- SFAS 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures
The Company has not determined the impact on the Company's financial
condition or results of operations.
VALUATION OF INVESTMENTS
Bonds and stocks are valued as prescribed by the NAIC. Bonds are primarily
carried at amortized cost, as it is generally the Company's intent to hold
such to maturity. However, the Company does liquidate certain bonds prior to
maturity based on asset/liability and duration matching requirements
associated with policies and contracts. Additionally, preferred stocks are
carried at cost and common stocks are carried at market value. Mortgage
loans and policy loans are stated at the outstanding principal balances. Real
estate acquired through foreclosure or held for investment is carried at the
lower of cost or market value. Investments in real estate are carried net
of accumulated depreciation and encumbrances of $56.5 million and $46.7
million in 1995 and 1994, respectively, as well as direct valuation
allowances of $25.4 million and $24.2 million in 1995 and 1994, respectively.
Loan-backed bonds, included in bonds, are valued at amortized cost.
Amortization of the discount or premium from the purchase of these securities
is recognized using a level yield method which considers the estimated timing
and amount of prepayments of the underlying mortgage loans. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments originally
anticipated and the actual prepayments received and currently anticipated.
When such differences occur, the net investment in the mortgage-backed bond
is adjusted to the amount that would have existed had the new effective yield
been applied since the acquisition of the bond with a corresponding charge or
credit to interest income (the "retrospective method").
In accordance with practices prescribed by the NAIC, General American values
its ownership interest in publicly traded subsidiaries based upon current
quoted market values. These ownership interests are 63% of RGA and 72% of
GenCare Health Systems, Inc. (GenCare). The investment in RGA is carried at
89% of quoted market value. On January 3, 1995, the Company sold its 72%
ownership in GenCare to United HealthCare Corporation. Proceeds received net
of expenses were $354 million and the net
6 (Continued)
<PAGE> 73
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
realized gain on sale was $179 million. The extent to which the carrying
values of those investments differ from statutory net assets creates asset
appreciation or depreciation, with an offsetting unrealized gain or loss
reflected in policyholders' surplus. Market value appreciation of $190.8
million and $285.3 million is included in market value appreciation of
subsidiaries in the balance sheets at December 31, 1995 and 1994,
respectively.
Certain capital gains and losses realized on investment sales that resulted
from changes in the level of interest rates are recorded in an Interest
Maintenance Reserve (IMR), net of related income taxes. The IMR is amortized
into operating income over the approximate remaining maturities of the
investments sold. Certain other realized gains and losses from the sale or
decrease in valuation basis due to change in credit quality of invested
assets are presented separately from operating income, net of applicable
income taxes. Unrealized capital gains and losses are reflected as direct
credits and charges to policyholders' surplus.
The NAIC has established an asset valuation reserve (AVR) for the potential
losses on investments. This reserve is maintained for the purpose of
stabilizing surplus against the effect of fluctuations in the value of
certain bond, stock, mortgage loan, and real estate investments by direct
charge to policyholders' surplus.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Investment securities
Fair values for fixed maturity securities (including redeemable preferred
stocks) are based on quoted market prices, where available. For fixed
maturity securities 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 yield, credit quality, and maturity of
the investments. The fair values for equity securities are based on quoted
market prices.
Mortgage loans
The fair values for mortgage loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics
are aggregated for purposes of the calculations.
Policy loans
The carrying amount for policy loans reported in the balance sheets
approximates the fair value. The majority of these loans are indexed, with
yield tied to a stated return.
Short-term investments and cash and cash equivalents
The carrying amounts reported in the balance sheets for these instruments
approximate the fair values.
7 (Continued)
<PAGE> 74
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Investment contracts
Fair values for the Company's liabilities under investment-type insurance
contracts are estimated using discounted cash flow calculations based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Other Policyholder Funds
Other policyholder funds are supplementary contract reserves and dividend
accumulations that represent deposits that have defined maturities. The
carrying value of these funds is a reasonable estimate of fair value.
CASH AND CASH EQUIVALENTS
Cash equivalents include liquid investments with original maturities of 90
days or less.
SEPARATE ACCOUNT BUSINESS
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the exclusive benefit of pension
and variable annuity contractholders. The Company receives administrative
and investment advisory fees for services rendered on behalf of these funds.
The amount of assets in excess of liabilities of $22.4 million and $20.2
million at December 31, 1995 and 1994, respectively, represents policy
surrender charges that are permitted to be recorded to surplus under
statutory accounting practices.
POLICY RESERVES
Policy reserves for life insurance and annuities are based on statutory
mortality and interest assumptions without consideration for lapses and
withdrawals. Mortality assumptions are based on various mortality tables
including primarily: American Experience, 1941 Commissioners Standard
Ordinary (CSO), 1958 CSO, and 1980 CSO for life insurance; and 1937 Standard
Annuity Table, 1971 Individual Annuity Mortality Table (IAM), 1983 IAM, and
the Progressive Annuity Table for annuities. Interest assumptions range from
2.0% to 6.0% for ordinary policy reserves and from 2.0% to 11.25% for group
and annuity reserves. Approximately 27% of the ordinary life reserves are
calculated on a net level reserve basis and 73% on a modified reserve basis.
The use of a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy reserve
increase in the first policy year that is less than the reserve increase in
renewal years.
REINSURANCE
Premiums, commissions, expense reimbursements, benefits, and reserves related
to reinsurance business are accounted for on bases consistent with those used
in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of premium income. Amounts applicable to reinsurance ceded
for future policy benefits and claim liabilities have been reported as
reductions of these items.
8 (Continued)
<PAGE> 75
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
In the normal course of business the Company seeks to limit its exposure to
loss on any single insured by ceding risks to other insurance enterprises or
reinsurers under various types of contracts including coinsurance and excess
coverage. The Company's retention level per individual life ranges between
$1.0 to $2.0 million. To the extent that an assuming reinsurance company is
unable to meet its obligations under a reinsurance agreement, the Company
remains primarily liable.
REVENUES AND EXPENSES
Premiums are credited to revenue over the premium paying period of the
policies. Annuity and deposit contract considerations are recognized as
revenue when received. Expenses, including acquisition costs related to
acquiring new business, are charged to operations as incurred. Investment
income is recognized as earned.
FEDERAL INCOME TAXES
Federal income taxes are charged to operations based on income that is
currently taxable. Deferred taxes are not established for the tax effects of
temporary differences between financial reporting and taxable income.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's Canadian business operations is the
Canadian dollar. The translation of that foreign currency into U.S. dollars
is performed for the asset and liability portfolios using exchange rates in
effect at year-end. The income statement accounts are translated using
current exchange rates in effect for the years presented. The Canadian
dollars have been converted to U.S. dollars based on a conversion rate of
$.7329, $.7133, and $.7527 for each Canadian dollar as of December 31, 1995,
1994, and 1993, respectively. In accordance with statutory accounting
principles, the losses resulting from such translation are included as a
liability and an unrealized capital loss.
NONADMITTED ASSETS
Certain assets, designated under statutory reporting as "nonadmitted assets,"
have been charged directly to policyholders' surplus.
RECLASSIFICATIONS
Certain 1994 and 1993 financial statement balances have been reclassified to
conform with 1995 presentation.
(3) ACQUISITION
On June 1, 1995, the Company acquired Xerox Life Insurance Companies, now
known as COVA Corporation. At acquisition, COVA had total assets of
approximately $635.6 million. The purchase price of approximately $107.7
million was funded from the Company's operations.
Effective July 31, 1995, the Company entered into a merger arrangement with
Conning Corporation & Subsidiaries (Conning), an investment management firm,
whereby the Company acquired Conning and
9 (Continued)
<PAGE> 76
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
subsequently contributed Conning and General American Investment Management
Company, a wholly owned subsidiary, to form CAM. At acquisition, Conning had
total assets of approximately $16.0 million. The purchase price consisted of
approximately $13.0 million in cash (from the Company's operations) and 3.2
million shares of CAM convertible redeemable preferred stock, with a fair value
of $17.0 million.
These transactions were accounted for using the purchase method of
accounting. The results of operations of the acquired entities are included
in the financial statements subsequent to the respective acquisition dates.
The excess of cost over fair value of net assets acquired amounted to
approximately $56.6 million and $23.1 million for COVA and Conning,
respectively. The excesses of cost over fair value of net assets of
approximately $16.8 million and $16.0 million for COVA and Conning,
respectively, were written off at the acquisition dates for statutory
accounting purposes. The write-off of the intangible asset was caused by the
Company exceeding its statutory intangible asset limit. The remaining excess
of cost over fair value of net assets is being amortized over 10 years.
(4) INVESTMENTS
Major categories of net investment income consist of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
==================================================================================================================
Years ended December 31 1995 1994 1993
==================================================================================================================
<S> <C> <C> <C>
Bonds $ 291,382 249,906 239,161
Stocks (635) 27,938 34,953
Mortgage loans 141,603 139,392 139,012
Real estate 37,108 41,498 34,473
Loans to policyholders 92,731 75,957 65,957
Short-term investments 19,078 7,113 4,656
Other (544) 936 2,141
- ------------------------------------------------------------------------------------------------------------------
Gross investment income 580,723 542,740 520,353
Amortization of interest maintenance reserve 4,757 4,559 4,336
Investment expense (39,237) (45,436) (38,984)
- ------------------------------------------------------------------------------------------------------------------
Net investment income $ 546,243 501,863 485,705
==================================================================================================================
</TABLE>
BONDS
The carrying and estimated fair values of the Company's bond investments at
December 31, 1995 and 1994, by category, are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
==================================================================================================================
GROSS GROSS ESTI-
UNREA- UNREA- MATED
CARRYING LIZED LIZED FAIR
1995 VALUE GAINS LOSSES VALUE
==================================================================================================================
<S> <C> <C> <C> <C>
Government obligations (including obligations
guaranteed by the U.S. government) $ 241,141 15,689 830 256,000
Corporate securities 2,754,029 219,058 130,267 2,842,820
Mortgage-backed securities 731,125 26,136 1,625 755,636
Asset-backed securities 96,525 2,540 27 99,038
- ------------------------------------------------------------------------------------------------------------------
Total $3,822,820 263,423 132,749 3,953,494
==================================================================================================================
10 (Continued)
<PAGE> 77
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
<CAPTION>
GROSS GROSS ESTI-
UNREA- UNREA- MATED
CARRYING LIZED LIZED FAIR
1994 VALUE GAINS LOSSES VALUE
==================================================================================================================
<S> <C> <C> <C> <C>
Government obligations (including obligations
guaranteed by the U.S. government) $ 47,602 274 3,880 43,996
Corporate securities 2,378,039 24,670 109,942 2,292,767
Mortgage-backed securities 739,601 7,630 37,091 710,140
Asset-backed securities 57,925 1,067 1,399 57,593
- ------------------------------------------------------------------------------------------------------------------
Total $3,223,167 33,641 152,312 3,104,496
==================================================================================================================
</TABLE>
The carrying and estimated fair values of the Company's bond investments at
December 31, 1995, by contractual maturity, are shown below (in thousands of
dollars). Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
====================================================================================
ESTIMATED
CARRYING FAIR
VALUE VALUE
====================================================================================
<S> <C> <C>
Due in one year or less $ 61,050 62,896
Due one year through five years 707,731 730,515
Due five years through ten years 1,423,347 1,366,241
Due after ten years 1,630,692 1,793,842
- ------------------------------------------------------------------------------------
Total $3,822,820 3,953,494
====================================================================================
</TABLE>
Before consideration of IMR, gross gains of $25.8 million, $12.5 million, and
$26.5 million and gross losses of $6.0 million, $28.0 million, and
$5.0 million were realized on bond sales, maturities, and redemptions in
1995, 1994, and 1993, respectively. The cost of investments sold is
generally determined on a first-in, first-out method and includes the effects
of any related capital amortization of premium or accretion of discount.
The Company is sensitive to interest rate changes, as its liabilities may
reprice or mature before interest-earning assets. The Company manages its
interest rate risk primarily through the utilization of interest rate swaps.
Under interest rate swaps, the Company agrees with other counterparties to
exchange, at specified intervals, the payments between floating and
fixed-rate interest amounts calculated by reference to notional amounts. Net
interest payments are recognized within net investment income in the
statutory statements of operations, policyholders' surplus, and contingency
reserves.
At December 31, 1995, the Company had six outstanding interest rate swap
agreements which expire at various dates through 2025. Under four of the
agreements, the Company receives a fixed rate ranging from 5.825% to 6.92% on
$15.4 million and pays a floating rate based on the London Interbank Offered
11 (Continued)
<PAGE> 78
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Rate (LIBOR). Under the remaining two agreements, the Company receives a
floating rate based on LIBOR on $20.0 million and pays a fixed rate of 6.52%
and 6.9%, respectively. The estimated fair value of the agreements was
approximately $1.2 million unrealized loss, which reflects gross unrealized
gains and losses of $.1 million and $1.3 million, respectively, at December
31, 1995, which is not recognized in the accompanying balance sheets. At
December 31, 1994, the Company's exposure to derivative financial investments
was not material.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments, but does not expect any
counterparties to fail to meet their obligations. Where appropriate, master
netting agreements are arranged or collateral is obtained in the form of
rights to securities to lower the Company's exposure to credit risk. It is
the Company's policy to deal with only highly rated counterparties.
MORTGAGE LOANS
As of December 31, 1995 and 1994, the Company's mortgage loans were
distributed as follows (in thousands of dollars):
<TABLE>
<CAPTION>
===================================================================================================================================
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
BOOK PERCENT BOOK PERCENT
STATES VALUE OF TOTAL VALUE OF TOTAL
===================================================================================================================================
<S> <C> <C> <C> <C>
Arizona $ 106,426 6.4% $ 88,601 5.7%
California 276,531 16.5 290,957 18.6
Colorado 206,438 12.2 188,929 12.0
Florida 180,350 10.8 186,405 11.9
Illinois 151,514 9.1 158,267 10.1
Maryland 76,640 4.6 71,274 4.6
Missouri 84,623 5.1 89,647 5.7
Nevada 63,190 3.8 55,661 3.6
Texas 137,416 8.2 156,910 10.0
Virginia 82,705 4.9 85,294 5.4
Other 308,204 18.4 193,765 12.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,674,037 100.0% $1,565,710 100.0%
===================================================================================================================================
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
BOOK PERCENT BOOK PERCENT
PROPERTY TYPE VALUE OF TOTAL VALUE OF TOTAL
===================================================================================================================================
<S> <C> <C> <C> <C>
Apartment $ 93,530 5.6% $ 83,656 5.3%
Retail 658,918 39.3 591,098 37.8
Office building 458,503 27.4 405,048 25.9
Industrial 397,623 23.8 415,456 26.5
Other commercial 65,463 3.9 70,452 4.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total $1,674,037 100.0% $1,565,710 100.0%
==================================================================================================================================
</TABLE>
12 (Continued)
<PAGE> 79
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
The Company makes mortgage loans on income-producing properties, such as
apartments, retail and office buildings, light warehouses, and light
industrial facilities. Loan-to-value ratios at the time of loan approval are
75% or less.
The estimated fair value of the Company's mortgage loan portfolio at
December 31, 1995 and 1994 was approximately $1,747.5 million and $1,558.5
million, respectively. The Company had outstanding commercial mortgage loan
commitments as of December 31, 1995 of $211.1 million.
During 1995, the Company entered into an agreement whereby approximately
$109.8 million of mortgage loans were sold by the Company for securitization
and resale by a financial institution as mortgage pass-through certificates.
In conjunction with the transaction, the Company entered into futures
positions to hedge against interest rate risk. The sale of these mortgage
loans resulted in a net loss of approximately $.4 million. In addition, the
close-out of the futures positions related to this transaction resulted in a
net loss of approximately $6.4 million. These amounts are reflected within
net investment income in the statutory statement of operations,
policyholders' surplus, and contingency reserves.
STOCKS
The carrying value of preferred stock was $8.1 million at December 31, 1995
and 1994, respectively. The fair value of the preferred stock was
$8.3 million and $8.2 million at December 31, 1995 and 1994, respectively.
The cost of nonaffiliated common stocks held at December 31, 1995 and 1994
was $3.1 million and $5.0 million, respectively. The fair value of
nonaffiliated common stocks held at December 31, 1995 and 1994 was $2.6
million and $5.0 million, respectively.
At December 31, 1995 and 1994, investments with carrying values of $247.0
million and $211.9 million, respectively, were on deposit with various
governmental agencies as required by law.
(5) INVESTMENT CONTRACTS
The carrying amounts and estimated fair values of the Company's liabilities
for investment-type insurance contracts at December 31, 1995 and 1994 are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
==================================================================================================================
1995 1994
- ------------------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
==================================================================================================================
<S> <C> <C> <C> <C>
Guaranteed investment contracts $492,340 494,059 342,766 336,922
==================================================================================================================
Supplementary contract without
life contingencies $ 6,443 6,443 6,887 6,887
==================================================================================================================
Individual and group annuities $373,259 372,730 390,193 362,531
==================================================================================================================
</TABLE>
13 (Continued)
<PAGE> 80
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(6) REINSURANCE
The Company is a major reinsurer in the life and health industry. The
effect of reinsurance on premiums is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
==============================================================================================================
1995 1994 1993
==============================================================================================================
<S> <C> <C> <C>
Direct $1,830,570 1,687,391 1,604,310
Assumed 206,127 272,356 474,092
- --------------------------------------------------------------------------------------------------------------
2,036,697 1,959,747 2,078,402
Ceded (375,525) (474,043) (1,037,999)
- --------------------------------------------------------------------------------------------------------------
Net $1,661,172 1,485,704 1,040,403
==============================================================================================================
</TABLE>
Reinsurance assumed represents approximately $51 billion, $38 billion,
and $69 billion of insurance in force for 1995, 1994, and 1993, respectively.
The amount of ceded insurance in force, including retrocessions, was
$57 billion, $54 billion, and $81 billion for 1995, 1994, and 1993,
respectively. Net reserve credits taken on reinsurance ceded and retroceded
for 1995, 1994, and 1993 were $360 million, $258 million, and $281 million,
respectively.
(7) FEDERAL INCOME TAXES
The provision for federal income tax expense is based upon a
consolidated income tax provision for the Company and its subsidiaries. The
provision differs from that computed based on the federal statutory rate of
35% in 1995, 1994, and 1993. The reasons for these differences are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
=============================================================================================================================
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
PER- PER- PER-
CENT OF CENT OF CENT OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Federal income tax computed
on pretax income $ 21,319 35.0% $ 20,881 35.0% $ 35,106 35.0%
Deferred acquisition cost tax
on premiums 10,024 16.5 10,027 16.8 12,394 12.4
Surplus tax on mutual life
insurance companies - - 15,675 26.3 - -
Tax preferred investment income (11,477) (18.8) (8,787) (14.7) (1,659) (1.7)
Mortgage loan and real estate
differences 814 1.3 600 1.0 (5,291) (5.3)
Policy reserve, dividends, and
other product differences (8,460) (13.9) 2,911 4.9 (5,541) (5.5)
Equity in undistributed earnings
of subsidiaries 440 .7 (5,161) (8.7) (10,769) (10.7)
Other, net (4,083) (6.7) (756) (1.3) (487) (.5)
- -----------------------------------------------------------------------------------------------------------------------------
Provision for federal income tax $ 8,577 14.1% $ 35,390 59.3% $ 23,753 23.7%
=============================================================================================================================
</TABLE>
14 (Continued)
<PAGE> 81
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(8) ASSOCIATE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
The Company has a defined benefit plan covering substantially all associates.
The benefits are based on years of service and each associate's compensation
level. The Company's funding policy is to contribute annually the maximum
amount deductible for federal income tax purposes. Contributions provide for
benefits attributed to service to date and for those expected to be earned in
the future.
The Company also has several nonqualified, defined benefit and defined
contribution plans for directors and management associates. The plans are
unfunded and are deductible for federal income tax purposes when the benefits
are paid.
Net periodic defined benefit plan costs consist of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================================
1995 1994 1993
========================================================================================================
<S> <C> <C> <C>
Service cost $ 2,805 3,285 2,824
Interest 5,056 4,523 4,128
Return on plan assets (27,134) 3,068 (11,695)
Amortization and deferral 18,514 (13,840) 1,784
- --------------------------------------------------------------------------------------------------------
Pension credit $ (759) (2,964) (2,959)
========================================================================================================
</TABLE>
The following table presents the plans' funded status and amounts recognized in
the Company's balance sheet at December 31, 1995 and 1994 (in thousands of
dollars):
<TABLE>
<CAPTION>
========================================================================================================================
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
QUALIFIED OTHER QUALIFIED OTHER
PLANS PLANS PLANS PLANS
========================================================================================================================
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $63,983 and $15,112
in 1995 and $48,378 and $10,554 in 1994,
respectively $ 65,900 24,595 48,872 18,115
========================================================================================================================
Projected benefit obligation for service
rendered to date 79,557 27,046 59,684 20,093
Plan assets at fair value, primarily listed
stocks and bonds 114,167 - 95,325 -
- ------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligations 34,610 (27,046) 35,641 (20,093)
Unrecognized net transition (asset) obligation - 2,451 (657) 1,978
- ------------------------------------------------------------------------------------------------------------------------
Pension cost funded in advance $ 34,610 34,984
========================================================================================================================
Accrued pension liability $(24,595) (18,115)
========================================================================================================================
</TABLE>
15 (Continued)
<PAGE> 82
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Assumptions used for the projected benefit obligation included a 7.25% current
discount rate, a 4.50% increase rate for future compensation levels, and a
9.25% projected return on plan assets for 1995.
The Board of Directors has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined yearly by the Board of Directors and are based upon
salaries of eligible associates. Full vesting will occur after five years of
continuous service. The Company's contributions to the plan were $9.2 million,
$1.6 million, and $7.1 million for 1995, 1994, and 1993, respectively.
In addition to pension benefits, the Company provides certain health care and
life insurance benefits for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while working
for the Company. Alternatively, retirees may elect certain prepaid health care
benefit plans.
In 1993, in accordance with the implementation of SFAS No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions, the Company changed
its method of accounting for the costs of its retiree benefit plans to the
accrual method, and elected to amortize its transition obligation for retirees
and fully eligible or vested employees over 20 years. The unamortized
transition obligations were $18.6 million and $19.6 million at December 31,
1995 and 1994, respectively. Net postretirement benefit costs for the years
ended December 31, 1995, 1994, and 1993 were $4.8 million, $4.0 million, and
$4.6 million, respectively, and includes the expected cost of such benefits for
newly eligible or vested employees, interest cost, gains and losses arising
from differences between actuarial assumptions and actual experience, and
amortization of the transition obligation.
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.25%, and the health care cost trend rates were 10%, 9%, and
10% for the Indemnity Plan, HMO Plan, and Dental Plan, respectively, graded to
6.00% over 13 years. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of January 1,
1995 by $3.1 million and the estimated eligibility cost and interest cost
components of net periodic postretirement benefit cost for 1995 by $.5 million.
(9) NOTES PAYABLE
In September 1995 the Company obtained a note payable for $100.0 million with a
financial institution. The note is secured by bonds with a carrying value of
$100.7 million. The note bears a fixed interest rate at 5.55% payable
quarterly and matures on March 29, 1996. The carrying value of this note
approximates the fair value at December 31, 1995.
(10) CONTINGENCY RESERVES
ASSET VALUATION RESERVE
The AVR is maintained for the purpose of stabilizing surplus against the
effect of fluctuations in the value of certain bond, stock, mortgage loan,
and real estate investments. Changes in the market value of common stocks
carried at market value are applied to the common stock component of this
reserve. This treatment has the effect of insulating statutory surplus from
short-term market value fluctuations of common stock. This reserve is
recorded as a direct charge to policyholders' surplus in accordance with
statutory accounting practices.
16 (Continued)
<PAGE> 83
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
The balance of the AVR component as of December 31, 1995 and 1994 is as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
=========================================================================================
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, preferred stocks, and short-term
investments $ 40,829 39,859
Mortgage loans 49,339 48,543
Common stock 92,196 126,959
Real estate and other invested assets 20,363 19,990
- -----------------------------------------------------------------------------------------
$202,727 235,351
=========================================================================================
</TABLE>
Included in the mortgage loan component of the AVR at December 31, 1995 and
1994 was $42.9 million, which represents an additional reserve for potential
credit losses inherent in the mortgage loan portfolio. At December 31, 1995
and 1994, the AVR is held at a level equal to 87.2% and 90.1%, respectively,
of the maximum reserve level allowed by the NAIC.
INTEREST MAINTENANCE RESERVE
IMR excludes certain net realized gains and losses from the net gain in the
current year and amortizes those gains and losses through net investment
income over a period of years. The net effect of this change on the 1995,
1994, and 1993 net gain is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
======================================================================================================
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of realized capital gains (losses)
included in IMR $10,165 (11,012) 13,330
Amount amortized and reflected in net
investment income (4,757) (4,559) (4,335)
- ------------------------------------------------------------------------------------------------------
Excluded from net gain (loss) $ 5,408 (15,571) 8,995
======================================================================================================
</TABLE>
(11) TRANSACTIONS WITH SUBSIDIARIES
General American has purchased insurance from, and also reinsured business
with, RGA Reinsurance Company (RGA Re), formerly St. Louis Reinsurance Company.
RGA Re is a subsidiary of RGA. In addition to the agreement wherein the
former reinsurance division of General American was transferred to RGA Re. The
effect of this business was to increase premiums and other considerations by
$136.5 million in 1995 and $17.5 million in 1994 and to increase policy
benefits and other expenses by $92.9 million in 1995 and $17.1 million in 1994.
The Company also received $2.8 million, $6.3 million, and $4.3 million in
dividends from subsidiaries in 1995, 1994, and 1993, respectively.
17 (Continued)
<PAGE> 84
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
In May 1993, the Company sold a portion of its reinsurance subsidiary, RGA, to
the public through an initial public offering of common stock. RGA received
net proceeds of approximately $160.0 million from the offering. The
transaction increased surplus and contingency reserves of the Company by
approximately $167.0 million. After the sale, the Company owned 62% of the
total shares outstanding of RGA common stock. The publicly held stock of RGA
trades on the New York Stock Exchange.
(12) POLICYHOLDERS' SURPLUS
During 1988, the Company entered into a nonrecourse transfer agreement with an
unaffiliated financial institution. Under this nonrecourse transfer agreement,
the Company transferred the right to the portion of premiums in excess of the
net valuation premium on certain policies for a limited period. The purchaser's
right to future premiums is limited to the portion above the amount necessary
to build policyholder reserves and, therefore, cannot interfere with, or have
priority over, the interests of the Company's policyholders. Risk associated
with policy lapses transfers to the purchaser while its interest terminates if
and when repayment of the amount advanced is received. As of December 31,
1994, the Company has made full repayment of this nonrecourse transfer
agreement with a direct charge to surplus of $34.8 million.
(13) SURPLUS NOTES
On January 14, 1994, the Company issued surplus notes with a face amount of
$107.0 million bearing a 7.625% interest rate due in 2024. The notes pay
interest on January 15 and July 15 each year. The notes are not subject to
redemption prior to maturity. Payment of principal and interest on the notes
may be made only with the approval of the Missouri Director of Insurance.
(14) RISKED-BASED CAPITAL
The insurance departments of various states, including the Company's
domiciliary state of Missouri impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. Their
requirements apply various weighted factors to financial balances or activity
levels based on their perceived degree of risk.
The RBC guidelines define specific capital levels where regulatory intervention
is required based on the ratio of a Company's actual total adjusted capital
(sum of capital and surplus and asset valuation reserve) to control levels
determined by the RBC formula. At December 31, 1995, the Company's actual
total adjusted capital was $879.9 million compared to its authorized control
level computed under the RBC formula of $179.1 million. Additionally, each of
the Company's insurance subsidiaries actual total adjusted capital exceeded all
minimum requirements.
(15) CONTINGENT LIABILITIES
From time to time, the Company is subject to insurance-related litigation in
the normal course of its business. Management does not believe the Company is
a party to any such pending litigation which would have a material adverse
effect on its financial statements or future operations.
18 (Continued)
<PAGE> 85
GENERAL AMERICAN LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(16) SUBSEQUENT EVENTS
On January 25, 1996, General American and Security Mutual Life Insurance
Company (a New York company) announced an agreement to form a strategic
alliance (subject to regulatory approval) to market life insurance products
more efficiently and to achieve long-term growth objectives. This agreement
may include such things as consulting services, technology sharing, and
investment advisory services.
19 (Continued)
<PAGE> 86
Schedule
--------
GENERAL AMERICAN LIFE INSURANCE COMPANY
<TABLE>
Schedule of Selected Financial Data From Annual Statement
Year ended December 31, 1995
===================================================================================================
- ---------------------------------------------------------------------------------------------------
<S> <C>
Investment income earned:
Government bonds $ (1,515,086)
Other bonds (unaffiliated) 290,933,051
Bonds of affiliates 1,963,693
Preferred stocks (unaffiliated) 618,924
Common stocks (unaffiliated) -
Common stocks of affiliates (1,253,512)
Mortgages loans 141,603,417
Real estate 37,107,928
Premium notes, policy loans, and liens 92,730,645
Cash on hand and on deposit 110,588
Short-term investments 18,967,377
Other invested assets (1,275,570)
Aggregate write-in for investment income 731,575
- ---------------------------------------------------------------------------------------------------
Gross investment income $ 580,723,030
===================================================================================================
Real estate owned - book value less encumbrances $ 263,827,709
===================================================================================================
Mortgage loans - book value:
Residential mortgages $ 5,820,009
Commercial mortgages 1,668,216,758
- ---------------------------------------------------------------------------------------------------
Total mortgage loans $1,674,036,767
===================================================================================================
Mortgage loans by standing - book value:
Good standing $1,503,595,363
Good standing with restructured terms 144,257,321
Interest overdue more than three months, not in foreclosure 5,459,437
Foreclosure in process 20,724,646
Other long-term assets - statement value 35,193,813
Collateral loans -
Bonds and stocks of parents, subsidiaries, and affiliates - book value:
Bonds 27,515,357
Preferred stocks 633,594
Common stocks 515,215,742
===================================================================================================
20 (Continued)
<PAGE> 87
Schedule, Cont.
---------------
GENERAL AMERICAN LIFE INSURANCE COMPANY
<CAPTION>
Schedule of Selected Financial Data From Annual Statement, Continued
===================================================================================================
- ---------------------------------------------------------------------------------------------------
<S> <C>
Bonds and short-term investments by class and maturity:
Bonds by maturity - statement value:
Due within one year or less $ 147,354,910
Over 1 year through 5 years 836,465,796
Over 5 years through 10 years 1,404,057,005
Over 10 years through 20 years 844,035,702
Over 20 years 623,600,086
- ---------------------------------------------------------------------------------------------------
Total by maturity $3,855,513,499
===================================================================================================
Bonds by class - statement value:
Class 1 $2,550,083,706
Class 2 1,133,865,256
Class 3 129,439,150
Class 4 34,823,913
Class 5 1,453,511
Class 6 5,847,963
- ---------------------------------------------------------------------------------------------------
Total by class 3,855,513,499
Total bonds publicly traded 2,595,931,013
- ---------------------------------------------------------------------------------------------------
Total bonds privately placed $1,259,582,486
===================================================================================================
Preferred stocks - statement value $ 8,194,965
Common stocks - market value 517,797,909
Short-term investments - book value 32,693,051
Financial options owned - statement value 855,000
Financial options written and in force - statement value 1,372,050
Financial futures contracts open - current price 1,556,051
Cash on deposit (47,728,369)
Life insurance in force:
Ordinary 99,750,100
Group life 46,529,984
Amount of accidental death insurance in force under ordinary policies 787,974
Life insurance policies with disability provisions in force:
Ordinary 11,191,931
Group life 33,999,724
Supplementary contracts in force:
Ordinary - not involving life contingencies 529
Amount on deposit 4,677,010
Income payable 473,615
Ordinary - involving life contingencies 425
Income payable 306,246
Group - not involving life contingencies 358
Amount of deposit 2,540,119
Income payable 1,857,912
Group - involving life contingencies 86
Income payable 301,553
===================================================================================================
21 (Continued)
<PAGE> 88
Schedule, Cont.
---------------
GENERAL AMERICAN LIFE INSURANCE COMPANY
<CAPTION>
Schedule of Selected Financial Data From Annual Statement, Continued
===================================================================================================
<S> <C>
Annuities:
Ordinary:
Immediate - amount of income payable $ 4,601,464
Deferred - fully paid account balance 493,925
Deferred - not fully paid account balance 984,452,874
Group:
Immediate - amount of income payable 29,532,911
Deferred - fully paid account balance 940,963
Deferred - not fully paid account balance 1,519,952,339
Accident and health insurance - premiums in force:
Ordinary 30,469,801
Group 278,501,063
Credit -
Deposit funds and dividend accumulations:
Deposit funds - account balance 348,545,716
Dividend accumulations - account balance 79,245,861
Claim payments 1994:
Group accident and health - year ended December 31:
1995 130,390,021
1994 36,142,689
1993 -
Other accident and health:
1995 1,378,908
1994 1,452,851
1993 5,607,713
Other coverages that use developmental methods to calculate claims reserves:
1995 -
1994 -
1993 -
===================================================================================================
See accompanying independent auditors' report.
</TABLE>
22
<PAGE> 89
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolutions of the Board of Directors of General American
Life Insurance Company ("General American") authorizing
establishment of the Separate Account 1
(2) Not Applicable
(3) (a) Form of Distribution Agreement 4
(b) Form of Selling Agreement 2
(4) (a) Form of tax sheltered group variable annuity
contact (No. V82-300) 3
(b) Form of tax sheltered individual variable
annuity certificate (No. V82-301) 3
(c) Form of variable annuity (tax qualified) (No.
V82-400) 3
(d) Form of individual variable annuity (non-tax
qualified) (No. 10013) 4
(e) Form of individual variable annuity (tax
qualified) (No. 10014) 4
(f) Form of tax sheltered group variable annuity
contract (No. 10015) 4
(g) Form of tax sheltered group variable annuity
certificate (No. 10016) 4
(h) Endorsement related to the reorganization of
the Separate Account 5
(i) Form of endorsement relating to requirements
of Section 408(b) (IRA's) Internal Revenue Code (IRC) (No. 1096900)
(j) Form of endorsement allowing other Fund
sponsors (No. 1098900)
(k) Form of endorsement relating tax sheltered
annuities, Section 403(b) IRC (No. 1098600)
(l) Form of endorsement relating to tax sheltered
annuities with employer contribution (No. 1098800)
(m) Form of endorsement relating to the Unemployment
Compensation Amendments (No. 1 E6)
(5) Form of application 7
(6) (a) Certificate of Incorporation of General American 1
(b) By-laws of General American 1
(7) Not applicable
(8) Not applicable
(9) Opinion and Consent of Counsel 6
(10) Consent of Independent Accountants with financial
statements
(11) No financial statements are omitted from item 23
(12) Not applicable
(13) Not applicable
C-1
<PAGE> 90
(14) Copies of manually signed powers of attorney for
General American Life Insurance Company directors August A. Busch,
III, William E. Cornelius, John C. Danforth 10, Bernard A. Edison,
Richard A. Liddy, William E. Maritz, Craig D. Schnuck 9, William
P. Stiritz, Andrew C. Taylor 8, H. Edwin Trusheim, Robert L.
Virgil, Jr., Virginia V. Weldon, and Ted C. Wetterau 4.
- ----------------
1 Incorporated by reference to initial registration
statement, File No. 2-39272
2 Incorporated by reference to Pre-Effective Amendment No. 1
to registration statement of General American Separate Account
Eleven, File No. 33-10146
3 Incorporated by reference to initial registration statement
of the Separate Account and General American Capital Company,
File No. 33-15347
4 Incorporated by reference to Post-Effective Amendments No.
29 and 34 to this Registration Statement
5 Incorporated by reference to Pre-Effective Amendment No. 2
to this Registration Statement
6 Incorporated by reference to Post-Effective Amendment No.
31 to this Registration Statement
7 Incorporated by reference to Post-Effective Amendment No.
33 to this Registration Statement
8 Incorporated by reference to Post-Effective Amendment No.
37 to this Registration Statement
9 Incorporated by reference to Post-Effective Amendment No.
39 to this Registration Statement
10 Incorporated by reference to Post-Effective Amendment No.
40 to this Registration Statement
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Officer's Name and Principal Positions and Offices
Business Address<F*> with Depositor
<S> <C>
Robert J. Banstetter, Sr. Vice President, General
700 Market Street Counsel & Secretary, Feb.
St. Louis, MO 63101 1991 to present. Vice President and General Counsel, Jan. 1983
- Feb. 1991.
John W. Barber Vice President and Controller, Dec. 1984 to present.
C-2
<PAGE> 91
Officer's Name and Principal Positions and Offices
Business Address<F*> with Depositor
E. Thomas Hughes Corporate Actuary and
700 Market Street Treasurer, Oct. 1994 to
St. Louis, MO 63101 present. Formerly Executive Vice President - Group Pensions,
March 1990 - Oct. 1994.
Richard A. Liddy Chairman, President, and
700 Market Street Chief Executive Officer,
St. Louis, MO 63101 Jan. 1995 to present. Formerly, President and Chief Executive
Officer, May 1992 - Jan. 1995. President and Chief Operating Officer,
May 1988 - May 1992.
Leonard M. Rubenstein Executive Vice President-
700 Market Street Investments, Oct. 1994 to
St. Louis, MO 63101 present. Formerly Executive Vice President - Investments &
Treasurer, Feb. 1991 - Oct. 1994. Formerly Vice President and Treasurer,
Nov. 1984 - Feb. 1991.
<PAGE> 92
Warren J. Winer Executive Vice President-Group Life & Health, Aug. 1995 to
present. Formerly Managing Director for William M. Mercer, Inc. July 1993 to
Aug. 1995 and President and Chief Operating Officer, W.F. Corroon,
1986 - July 1993.
Bernard H. Wolzenski Executive Vice President-Individual, Oct. 1991 to present.
Formerly Vice President, Individual Life Products, May 1986 - Oct. 1991.
A. Greig Woodring President and Chief Executive Officer,
660 Mason Ridge Center Drive Reinsurance Group of America, Incorporated, Dec. 1992 to present.
St. Louis, MO 63141 Executive Vice President Reinsurance, Mar. 1990 to present.
Richard A. Liddy, listed as a Principal Officer, is also a Director of the Company.
******
<FN>
<F*> The principal business address of each person listed is General
American Life Insurance Company, 13045 Tesson Ferry Road, St. Louis, MO
63128, unless otherwise indicated.
</TABLE>
C-4
<PAGE> 93
Positions and Offices
Directors with Depositor
August A. Busch III Director
Anheuser-Busch Companies, Inc.
One Busch Place
St. Louis, Missouri 63118
William E. Cornelius Director
Union Electric Company
1901 Chouteau Street
St. Louis, MO 63103
John C. Danforth Director
Bryan Cave
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102
Bernard A. Edison Director
Edison Brothers Stores, Inc.
P.O. Box 14020
St. Louis, Missouri 63178
William E. Maritz Director
Maritz, Inc.
1375 North Highway Drive
Fenton, Missouri 63099
Craig D. Schnuck Director
Schnuck Markets, Inc.
11420 Lackland Road
P.O. Box 46928
St. Louis, Missouri 63146
William P. Stiritz Director
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Andrew C. Taylor Director
Enterprise Rent-A-Car
600 Corporate Park Drive
St. Louis, Missouri 63105
C-5
<PAGE> 94
Positions and Offices
Directors with Depositor
H. Edwin Trusheim Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
Robert L. Virgil Director
Edward Jones and Company
12555 Manchester Road
St. Louis, Missouri 63131-3729
Virginia V. Weldon, M.D. Director
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Ted C. Wetterau Director
Wetterau Associates
7000 Bonhomme, Suite 750
St. Louis, Missouri 63105
Item 26. Persons Controlled by or Under Common Control With the
Depositor or Registrant
The Depositor, General American Life Insurance Company ("General
American"), controls the companies named on the following pages:
General American Life Insurance Company: a Missouri mutual
insurance company selling life and health insurance and pensions.
Principal place of business: St. Louis, Missouri.
Cova Corporation: wholly-owned Missouri subsidiary formed
to own the Cova Life companies. Principal place of business: St.
Louis, Missouri.
Cova Financial Services Life Insurance Company:
wholly-owned Missouri subsidiary of Cova Corporation, engaged in
the business of selling annuities and life insurance. Principal
place of business: Oakbrook, Illinois.
C-6
<PAGE> 95
First Cova Life Insurance Company: wholly-owned New York
subsidiary of Cova Financial Services Life Insurance Company.
Engaged in the sale of life insurance in New York. Principal
place of business: New York, New York.
Cova Financial Life Insurance Company: wholly-owned
California subsidiary of Cova Corporation, engaged in the sale of
life insurance and annuities. Principal place of business:
Oakbrook, Illinois.
Cova Life Management Company: wholly-owned Delaware
subsidiary of Cova Corporation. Employer of the individuals
operating the Cova companies. Principal place of business:
Oakbrook, Illinois
Cova Investment Advisory Corporation: wholly-owned Illinois
subsidiary of Cova Life Management Company. Intended to provide
investment advice to Cova Life insureds and annuity owners.
Principal place of business: Oakbrook, Illinois.
Cova Investment Allocation Corporation: wholly-owned
Illinois subsidiary of Cova Life Management Company. Intended to
provide advice on allocation of premiums to Cova Life insureds and
annuity owners. Principal place of business: Oakbrook, Illinois.
Cova Life Sales Company: wholly-owned Delaware subsidiary
of Cova Life Management Company. Broker-dealer established to
supervise sales of Cova Life contracts. Principal place of
business: Oakbrook, Illinois.
General Life Insurance Company of America: wholly-owned
subsidiary, domiciled in Illinois, engaged in the business of
selling life insurance and annuities. Principal place of
business: Edwardsville, Illinois.
General Life Insurance Company: wholly-owned subsidiary,
domiciled in Texas, engaged in the business of selling life
insurance and annuities. Principal place of business:
Edwardsville, Illinois.
Paragon Life Insurance Company: wholly-owned Missouri
subsidiary engaged in employer sponsored sales of life insurance.
Principal place of business: St. Louis, Missouri.
C-7
<PAGE> 96
Equity Intermediary Company: wholly-owned subsidiary
holding company formed to own stock in subsidiaries. Principal
place of business: St. Louis, Missouri.
Reinsurance Group of America, Incorporated: Missouri
corporation, of which approximately 64% is owned by Equity
Intermediary Company and the balance by the public, owning RGA
Reinsurance Company and G.A. Canadian Holdings, Ltd., (i.e. all
reinsurance business). Principal place of business: St. Louis,
Missouri.
RGA Sudamerica S.A.: Chilean subsidiary, of which all but
one share is owned by RGA and one share is owned by RGA
Reinsurance Company (fka Saint Louis Reinsurance Company),
existing to hold Chilean reinsurance operations. Principal place
of business: Santiago, Chile.
BHIF America Seguros de Vida S.A.: Chilean subsidiary, of
which 50% is owned by RGA Sudamerica S.A. and 50% is owned by
Chilean interests, engaged in business as a life/annuity insurer.
Principal place of business: Santiago, Chile.
Manantial Seguros de Vida S.A.: Argentinean subsidiary, of
which 50% is owned by RGA and 50% by Argentinean interests called
the Sojo Group, engaged in business as a life, annuity,
disability, and survivorship insurer. Principal place of
business: Buenos Aires, Argentina.
RGA Reinsurance Company (formerly Saint Louis Reinsurance
Company): Missouri subsidiary of Reinsurance Group of America
engaged in the reinsurance business. Principal place of business:
St. Louis, Missouri.
Fairfield Management Group, Inc.: 51% owned Missouri
subsidiary of RGA Reinsurance Company (fka Saint Louis Reinsurance
Company) and 49% is owned by management. Principal place of
business: St. Louis, Missouri.
C-8
<PAGE> 97
Reinsurance Partners, Inc.: wholly-owned Missouri
subsidiary of Fairfield Management Group, Inc., engaged in
business as a reinsurance brokerage company. Principal place of
business: St. Louis, Missouri.
Great Rivers Reinsurance Management, Inc.: wholly-owned
Missouri subsidiary of Fairfield Management Group, Inc., acting as
a reinsurance manager. Principal place of business: St. Louis,
Missouri.
RGA (U.K.) Underwriting Agency Limited: 80% owned by
Fairfield Management Group, Inc.. Principal place of business:
London, England.
RGA Reinsurance Company (Barbados) Ltd.: subsidiary of
Reinsurance Group of America, Incorporated formed to engage in the
exempt insurance business. Principal place of business:
Barbados, West Indies.
RGA/Swiss Financial Group, L.L.C.: subsidiary formed to
market and manage financial reinsurance business to be assumed by
RGA Reinsurance Company. Principal place of business: St. Louis,
Missouri
TAIMS L.L.C.: 51% owned by RGA; 49% owned by TAIMS Holding
Corp., a Canadian corporation. Acts as a holding company in a joint
venture with IBM to sell computers and software for the application
process to brokers and agents. Principal place of business:
St. Louis, Missouri.
G.A. Canadian Holdings, Ltd.: a New Brunswick corporation
wholly-owned by Reinsurance Group of America, existing to hold
Canadian reinsurance operations. Principal place of business:
Montreal, Canada.
C-9
<PAGE> 98
RGA Canada Management Company, Ltd.: a New Brunswick
corporation wholly-owned by G.A. Canadian Holdings, existing to
accommodate Canadian investors. Principal place of business:
Montreal, Canada.
RGA Life Reinsurance Company of Canada: Federally chartered
corporation wholly-owned by RGA Canada Management Company, Ltd.
Principal place of business: Montreal, Canada.
RGA Holdings Limited: holding company formed in the United
Kingdom to own two operating companies: RGA Managing Agency
Limited and RGA Capital Limited.
RGA Managing Agency Limited: company has applied to Lloyd's
of London for registration as a managing agent or underwriter.
RGA Capital Limited: company has applied to Lloyd's of
London syndicate which will underwrite accident and health
business.
RGA Reinsurance Company (Bermuda) Ltd.: subsidiary formed
to reinsure the foreign (international) and domestic (U.S.)
business of affiliated and non-affiliated companies.
RGA Australian Holdings Pty Limited: holding company formed
to own RGA Reinsurance Company of Australia Limited.
RGA Reinsurance Company of Australia Limited: formed to
reinsure the life, health, and accident business of non-affiliated
Australian insurance companies.
Security Equity Life Insurance Company: wholly-owned
subsidiary, domiciled in New York, engaged in the business of
selling life insurance and annuities. Principal place of
business: Armonk, New York.
General American Holding Company: wholly-owned Missouri
subsidiary owning non-insurance subsidiaries. Principal place of
business: St. Louis, Missouri.
C-10
<PAGE> 99
Conning Asset Management Company: wholly-owned, second-tier
Missouri subsidiary formed to own General American Investment
Management Company and Conning Corporation. Principal place of
business: St. Louis, Missouri.
General American Investment Management Company:
wholly-owned, third-tier Missouri subsidiary engaged in providing
investment advice. Principal place of business: St. Louis,
Missouri.
Conning Corporation: a holding company organized under
Delaware law. Principal place of business: St. Louis, Missouri.
Conning & Company: a Connecticut corporation engaged in
providing asset management and investment advisory services as
well as insurance research services. Principal place of business:
Hartford, Connecticut.
Conning International, Inc.: an inactive company formed to
engage in international activities. Principal place of business:
Hartford, Connecticut.
Consultec, Inc.: wholly-owned, second-tier Georgia
subsidiary engaged in providing data processing services for
government entities. Principal place of business: Atlanta,
Georgia.
Genelco Incorporated: wholly-owned, second-tier Missouri
subsidiary engaged in the sale of computer software and in
providing third-party administrative services. Principal place of
business: St. Louis, Missouri.
International Underwriting Services, Incorporated:
Illinois corporation 88.3% owned by Genelco. Provides
third-party underwriting services to insurance companies.
Principal place of business: Barrington, Illinois.
C-11
<PAGE> 100
Genelco de Mexico: Mexican corporation 99% owned by Genelco
Incorporated; engaged in licensing of Genelco software products
in Latin America. Principal place of business: Mexico City,
Mexico.
Genelco Software, S.A.: a Spanish corporation 99% owned by
Genelco Incorporated, engaged in licensing of Genelco software
products in Spain.
Red Oak Realty Company: wholly-owned, second-tier Missouri
subsidiary formed for the purpose of investing in and operating
real estate. Principal place of business: St. Louis, Missouri.
GenMark Incorporated: wholly-owned, second-tier Missouri
subsidiary company acting as distribution company. Principal
place of business: St. Louis, Missouri.
Walnut Street Securities, Inc.: wholly-owned, third-tier
Missouri subsidiary engaged in the process of selling variable
life insurance and variable annuities and other securities.
Principal place of business: St. Louis, Missouri.
Walnut Street Advisers, Inc.: wholly-owned Missouri
subsidiary of Walnut Street Securities engaged in the business of
giving investment advice. Principal place of business: St.
Louis, Missouri.
Stan Mintz Associates, Inc.: wholly-owned Wisconsin
subsidiary purchased to maintain a significant marketing presence
in the Madison, Wisconsin area upon the retirement of General
Agent Stan Mintz. Principal place of business: Madison,
Wisconsin.
White Oak Royalty Company: wholly-owned, second-tier
Oklahoma subsidiary formed to own mineral interests. Principal
place of business: St. Louis, Missouri.
C-12
<PAGE> 101
Item 27. Number of Contract Owners 5,926
As of 31 March 1996 there were:
Title of Class Number of Owners of Record
Qualified 4,866
Non-Qualified 1,060
Item 28. Indemnification
Section 351.355 of the Missouri General and Business Corporation
Law, in brief, allows a corporation to indemnify any person who is
a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action if he
acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the corporation. Where
any person was or is a party or is threatened to be made a party
in an action or suit by or in the right of the corporation to
procure a judgment in its favor, indemnification may not be paid
where such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the
corporation, unless a court determines that the person is fairly
and reasonably entitled to indemnity. A corporation has the power
to give any further indemnity, to any person who is or was a
director, officer, employee or agent, provided for in the articles
of incorporation or as authorized by any by-law which has been
adopted by vote of the shareholders, provided that no such
indemnity shall indemnify any person's conduct which was finally
adjudged to have been knowingly fraudulent, deliberately
dishonest, or willful misconduct.
In accordance with Missouri law, General American's Board of
Directors, at its meeting on 19 November 1987 and the
policyholders of General American at the annual meeting held on 26
January 1988 adopted the following resolutions:
"BE IT RESOLVED THAT
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<PAGE> 102
1. The company shall indemnify any person who is or was a
director, officer, or employee of the company, or is or was
serving at the request of the company as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any and all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him or her in
connection with any civil, criminal, administrative or
investigative action, proceeding or claim (including an action by
or in the right of the company) by reason of the fact that he or
she was serving in such capacity if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the company; provided that such
person's conduct is not finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct.
2. The indemnification provided herein shall not be
deemed exclusive of any other rights to which a director, officer,
or employee may be entitled under any agreement, vote of
policyholders or disinterested directors, or otherwise, both as to
action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, or employee and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-14
<PAGE> 103
Item 29. Principal Underwriters
(a) Walnut Street Securities, Inc., serves as the
principal underwriter for the variable annuity contracts funded by
Separate Account Two. Walnut Street Securities also serves as the
principal underwriter for variable life insurance policies funded
by Separate Account Eleven of General American.
(b) Directors and Officers
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address<F*> with Underwriter
<S> <C>
Officers
Rene C. Lorio President and Chief
Executive Officer
Nancy L. Gucwa Chief Operating Officer
Milton F. Svetanics, Jr. Vice President,
Secretary, and General
Counsel
Thomas J. Tagliamonte Senior Vice President
Compliance and Operations
Don P. Wuller Senior Vice President,
Administration
Christi L. Meyers Vice President,
Operations
E. Thomas Hughes, Jr. Treasurer
Directors
Matthew P. McCauley Director
Michael N. Nicholson Director
Timothy C. Nicholson Director
Milton F. Svetanics, Jr. Director
Bernard H. Wolzenski Director
<FN>
<F*> Messrs. Hughes, McCauley, and Svetanics are at 700 Market
Street, St. Louis, Missouri 63101. Mr. Wolzenski is at 13045
Tesson Ferry Road, St. Louis, Missouri 63128. Messrs. Lorio, T.C.
Nicholson, M.M. Nicholson, Tagliamonte, Wuller and Ms. Gucwa and
Ms. Meyers are at 670 Mason Ridge Center Drive, St. Louis, Missouri
63141.
</TABLE>
C-15
<PAGE> 104
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section
31(a) of the 1940 Act and the rules under it are maintained by
General American at its administrative offices, 13045 Tesson Ferry
Road, St. Louis, Missouri 63128.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include, as part of the application
to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request to
General American at the address or phone number listed in the
prospectus.
(d) Registrant represents that it is relying upon a "no-action"
letter (No. P-6-88) issued to the American Council of Life
Insurance concerning the conflict between the redeemability
requirements of sections 22(e), 27(c)(1), and 27(d) of the
Investment Company Act of 1940 and the limits on the redeemability
of variable annuities imposed by section 403(b)(11) of the
Internal Revenue Code. Registrant has included disclosure
concerning the 403(b)(11) restrictions in its prospectus and sales
literature, and established a procedure whereby each plan
participant will sign a statement acknowledging these restrictions
before the contract is issued. Sales representatives have been
instructed to bring the restrictions to the attention of potential
plan participants.
C-16
<PAGE> 105
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, General American Separate
Account Two certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of the Registration Statement
and has duly caused this amended Registration Statement to be
signed on its behalf in the City of St. Louis, State of Missouri,
on the 29th day of April, 1996.
GENERAL AMERICAN SEPARATE
ACCOUNT TWO (REGISTRANT)
(Seal) By: GENERAL AMERICAN LIFE
INSURANCE COMPANY (for
Registrant and as Depositor)
/s/ Robert J. Banstetter, Sr. /s/ Richard A. Liddy
Attest:------------------------------ By:-----------------------
Robert J. Banstetter, Sr. Richard A. Liddy
Chairman, President, and
Secretary
Chief Executive Officer
General American Life
Insurance Company
C-17
<PAGE> 106
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this amended Registration Statement has been signed below by the
following persons in their capacities with General American Life Insurance
Company and on the dates indicated.
Signature Title Date
/s/ Richard A. Liddy
- ------------------------- 4/29/96
Richard A. Liddy Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
/s/ Leonard M. Rubenstein
- -------------------------
Leonard M. Rubenstein Executive Vice President 4/29/96
- Investments
(Principal Financial Officer)
/s/ John W. Barber
- ------------------------- 4/29/96
John W. Barber Vice President and Controller
(Principal Accounting Officer)
<F*>
August A. Busch, III Director
<F*>
William E. Cornelius Director
<F*>
John C. Danforth Director
<F*>
Bernard A. Edison Director
/s/ Richard A. Liddy
- ------------------------- 4/29/96
Richard A. Liddy Director
<F*>
William E. Maritz Director
<F*>
Craig D. Schnuck Director
<F*>
William P. Stiritz Director
C-18
<PAGE> 107
Signature Title Date
<F*>
Andrew C. Taylor Director
<F*>
H. Edwin Trusheim Director
<F*>
Robert L. Virgil, Jr. Director
<F*>
Virginia V. Weldon Director
<F*>
Ted C. Wetterau Director
/s/ Matthew P. McCauley
<F*>By -------------------------
Matthew P. McCauley
[FN]
<F*> Original powers of attorney authorizing Matthew P. McCauley to
sign the registration statement and amendments thereto on behalf
of the Directors of General American Life Insurance Company have
been filed previously.
C-19
<PAGE> 1
ENDORSEMENT
In order to comply with the requirements of Section 408(b) of the Internal
Revenue Code, the following endorsements are made on this contract. Any
provisions of this contract that are not consistent with these endorsements
are hereby modified or nullified so as to be consistent.
(1) This contract is not transferable by the owner (who will be the
annuitant) and is established for the exclusive benefit of the
owner or his/her beneficiaries.
(2) Except as provided under (3) below, the annual sum of
purchase payments under this contract will not exceed $2,000.
(3) The annual purchase payment limitations for this contract when issued
in connection with a simplified employee pension plan will be
governed by a written formula and will not exceed $30,000.
(4) The entire interest of the owner will be distributed to
him/her not later than the April 1 after the year in which
he/she attains age 70 1/2, or will be distributed, commencing
not later than such date, in accordance with regulations
prescribed by the Secretary of his/her delegate,
(A) over the life of such owner or the lives of such owner
and his/her designated beneficiary, in equivalent
installments under the terms of this contract,
(B) over a period not extending beyond the life expectancy
of such owner or the life expectancy of such owner and
his/her designated beneficiary, in equivalent installments
under the terms of this contract.
All such required distributions will be made in accordance with the
provisions of Section 401(a)(9) of the Internal Revenue Code,
including the incidental death benefit requirements, and the
regulations issued thereunder, including the minimum distribution
incidental benefit requirement of the regulations. Life expectancy
is computed by use of the expected return multiples in Tables V and
VI of Section 1.72-9 of the Internal Revenue Code regulations.
(5) Distribution After Death
(A) If an owner dies after distribution has begun but before
his/her entire interest is distributed, the remaining
portion will be distributed at least as rapidly as under
the method being used at his/her death.
(B) If an owner dies before distribution has begun, the entire
interest must be distributed within five years after the
owner's death except to the extent that any portion of
his/her interest
(i) is payable to (or for the benefit of) a designated
beneficiary,
(ii) payment is made over the life (or the life expectancy) of
such designated beneficiary,
(iii) and payment begins within one year after the date of the
owner's death.
(C) If the owner's surviving spouse is a designated beneficiary,
distribution of such surviving spouse's interest must begin not
later than the later of
(i) the date which is one year after the owner's
death or
(ii) the date that the owner would have attained age 70 1/2.
If such surviving spouse dies before his/her distribution was
to begin, the rules will apply as if the surviving spouse were
the owner.
(D) Distributions are considered to have begun if distributions were
made on account of the owner's having attained age 70 1/2, or if
prior to April 1 of the year after the year in which the owner
would have attained age 70 1/2, distributions irrevocably
commenced over a period permitted and in an annuity form
acceptable under the Internal Revenue Code regulations.
(E) Life expectancy is computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Internal
Revenue Code regulations.
1
<PAGE> 2
(6) The entire interest of the owner is nonforfeitable.
(7) Any dividends will be held by the insurer and applied toward the
purchase of additional annuity benefits under the contract
following the year the dividend became payable.
(8) The Company will furnish annual calendar year reports concerning the
status of this contract.
(9) This contract may be amended by the Company at any time for the
purpose of complying with changes in the Internal Revenue
Code, regulations issued thereunder or published revenue
rulings; provided that no such amendment will become
effective until thirty days after the Company has given the
policyholder written notice of such amendment by ordinary
mail forwarded to the policyholder's last known address as
shown on the Company's record, unless an earlier effective
date is prescribed by such Code, regulations or rulings, in
which case such earlier effective date will control.
2
<PAGE> 1
GENERAL AMERICAN LIFE INSURANCE COMPANY
403(b) CONTRACT ENDORSEMENT
In order to comply with the requirements of Section 403(b) of the Internal
Revenue Code of 1986 ("Code"), the following endorsements are made to this
Contract. Any provisions of this Contract that are not consistent with
these endorsements are hereby modified or nullified so as to be consistent.
1. This contract has been issued as part of an arrangement qualified
under Code Section 403(b) and applicable regulations.
Contributions must originate directly or indirectly from a
salary reduction agreement between you (Owner and Annuitant
under the Contract) and an employer qualified under Code Section
403(b) or must represent transfers of monies from other 403(b)
contracts you own whose distribution restrictions are the same
or less stringent than those of this Contract as modified by
this endorsement.
2. This Contract and your benefits under it are nontransferable. The
Contract is established for the exclusive benefit of you and
your Beneficiaries.
3. Your rights under the Contract are nonforfeitable.
4. Limitation on Contributions
Salary reduction contributions made to 403(b) contracts are limited
by Code Section 403(b)(2). This limit applies to all 403(b)
contracts, including this contract, in the aggregate. An
aggregate annual dollar limitation under Code Section 402(g) on
total salary reduction contributions under 403(b) contracts,
under 401(k) plans and under simplified employee pension plans
made pursuant to 402(h)(1)(B) also applies. The amount of
contributions under the Contract are subject to the limitations
under Code Section 415 and applicable regulations.
5. Distributions
(a) General Restriction
Except as provided in (b) below, to the extent this
Contract is funded by salary reduction contributions
made or earnings credited after December 31, 1988,
you may not surrender or make withdrawals from this
Contract until after you (1) attain age 59 1/2, (2)
separate from service, (3) die, (4) become disabled
within the meaning of Code Section 72(m)(7), or (5)
incur a "hardship"; or as otherwise permitted by
Code Section 403(b)(11) and applicable regulations.
In the case of hardship, you may not withdraw any
income attributable to contributions made pursuant
to your salary reduction agreement (within the
meaning of Code Section 402(g)(3)(C)).
To the extent required by applicable regulations,
we reserve the right to require written proof of the
events in items (1) through (5) in the preceding
paragraph. Such proof must be satisfactory under the
regulations.
(b) Other Exceptions Allowing Distributions
(1) A distribution to an "alternate payee" will be permitted
if such distribution is authorized by a "qualified domestic
relations order." For this purpose, the terms "alternate
payee" and "qualified domestic relations order" have the
meaning set forth under Code Section 414(p).
(2) Amounts in excess of the annual dollar limit under Code
Section 402(g) for your taxable year and any income allocable
to such amounts may be distributed not later than April 15
following the close of such taxable year.
(3) Some or all of the values of this Contract may be
transferred to another contract which satisfies the
requirements of Code Section 403(b) to the extent permitted
under the Code.
(c) Minimum Distribution Requirements
(1) Your entire interest will be distributed to you not later
than the April 1 after the year in which you attain age 70
1/2, or will be distributed, commencing not later than such
date,
A. over your life or the lives of you and your designated
Beneficiary, in equivalent installments under the terms
of this Contract, or
1
<PAGE> 2
B. over a period not extending beyond your life expectancy
or the life expectancy of you and your designated
Beneficiary, in equivalent installments under the
terms of this Contract.
All such required distributions will be made in accordance
with the provisions of Code Section 403(b)(10) and
applicable regulations. Life expectancies may be
recalculated to the extent permitted under regulations at
your election. Life expectancy is computed by use of the
expected return multiples in Tables V and VI of Section
1.72-9 of the Internal Revenue Code regulations.
(2) Distribution After Death
A. If you die after distribution has begun but before your
entire interest is distributed, the remaining portion
will be distributed at least as rapidly as under the
method being used at your death.
B. If you die before distribution has begun, the entire
interest must be distributed within five years after
your death except to the extent that any portion of
your interest
(i) is payable to (or for the benefit of) a designated
Beneficiary,
(ii) payment is made over the life (or the life
expectancy) of such designated Beneficiary, and
(iii) payment begins within one year after the date of
your death.
C. If your surviving spouse is a designated Beneficiary,
distribution of such surviving spouse's interest
must begin not later than the later of
(i) the date which is one year after your death or
(ii) the date that you would have attained age 70 1/2.
D. Distributions are considered to have begun if
distributions were made on account of your having
attained age 70 1/2, or if prior to April 1 of the year
after the year in which you would have attained 70 1/2,
distributions irrevocably commenced over a period
permitted and in any annuity form acceptable under the
Internal Revenue Code regulations.
(6) Limit of Liability to General American
We will not incur any liability or be responsible for:
(a) the timing, purpose, or propriety of any contribution of
distribution,
(b) any tax or penalty imposed on account of any such contribution or
distribution, or
(c) any other failure, in whole or in part, by you or your employer to
comply with the provisions set forth in the Code or any other law.
(7) Modifications of this Contract
We retain the right to further amend this Contract and endorsement at
any time without your consent as necessary to conform with changes in
the Code and regulations or rulings thereunder.
The date of issue and effective date of this endorsement and the
contract are the same unless another effective date is shown below.
--------------------------
EFFECTIVE DATE
2
<PAGE> 1
GENERAL AMERICAN LIFE INSURANCE COMPANY
403(b) CONTRACT ENDORSEMENT
In order to comply with the requirements of Section 403(b) of the Internal
Revenue code of 1986 ("Code"), the following endorsements are made to the
contract. Any provisions of the contract that are not consistent with these
endorsements are hereby modified or nullified so as to be consistent.
(1) The contract has been issued as part of an arrangement qualified under
Code Section 403(b) and applicable regulations. Contributions must:
(a) originate directly or indirectly from a salary reduction agreement
between Participants and an employer qualified under Code Section
403(b),
(b) be made under the terms of a written plan document under which
403(b) salary reduction contributions are made, or
(c) represent transfers of monies from other 403(b) contracts a
Participant owns whose distribution restrictions are the same or
less stringent than those of the contract as modified by this
endorsement.
(2) The contract and a Participant's benefits under it are
nontransferable. The contract is established for the exclusive
benefit of you and your Beneficiaries.
(3) A Participant's rights under the contract are nonforfeitable to the
extent such rights are attributable to salary reduction
contributions. Any rights attributable to employer contributions
other than salary reduction contributions made pursuant to a written
plan document are forfeitable in accordance with the terms of the
plan.
(4) Limitation on Contributions for a Participant
Salary reduction contributions made to 403(b) contracts are limited by
Code Section 403(b)(2). This limit applies to all 403(b) contracts,
including this contract, in the aggregate. An aggregate annual dollar
limitation under Code Section 402(g) on total salary reduction
contributions under 403(b) contracts, under 401(k) plans and under
simplified employee pension plans made pursuant to 402(h)(1)(B) also
applies. The amount of contributions under the contract are subject
to the limitations under Code Section 415 and applicable regulations.
(5) Distributions
(a) General Restriction
Except as provided in (b) below, to the extent this contract is
funded by salary reduction contributions made or earnings
credited after December 31, 1988, a Participant may not
surrender or make withdrawals from the contract until after the
Participant (1) attains age 59 1/2, (2) separates from service,
(3) dies, (4) becomes disabled within the meaning of Code
Section 72(m)(7), or (5) incurs a "hardship"; or as otherwise
permitted by Code Section 403(b)(11) and applicable regulations.
In the case of hardship, Participant may not withdraw any income
attributable to contributions made pursuant to the Participant's
salary reduction agreement (within the meaning of Code Section
402(g)(3)(C)).
To the extent required by applicable regulations, we reserve the
right to require written proof of the events in items (1)
through (5) in the preceding paragraph. Such proof must be
satisfactory under the regulations.
(b) Other Exceptions Allowing Distributions
(1) A distribution to an "alternate payee" will be permitted
if such distribution is authorized by a "qualified
domestic relations order." For this purpose, the terms
"alternate payee" and "qualified domestic relations order"
have the meaning set forth under Code Section 414(p).
(2) Amounts in excess of the annual dollar limit under Code
Section 402(g) for the Participant's taxable year and
any income allocable to such amounts may be distributed
not later than April 15 following the close of such
taxable year.
(3) Some or all of the values of the contract may be
transferred to another contract which satisfies the
requirements of Code Section 403(b) to the extent
permitted under the Code.
(c) Minimum Distribution Requirements
(1) A Participant's entire interest will be distributed to the
Participant not later than the April 1 after the year in
which the Participant attains age 70 1/2, or will be
distributed, commencing not later than such date,
A. over the Participant's life or the lives of the
Participant and the Participant's designated
beneficiary, in equivalent installments under the
terms of the contract, or
<PAGE> 2
B. over a period not extending beyond the Participant's
life expectancy or the life expectancy of the
Participant and Participant's designated Beneficiary,
in equivalent installments under the terms of this
Contract.
All such required distributions will be made in accordance
with the provisions of Code Section 403(b)(10) and
applicable regulations. Life expectancies may be
recalculated to the extent permitted under regulations
at the Participant's election. Life expectancy is
computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Internal
Revenue Code regulations.
(2) Distribution After Death
A. If the Participant dies after distribution has begun
but before the Participant's entire interest is
distributed, the remaining portion will be
distributed at least as rapidly as under the
method being used at the Participant's death.
B. If the Participant dies before distribution has begun,
the entire interest must be distributed within
five years after the Participant's death except
to the extent that any portion of the
Participant's interest
(i) is payable to (or for the benefit of) a designated
Beneficiary,
(ii) payment is made over the life (or the life
expectancy) of such designated beneficiary, and
(iii) payment begins within one year after the date of
the Participant's death.
C. If the Participant's surviving spouse is a designated
beneficiary, distribution of such surviving
spouse's interest must begin not later than the
later of
(i) the date which is one year after the Participant's
death or
(ii) the date the Participant would have attained age
70 1/2.
D. Distributions are considered to have begun if
distributions were made on account of the Participant
having attained age 70 1/2, or if prior to April 1 of
the year after the year in which you would have
attained 70 1/2, distributions irrevocably commenced
over a period permitted and in any annuity form
acceptable under the Internal Revenue Code
regulations.
(6) Limit of Liability to General American
We will not incur any liability or be responsible for:
(a) the timing, purpose, or propriety of any contribution of
distribution,
(b) any tax or penalty imposed on account of any such contribution or
distribution, or
(c) any other failure, in whole or in part, by the Contract Owner
shown on the Certificate Specifications page or by a Participant
to comply with the provisions set forth in the Code or any other
law.
(7) Modification of this Contract
We retain the right to further amend the contract and endorsement at
any time without consent of the Contract Owner shown on the
Certificate Specifications page or any Participant as necessary to
conform with changes in the Code and regulations or rulings
thereunder.
The date of issue and effective date of this endorsement and the
contract are the same unless another effective date is shown below.
--------------------------
EFFECTIVE DATE
<PAGE> 1
ENDORSEMENT
Issued by General American Life Insurance Company
The definition of "Fund" is amended to read as follows:
"One of the investment portfolios of General American Capital Company,
or of another registered, open-end investment company."
The date of issue and effective date of this endorsement and the contract
are the same unless another effective date is shown below.
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EFFECTIVE DATE
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UNEMPLOYMENT COMPENSATION AMENDMENTS OF 1992
CONTRACT ENDORSEMENT
Issued by General American Life Insurance Company
In order to comply with the requirements of the Unemployment Compensation
Amendments of 1992 (UCA `92), the following endorsements are made to this
Contract. Any provisions of this Contract that are not consistent with this
endorsement are hereby modified or nullified so as to be consistent.
1. Effective Date
(a) This endorsement generally applies to distributions made on or
after January 1, 1993, from an arrangement qualified under
Internal Revenue Code ("Code") Section 403(b) and applicable
regulations.
(b) Special rule for government Code section 403(b) annuities.
With respect to a Code Section 403(b) annuity arrangement
sponsored by a state or a political subdivision of a state
(or an agency or instrumentality of either one) that
prohibits by state law a direct rollover from such annuity
arrangement as of July 1, 1992, this endorsement will apply
to distributions made on or after the earlier of 90 days
after the first day after July 1, 1992, on which a direct
rollover is allowed under state law or January 1, 1994.
2. Direct Rollover Option
A distributee may elect to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover. Any
eligible rollover distribution that is not made in a direct
rollover will be subject to a mandatory 20% withholding. This
withholding will apply even if the distributee plans to roll
the distribution over to an eligible retirement plan within 60
days after the distribution.
3. Definitions
(a) Eligible rollover distribution. An eligible rollover
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distribution is any distribution of all or any portion
of the balance to the credit of the distributee, except
that an eligible rollover distribution does not include:
any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancy) of the distributee and the
distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the
extent such distribution is required under Code Sections
401(a)(9) and 403(b)(10); and the portion of any
distribution that may not be included in gross income.
(b) Eligible retirement plan. An eligible retirement plan is an
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individual retirement account described in Code Section
408(a), an individual retirement annuity described in
Code Section 408(b), a custodial account described in
Code Section 403(b)(7), an annuity plan described in Code
Section 403(b) that accepts the distributee's eligible
rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse,
an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee. A distributee includes the Annuitant. In
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addition, the Annuitant's surviving spouse and the
Annuitant's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as
defined in Code Section 414(p), are distributees with
regard to the interest of the spouse or former spouse.
(d) Direct rollover. A direct rollover is a payment by the plan to
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the eligible retirement plan specified by the distributee.
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4. Notice and Direct Rollover Request
General American will provide notice of the direct rollover option to
the distributee within a reasonable period of time before making
the eligible rollover distribution. The direct rollover option
is not available if the amount of the eligible rollover
distributions are reasonably expected to total less than $200 in
any calendar year, so no notice will be provided in such
situations. The distributee may direct us to pay all or part of
the portion of any eligible rollover distribution in a direct
rollover to another eligible retirement plan by written request
on a form provided by us which clearly specifies the eligible
retirement plan to which such distribution is to be paid.
5. Modification of this Contract
We retain the right to further amend this Contract and endorsement at
any time without your consent as necessary to conform with changes in
the Code and regulations or rulings thereunder.
The date of issue and effective date of this endorsement and the Contract
are the same unless another effective date is shown below.
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EFFECTIVE DATE
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The Board of Directors
General American Life Insurance Company
We consent to the use of our reports included herein on General
American Life Insurance Company and on General American Separate
Account Two and to the reference of our firm under the heading
"Financial Statements" in the Registration Statement and
Prospectus for General American Separate Account Two.
The audited financial statements of General American Life
Insurance Company have been prepared in accordance with accounting
practices prescribed or permitted by the Department of Insurance
of the State of Missouri which are currently considered generally
accepted accounting principles for mutual life insurance companies.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 29, 1996
C-20
