GENERAL AMERICAN LIFE INSURANCE COMPANY
GENERAL AMERICAN SEPARATE ACCOUNT TWO
PROSPECTUS
FOR THE
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS
This prospectus describes certain group and individual variable annuity
contracts (Contracts) offered by General American Life Insurance Company (we,
us, our). The Contracts are deferred variable annuities. The Contracts have been
offered as non-qualified annuities, individual retirement annuities (IRAs), tax
sheltered annuities (TSAs), or pursuant to other qualified plans. These
Contracts provide for accumulation of contract values and annuity payments on a
fixed and variable basis, or a combination fixed and variable basis. Sales of
the Contracts have been discontinued with certain exceptions. Please contact you
broker for further details.
The Contracts have a number of investment choices (1 General Account and 8
Funds). The General Account is part of our general assets and provides an
investment rate guaranteed by us. The eight Funds available are portfolios of
General American Capital Company and Variable Insurance Products Fund which are
listed below. You can put your money in any of these Funds which are offered
through our separate account, General American Separate Account Two.
<TABLE>
<CAPTION>
<S> <C>
GENERAL AMERICAN CAPITAL COMPANY VARIABLE INSURANCE PRODUCTS FUND
Advised by: Conning Asset Management Company Managed by: Fidelity Management & Research Company
S & P 500 Index Fund VIP: Equity-Income Portfolio
Money Market Fund VIP: Growth Portfolio
Bond Index Fund VIP: Overseas Portfolio
Managed Equity Fund
Asset Allocation Fund
</TABLE>
Please read this Prospectus before investing. You should keep it for future
reference. It contains important information. To learn more about the Contract,
you can obtain a copy of the Statement of Additional Information (SAI) (dated
May 1, 2000). The SAI has been filed with the Securities and Exchange Commission
(SEC) and is legally a part of the Prospectus. If you wish to receive, at no
charge, the SAI, call us at (800) 449-6447 (toll free) or write us at: 700
Market Street, St. Louis, Missouri 63101. The SEC has a website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding companies that file electronically. The Table of
Contents of the SAI is on Page 21 of this Prospectus.
The Contracts:
* are not bank deposits
* are not federally insured
* are not endorsed by any bank or government agency
* are not guaranteed and may be subject to loss of principal
The SEC has not approved these Contracts or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
MAY 1, 2000
TABLE OF CONTENTS
INDEX OF SPECIAL TERMS..........................................3
SEPARATE ACCOUNT TABLE OF FEES AND EXPENSES....................4
HIGHLIGHTS......................................................6
THE COMPANY.....................................................6
THE ANNUITY CONTRACTS...........................................7
PURCHASE........................................................7
Purchase Payments...............................................7
Allocation Of Purchase Payments.................................8
FUNDS...........................................................8
General American Capital Company................................8
Variable Insurance Products Fund................................8
The General Account.............................................9
Transfers.......................................................9
Additions, Deletions and Substitutions..........................9
EXPENSES........................................................9
Surrender Charges (Contingent Deferred Sales Charge)......9
Charge-Free Amounts...........................................10
Administrative Charge ........................................10
Transfer Charge................................................10
Mortality and Expense Risk Charge..............................10
Premium Taxes..................................................11
Income Taxes..................................................11
Fund Expenses..................................................11
Exchange Program...............................................11
ACCUMULATED VALUE..............................................11
Accumulated Value..............................................11
Net Investment Factor..........................................12
ACCESS TO YOUR MONEY...........................................12
Surrenders and Partial Withdrawals.............................12
Termination Benefits...........................................12
DEATH BENEFIT..................................................13
Death of Contract Owner During the Accumulation Phase..........13
Death of Annuitant During the Accumulation Phase...............13
Death of Contract Owner or Annuitant During the Income Phase...13
Special Tax Considerations.....................................14
Avoiding Probate...............................................14
ANNUITY PAYMENTS...............................................14
Annuity Income Options.........................................14
Value of Variable Annuity Payments.............................15
TAXES..........................................................16
Annuity Contracts in General...................................16
Qualified and Non-Qualified Contracts..........................16
Withdrawals - Non-Qualified Contracts..........................16
Withdrawals - Qualified Contracts..............................17
Withdrawals - Tax-Sheltered Annuities..........................17
Diversification................................................17
Types of Qualified Contracts...................................18
Individual Retirement Annuities................................18
Section 403(b) Plans...........................................18
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans...18
Deferred Compensation Plans....................................18
PERFORMANCE....................................................19
OTHER INFORMATION..............................................19
Separate Account Two...........................................19
Distributor of the Contracts...................................19
Voting Rights..................................................19
Written Notice or Written Request..............................20
Deferment of Payment...........................................20
Ownership......................................................20
The Beneficiary................................................20
Assignments....................................................20
Financial Statements...........................................20
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...21
APPENDIX A.....................................................22
Historical Table of Units and Unit Values for Qualified Plans..22
Historical Table of Units and Unit Values For Non-Qualified
Plans......................................................22
Table of Units and Unit Values.................................23
INDEX OF SPECIAL TERMS
Because of the complex nature of the contract, we have used certain
words or terms in this prospectus which may need an explanation. We
have identified the following as some of these words or terms. The
page that is indicated here is where we believe you will find the
best explanation for the word or term. These words and terms are in
italics on the indicated page.
Page
Accumulation Phase......................................................6
Annuitant...............................................................14
Annuity Commencement Date...............................................14
Annuity Income Options..................................................14
Annuity Payments........................................................7
Beneficiary.............................................................20
Business Day............................................................8
General Account.........................................................9
Income Phase............................................................6
Funds...................................................................8
Non-Qualified...........................................................16
Owner...................................................................20
Purchase Payment........................................................7
Qualified...............................................................16
Tax Deferral............................................................7
GENERAL AMERICAN SEPARATE ACCOUNT TWO TABLE OF FEES AND
EXPENSES
Owner Transaction Expenses
<TABLE>
<CAPTION>
Surrender Charges (Expressed as a percentage of amount withdrawn):
<S> <C>
First Contract Year 9.00%
Second Contract Year 8.00%
Third Contract Year 7.00%
Fourth Contract Year 6.00% The surrender charge is levied only when you withdraw
Fifth Contract Year 5.00% money from your Contract. The first 10% of the account
Sixth Contract Year 4.00% value you withdraw in any contract year will not have
Seventh Contract Yar 3.00% a surrender charge applied to it.
Eighth Contract Year 2.00%
Ninth Contract Year 1.00%
</TABLE>
Transfer Fee: None
<TABLE>
<CAPTION>
Separate Account Annual Fees (as a percentage of the accumulated value of your Contract)
<S> <C>
Mortality and Expense Risk Charge: 1.00%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.00%
</TABLE>
Fund Expenses
(expressed as a percentage of average net assets):
<TABLE>
<CAPTION>
Management Other Total Annual
Fee Expenses Expenses
------------- ---- ------------------
<S> <C> <C> <C> <C>
GENERAL AMERICAN CAPITAL COMPANY
Advised by Conning Asset
Managed Company
S & P 500 Index Fund .250% .050% .300%
Money Market Fund .125% .080% .205%
Bond Index Fund .250% .050% .300%
Managed Equity Fund(a) .290% .100% .390%
Asset Allocation Fund .500% .100% .600%
VARIABLE INSURANCE PRODUCTS FUND(b)
Managed by Fidelity Management &
Research Company
VIP: Equity-Income Portfolio .480% .080% .560%
VIP: Growth Portfolio .580% .070% .650%
VIP: Overseas Portfolio .730% .140% .870%
<FN>
(a) 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).
(b) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds,
or FMR on behalf of certain funds', custodian credits realized as a result
of uninvested cash balances were used to reduce a portion of each fund's
expenses. Without these reductions, the Total Annual Expenses presented in
the table for the year ended December 31, 1999 would have been .57% for the
VIP: Equity-Income Portfolio; .66% for the VIP: Growth Portfolio; and .91%
for the VIP: Overseas Portfolio.
</FN>
</TABLE>
EXAMPLES:
The examples are not a representation of actual, past or future expenses, and
actual expenses may be higher or lower than those shown. The purpose of the
tables is to help you understand the costs and expenses that you will bear
directly or indirectly. 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 your contract. Such
taxes currently range from 0% to 3.5%.
There can be no assurance that the investment experience of the Funds in the
future will be comparable to past experience.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) if you surrendered your contract after the end of the specified time
period;
(b) if you do not surrender your contract after the end of the specified
time period;
(c) if you annuitize after the end of the specified time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Time Periods
1 year 3 years 5 years 10 years
------ ------- ------- --------
GENERAL AMERICAN CAPITAL COMPANY
Advised by Conning Asset Management Company
S & P 500 Index Fund (a) $ 97.19 (a) $111.31 (a) $124.99 (a) $156.30
(b) $ 13.23 (b) $ 41.17 (b) $ 71.18 (b) $156.30
(c) $ 97.19 (c) $111.31 (c) $ 71.18 (c) $156.30
Money Market Fund (a) $ 96.30 (a) $108.56 (a) $120.21 (a) $145.61
(b) $ 12.27 (b) $ 38.22 (b) $ 66.14 (b) $145.61
(c) $ 96.30 (c) $108.56 (c) $ 66.14 (c) $145.61
Bond Index Fund (a) $ 97.19 (a) $111.31 (a) $124.99 (a) $156.30
(b) $ 13.23 (b) $ 41.17 (b) $ 71.18 (b) $156.30
(c) $ 97.19 (c) $111.31 (c) $ 71.18 (c) $156.30
Managed Equity Fund (a) $ 98.02 (a) $113.91 (a) $129.50 (a) $166.33
(b) $ 14.14 (b) $ 43.96 (b) $ 75.93 (b) $166.33
(c) $ 99.02 (c) $113.09 (c) $ 75.93 (c) $166.33
Asset Allocation Fund (a) $ 99.96 (a) $119.95 (a) $139.95 (a) $189.34
(b) $ 16.26 (b) $ 50.44 (b) $ 86.93 (b) $189.34
(c) $ 99.96 (c) $119.95 (c) $ 86.93 (c) $189.34
VARIABLE INSURANCE PRODUCTS FUND
Managed by Fidelity Management &
Research Company
VIP: Equity-Income Portfolio (a) $ 99.59 (a) $118.80 (a) $137.97 (a) $185.00
(b) $ 15.86 (b) $ 49.21 (b) $ 84.84 (b) $185.00
(c) $ 99.59 (c) $118.80 (c) $ 84.84 (c) $185.00
VIP: Growth Portfolio (a) $100.43 (a) $121.38 (a) $142.41 (a) $194.75
(b) $ 16.77 (b) $ 51.97 (b) $ 89.53 (b) $194.75
(c) $100.43 (c) $121.38 (c) $ 89.53 (c) $194.75
VIP: Overseas Portfolio (a) $102.46 (a) $127.66 (a) $153.20 (a) $218.18
(b) $ 18.98 (b) $ 58.71 (b) $100.90 (b) $218.18
(c) $102.46 (c) $127.66 (c) $100.90 (c) $218.18
</TABLE>
HIGHLIGHTS
The variable annuity Contract that we are offering is a contract between you,
the owner, and us, the insurance company. The Contract provides a means for
investing on a tax-deferred basis in our General Account and 8 Funds. The
Contract is intended for retirement savings or other long-term investment
purposes and provides for a death benefit as well as other insurance related
benefits. If you choose to have your money invested in the Funds you will bear
the entire investment risk.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving regular payments
from your Contract.
You can choose to receive annuity payments on a variable basis, a fixed basis,
or a combination of both. If you choose variable payments, the amount of the
variable annuity payments will depend upon the investment performance of the
Funds you select for the income phase. If you choose fixed payments, the amount
of the fixed annuity payments are level for the payout period.
Free Look. If you cancel your Contract within 20 days after receiving it (or
whatever period is required in your state), we will give you back your purchase
payments. In some states we are required to give you back the value of your
Contract that is invested in the Funds plus any purchase payments you allocated
to the General Account.
Tax Penalty. The earnings in your Contract are not taxed until you take money
out of your Contract. If you take money out during the accumulation phase,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on these
earnings. Payments during the income phase are considered partly a return of
your original investment.
Inquiries. If you need more information or require assistance after you purchase
a Contract, please contact us at:
General American's Variable Annuity Administration Department
P.0. Box 66954
St. Louis, Missouri 63166-6954
(800) 449-6447.
All inquiries should include the Contract number and the name of the Contract
owner and/or the annuitant.
THE COMPANY
We are an insurance company that is wholly-owned by GenAmerica Corporation.
GenAmerica Corporation is wholly-owned by Metropolitan Life Insurance Company, a
New York insurance company ("MetLife"). We were chartered in 1933 and since then
have continuously engaged in the business of life insurance, annuities, and
accident and health insurance. Our National Headquarters is located at 700
Market Street, St. Louis, Missouri 63101. The telephone number is 314-231-1700.
We are licensed to do business in 49 states of the U.S., the District of
Columbia, Puerto Rico, and are 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.
We conduct a conventional life insurance business. Assets derived from our
business should be considered by purchasers of variable annuity contracts only
as bearing upon our ability to meet our obligations under the variable annuity
contracts and should not be considered as bearing on the investment performance
of the Separate Account.
MetLife is developing a plan under which it would convert from a mutual company
to a publicly-held stock company. MetLife's conversion to a stock company, or
"demutualization", is subject to policyholder and regulatory approval, as well
as the satisfaction of certain other conditions. MetLife's contemplated
demutualization will not affect our contractual obligations.
THE ANNUITY CONTRACTS
This Prospectus describes the variable annuity Contracts that we are offering.
An annuity is a contract between you, the owner, and us, the insurance company,
where we promise to pay you an income, in the form of annuity payments,
beginning on a designated date in the future. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. Once you
begin receiving annuity payments, your Contract enters the income phase.
The Contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
The Contract is called a variable annuity because you can choose among the
Funds, and depending upon market conditions, you can make or lose money in any
of these Funds. If you select the variable annuity portion of the Contract, the
amount of money you are able to accumulate in your Contract during the
accumulation phase depends upon the investment performance of the Fund(s) you
select. If you select the fixed annuity portion of the Contract, the value will
depend upon the interest we credit to the General Account.
The Contracts consist of a group variable annuity contract for use in Tax
Sheltered Annuity (Section 403(b) annuity) Plans (TSA), and individual variable
annuity contracts for use in HR-10 (Keogh) Plans, Individual Retirement Annuity
(IRA) Plans, Simplified Employee Pension Plans, and non-qualified retirement
plans. When you buy a TSA under the group variable annuity contract, we issue
you a certificate which sets out all of your rights and benefits.
PURCHASE
You can purchase this Contract by completing an application and providing us
with an initial purchase payment. We will not issue a Contract or certificate if
the annuitant is older than 79 1/2.
Purchase Payments
The minimum initial purchase payment permitted is $25. Afterwards, the purchase
payments must be at least $25 and cannot exceed 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 our prior approval.
Additional purchase payments on qualified Contracts are limited to proceeds from
certain qualified plans. Purchase payments for other types of Contracts can be
made at anytime during the accumulation phase so long as the annuitant is
living.
You 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 your checking account and applied as a purchase payment under a Contract.
You can also ask us to bill you for planned purchase payments.
Allocation of Purchase Payments
You specify how you want your purchase payments allocated. You may allocate each
purchase payment to one or more of the Funds and/or the General Account.
However, the requested allocations must be in whole number percentages, which
total 100%, and involve amounts of at least $25. You can change the allocation
instructions for future purchase payments by sending a written notice.
If the application is in good order, the initial purchase payment will be
credited within two business days after receipt of the application. However, if
an application is not in good order (missing information, etc.), we may retain
the initial purchase payment for up to five business days while attempting to
complete the application. If the application cannot be made in good order within
five business days, the initial purchase payment will be returned immediately
unless you consent in writing to us retaining the initial purchase payment until
the application is in good order. Subsequent purchase payments are credited
within one business day.
Our business days are each day when both the New York Stock Exchange and we are
open for business. The following are not business days for us: New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Friday after
Thanksgiving Day and Christmas Day. Our business day ends when the New York
Stock Exchange closes, usually 4:00 PM Eastern Time.
FUNDS
The Contract gives you the choice of allocating purchase payments to our General
Account, or to one or more of the Funds listed below. The Funds are managed by
investment advisors. Additional Funds may be made available in the future.
Each of these Funds has a separate prospectus that is provided with this
prospectus. You should read the Fund prospectus before you decide to allocate
your assets to the Fund.
General American Capital Company
General American Capital Company ("Capital Company") is advised by Conning Asset
Management Company. Capital Company currently operates eight separate investment
Funds, five of which are available under the Contract. 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 following Funds are available under the
Contracts.
* S & P 500 Index Fund
* Money Market Fund
* Bond Index Fund
* Managed Equity Fund
* Asset Allocation Fund
Variable Insurance Products Fund
Variable Insurance Products Fund ("VIP") is managed by Fidelity Management &
Research Company ("FMR") of Boston, Massachusetts. VIP currently has five
separate investment portfolios, but only the three listed below are currently
available under the Contracts. The following Funds are available under the
Contracts.
* VIP: Equity-Income Portfolio
* VIP: Growth Portfolio
* VIP: Overseas Portfolio
The investment objectives and policies of certain of the Funds are similar to
the investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Funds may be higher or lower than the results of
such other mutual funds. The investment advisers cannot guarantee, and make no
representation, that the investment results of similar funds will be comparable
even though the funds have the same investment advisers.
A Fund's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non- investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Fund with a small asset base. A
Fund may not experience similar performance as its assets grow.
Shares of the Fund's may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with us. Certain Funds may also be
sold directly to qualified plans. The Funds believe that offering their shares
in this manner will not be disadvantageous to you.
The General Account
If you elect the General Account we 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. We may, at
our sole discretion, credit a higher rate of interest to the General Account, or
to amounts allocated or transferred to the General Account.
Transfers
You may transfer amounts as follows:
1. Between the General Account and one or more of the Funds; or
2 Among the Funds.
These transfers will be subject to the following rules:
1. Transfers must be made by written request or by telephone,
provided we have a Telephone Authorization Form in good order
completed by you.
2. Transfers from or among the Funds may be made at any time and
must be at least $100 or the entire amount of a Fund, if
smaller.
3. Transfers from the General Account to the Funds may be made
once each year on the Contract's anniversary date and must be
at least $100 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.
Additions, Deletions and Substitutions
We may be required to substitute another Fund for one of the Funds you have
selected. We would not do this without the prior approval of the Securities and
Exchange Commission. We may also limit further investment in a Fund. We will
give you notice of our intent to take either of these actions.
EXPENSES
There are charges and other expenses associated with the Contracts that reduce
the return on your investment in the Contract. These charges and expenses are:
Surrender Charges (Contingent Deferred Sales Charge)
For Contracts sold prior to May of 1982, a sales charge equal to 4.75% is
imposed on all purchase payments to cover sales and distribution expenses.
Contracts sold afterwards impose surrender charges (sometimes referred to as a
contingent deferred sales charge) to recover these costs. The surrender charge
percentage is based on the age of the Contract as shown in the following
schedule:
SURRENDER CHARGE
Number of Complete Years Percentage Charge
Since Purchasing the Contract On Amount Withdrawn
- ----------------------------- -------------------
0-1 9%
2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
Upon full surrender, the surrender charge is calculated by multiplying the
surrender charge percentage by the Contract's accumulated value. The surrender
charge is deducted from amounts remaining in your Contract, if sufficient. If
not, the surrender charge is taken from the amount you requested to the extent
necessary and the withdrawal is considered a full surrender. In addition,
surrender charges are not applied in the event of the death or disability of the
Contract owner or Annuitant, or in the event of annuitization after five
Contract years.
The surrender charge will never exceed 9% of total net purchase payments.
Charge-Free Amounts
If a Contract is within the nine year surrender charge period (the first nine
Contract years), an amount may be withdrawn up to 10% of your accumulated
account value (determined as of the date we receive the withdrawal request) each
Contract year without incurring a surrender charge. Any percentages of your
accumulated 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.
Administrative Charge
For Contracts sold prior to May of 1982, an administrative charge of $10 per
year is also imposed during the accumulation phase.
Transfer Charge
For Contracts sold prior to May of 1982, a $5 charge is imposed whenever funds
are transferred between the General Account and Separate Account.
Mortality and Expense Risk Charge
During both the accumulation phase and the income phase, 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.
The mortality risk assumed by us is that annuitants may live longer than the
time estimated when the risk in the Contract is established. We agree 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 us is that if the charge for mortality and expenses
is not sufficient to cover administrative expenses, the deficiency will be met
from our General Account.
We 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 you or the
annuitants the benefit of federal or state statutes or Treasury Department rules
or regulations.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of the Contract for them. Some of
these taxes are due when the Contract is issued, and others are due when annuity
payments begin. When a premium tax is due at the time the purchase payment is
made, we will deduct from the payment such tax. Premium taxes generally range
from 0% to 3.5%, depending on the state.
Income Taxes
We will deduct from the Contract for any income taxes which we incur because of
the Contract. At the present time, we are not making any such deductions.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
Funds, which are described in the attached Fund prospectuses.
Exchange Program
You may exchange your Contract, provided it is no longer subject to any
surrender charge, for a variable annuity contract issued by our affiliate, Cova
Financial Services Life Insurance Company or its affiliate, Cova Financial Life
Insurance Company (together, "Cova Life"). If you choose to so exchange your
Contract, Cova Life will waive any otherwise applicable withdrawal charges and
contract maintenance charges.
ACCUMULATED VALUE
The accumulated value is the value of your Contract. It is the sum of your
interest in the various Funds and our General Account.
Accumulated Value
During the accumulation phase, the value of the variable portion of your
Contract will go up or down depending upon the investment performance of the
Fund(s) you choose. We calculate your accumulated value after the New York Stock
Exchange closes each business day.
Your accumulated value will be determined on a daily basis. On the date your
initial net purchase payment is applied to the General Account and/or the Funds,
your accumulated value in a Fund will equal the portion of any purchase payment
allocated to the Fund.
Thereafter, on each business day, the accumulated value in a Fund will equal:
1. The accumulated value in the Fund on the preceding business day,
multiplied by the Fund's Net Investment Factor (defined below) for the
business day; plus
2. Any purchase payments received during the current business day which
are allocated to the Fund; plus
3. Any amounts transferred to the Fund from the General Account or from
another Fund during the current business day; minus
4. That portion transferred from the Fund to the General Account, or
another Fund during the current business day (including any transfer
charges); minus
5. Any partial withdrawals from the Fund during the current business day;
minus
6. Any withdrawal or surrender charges incurred during the business day
in connection with a partial withdrawal.
Net Investment Factor
The Net Investment Factor measures the investment performance of a Fund from
business day to business day. The Net Investment Factor for each Fund for a
business day is calculated as follows:
1. The value of the assets at the end of the preceding business day; plus
2. The investment income and capital gains-realized or
unrealized-credited to the assets for the business day for which the
Net Investment Factor is being determined.
3. The capital losses, realized or unrealized, charged against those
assets during the business day; minus
4. Any amount charged against each Fund for taxes, or any amount set
aside during the business day as a reserve for taxes attributable to
the operation or maintenance or each Fund; minus
5. A charge not to exceed 0.002740% of the assets for each calendar day.
This corresponds to 1% per year for mortality and expense risk;
divided by
6. The value of the assets at the end of the preceding business day.
The accumulated value is expected to change from business day to business day,
reflecting the investment experience of the selected Funds 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 Fund 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.
ACCESS TO YOUR MONEY
You can have access to the money in your Contract:
* by making a withdrawal (either a partial or a complete withdrawal);
* when a death benefit is paid; or
* by electing to receive annuity payments.
Surrenders and Partial Withdrawals
You may surrender the Contract or make a partial withdrawal to receive all or
part of your accumulated value, at any time before you begin receiving annuity
payments and while the annuitant is living, by sending us a written request.
The amount available for surrender or partial withdrawal is your accumulated
value, 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 to you upon surrender or withdrawal may be paid in a lump sum 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. If you do not tell us
otherwise, the amounts will be withdrawn from the Funds and the General Account
on a pro rata basis. The amount paid on the surrender or withdrawal will
ordinarily be paid within seven days after we receive a written request in good
order.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
Termination Benefits
If you own a Tax Sheltered Variable Annuity Contract, you have certain rights if
you terminate your participation prior to the Annuity Commencement Date. Upon
termination of participation prior to the Annuity Commencement Date, you may
elect:
* to have the accumulated value applied to provide annuity payments
under one of the annuity income options described below, or
* to leave the accumulated value in the Contract, in which case the
number of accumulation units in your individual account will remain
fixed, but the value thereof will vary as described in the Section
"Accumulated Value", or
* to receive the accumulated value on the basis of the accumulation unit
value next determined after the written request for surrender is
received by us; or
* to convert to an Individual Variable Annuity Contract, if appropriate
individual Contracts are issued by us on the effective date of
termination, on the basis set forth by us at the time of such
conversion.
DEATH BENEFIT
Death of Contract Owner During the Accumulation Phase
If the you die during the accumulation phase, and your spouse is the
beneficiary, we will treat your spouse as the new Contract owner. Otherwise, if
the you die during the accumulation phase, this Contract will no longer be in
force. We will pay your interest in the Contract to your beneficiary in a lump
sum upon receiving proof of your death. If there is no beneficiary, the proceeds
will be paid to your estate. If there are joint owners, the death benefit will
be paid out on the first death to occur.
This payment will be made within five years after the date of your death unless
you or your beneficiary choose, by providing us with written notice, one of the
options described below:
* Leave the proceeds of the Contract with us as provided under
Annuity Income Option 6 of this Contract (or Option 7 in the
case of a non-qualified Contract) . Any amount remaining
unpaid under Annuity Income Option 6 will be paid in a lump
sum to the beneficiary before the end of the fifth year after
your death.
* 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 we make 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 your death (as determined for Federal tax purposes), and
must begin within one year after your death.
Death of Annuitant During the Accumulation Phase
When we receive due proof of the death of the annuitant during the accumulation
phase, we will pay the beneficiary the accumulated value of the Contract. The
accumulated value will be the value next determined following our receipt of due
proof of death of the annuitant as well as proof that the annuitant died during
the accumulation phase. The beneficiary must receive the amount payable under a
payout method available for the Death of Owner explained above.
If a beneficiary has not been designated by the annuitant or if a beneficiary
designated by the annuitant is not living on the date a lump sum death benefit
is payable, or on the date any payments are to be continued, we will pay the
lump sum death benefit for the commuted value of the payments to the deceased
annuitant's spouse. If the spouse is not living, then payments will be made
equally to the annuitant's surviving children. 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 annuitant,
then payments will be made to his or her executors or administrators.
Death of Contract Owner or Annuitant During the Income Phase
If the you or the annuitant dies during the income phase, the Annuity Income
Option then in effect will govern as to whether or not we will continue to make
any payments. Any remaining payments will be made at least as rapidly as at the
time of death.
Special Tax Considerations
There are special tax rules that apply to IRA and other qualified Contracts
during both the accumulation phase and income phase governing distributions upon
the death of the owner. These rules are contained in provisions in the
endorsements to the Contracts and supersede any other distribution rules
contained in the Contracts.
The preceding provisions regarding the death of the owner are intended to
satisfy the distribution at death requirements of section 72(s) of the Internal
Revenue Code of 1986, as amended. We reserve the right to amend this Contract by
subsequent endorsement as necessary to comply with applicable tax requirements,
if any, which are subject to change from time to time. Such additional
endorsements, if necessary to comply with amended tax requirements, will be
mailed to you and become effective within 30 days of mailing, unless you notify
us in writing, within that time frame, that you reject the endorsement.
Avoiding Probate
In most cases, when you die, the person you choose as your beneficiary will
receive the death benefit without going through probate. However, the avoidance
of probate does not mean that the beneficiary will not have tax liability as a
result of receiving the death benefit.
ANNUITY PAYMENTS
Under the Contracts you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the Annuity
Commencement Date. We ask you to choose your Annuity Commencement Date and
Annuity Income Option when you purchase the Contract. You can change either at
any time before the Annuity Commencement Date with 30 days notice to us.
The annuitant is the person whose life we look to when make annuity payments.
Annuity Income Options
The Annuity Income Options, with the exception of Option 7, may be selected on
either a variable annuity or a fixed payment basis, or a combination of both. In
the absence of an election to the contrary, the variable accumulated value will
be applied to provide variable annuity payments and the guaranteed accumulated
value will be applied to provide guaranteed annuity payments.
The minimum amount which may be applied under an option is $5,000 and the
minimum annuity payment is $50 (or any lower amount required by state law). If
the accumulated value is less than $5,000 when the Annuity Commencement Date
arrives, we will make a lump sum payment of such amount to you. If at any time
payments are, or become less than $50, we have the right to change the frequency
of payments to intervals that will result in installments of at least $50.
The following options are available:
Option 1 - Life Annuity -Under this option we make monthly income
payments during the lifetime of the annuitant and terminating with the
last payment preceding his/her death.
Option 2 - Life Annuity with 60, 120, l80, or 240 Monthly Payments
Guaranteed Under this option we make monthly income payments during the
lifetime of the annuitant. We guarantee that if, at the death of the
annuitant, payments have been made for less than a stated certain
period, which may be five, ten, fifteen or twenty years, as elected,
the monthly income will continue during the remainder of the stated
period to the beneficiary. However, the beneficiary may elect to
receive a single sum payment. A single sum payment will be equal to the
present value of remaining payments as of the date of receipt of due
proof of death commuted at the assumed investment rate.
Option 3 - Unit Refund Life Annuity - Under this option, we make
monthly income payments during the lifetime of the annuitant,
terminating with the last payment preceding his/her death. If the
annuitant dies, the beneficiary will receive an additional payment of
the then dollar value of the number of annuity units. This is 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 Commencement 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 Commencement Date, the annuity unit value in the
appropriate Fund 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 - Under this option we
make monthly income payments during the joint lifetime of the annuitant
and another named individual and thereafter during the lifetime of the
survivor. Payments cease with the last income payment due prior to the
death of the survivor.
Option 5 - Income for a Fixed Period - Under this option, we make
annual, semiannual, quarterly, or monthly payments over a specified
number of years, not less than three and not more than thirty. When
payments are made on a variable basis, a mortality and expense risk
charge continues to be assessed, even though we do not incur a
mortality risk under this option. The person considering this option
should consult his tax adviser about the possibility that this
selection might be held to be "constructive receipt" of the entire
accumulated value and result in adverse tax treatment.
Option 6 - Income of a Fixed Amount - Under this option, we make fixed
equal payments annually, semiannually, quarterly, or monthly (not less
than $75 per annum per $1,000 of the original amount due) until the
proceeds applied under this option, with interest credited at the
current annual rate, are exhausted. The final installment will be for
the remaining balance. When payments are made on a variable basis, a
mortality and expense risk charge continues to be assessed, even though
we incur no mortality risk under this option. The person considering
this option should consult his tax adviser about the possibility that
such selection might be held to be "constructive receipt" of the entire
accumulated value and result in adverse tax treatment.
Option 7 - Interest Income (may be available to Non-qualified Annuities
only) Under this option, you can place your Accumulated Value on
deposit with us in our General Account and we will make annual,
semiannual, quarterly, or monthly payments, as selected. Your remaining
balance will earn interest at a rate not less than 4% per annum.
With respect to any Option not involving a life contingency (e.g., Option 5 -
Income for a Fixed Period), you may elect to have the present value of the
guaranteed monthly annuity payments remaining, as of the date we receive proof
of the claim, commuted and paid in a lump sum as set forth in the Contract.
Value of Variable Annuity Payments
The dollar amount of your payment from the Fund(s) will depend upon four things:
* the value of your Contract in the Fund(s) on the Annuity Commencement
Date;
* the 4% assumed investment rate used in the annuity table for the
Contract; and
* the performance of the Funds you selected; and
* if permitted in your state and under the type of Contract you have
purchased, the age and sex of the annuitant(s).
If the actual performance exceeds the 4% assumed rate plus the deductions for
expenses, your annuity payments will increase. Similarly, if the actual
performance is less than 4% plus the amount of the deductions, your annuity
payments will decrease.
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.
TAXES
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included in the Statement of Additional Information an additional discussion
regarding taxes.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you are taxed
depending on how you take the money out and the type of contract - qualified or
non-qualified (see following sections).
Under non-qualified Contracts, you, as the owner, are not taxed on increases in
the value of your Contract until a distribution occurs - either as a withdrawal
or as annuity payments. When you make a withdrawal, you are taxed on the amount
of the withdrawal that is earnings. For annuity payments, different rules apply.
A portion of each annuity payment is treated as a partial return of your
purchase payments and is not taxed. The remaining portion of the annuity payment
is treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your purchase payments are fully includible in income.
When a non-qualified Contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the Contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your Contract
is referred to as a non-qualified Contract.
If you purchase the Contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your Contract is referred to as a qualified
Contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
A qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a qualified Contract.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
The Contract provides that upon the death of the annuitant during the
accumulation phase, the death proceeds will be paid to the beneficiary. Such
payments made when the annuitant, who is not the Contract owner, dies do not
qualify for the death of the Contract owner exception (described in (2) above)
and will be subject to the 10% distribution penalty unless the beneficiary is 59
1/2 years old or one of the other exceptions to the penalty applies.
Withdrawals - Qualified Contracts
If you make a withdrawal from your qualified Contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax purchase payments to the after-tax purchase payments in your Contract.
If all of your purchase payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified Contracts.
The Code also provides that any amount received under a qualified Contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a
lifetime annuity;
(5) paid to you after you have attained age 55 and you have left your
employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid on account of an IRS levy upon the qualified Contract;
(9) paid from an IRA for medical insurance (as defined in the Code);
(10) paid from an IRA for qualified higher education expenses; or
(11) paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in (4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of amounts attributable to purchase payments made
under a salary reduction agreement by owners from Tax-Sheltered Annuities.
Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the Funds are managed so as to comply with the
requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, are considered the
owner of the shares of the Funds. If you are considered the owner of the shares,
it will result in the loss of the favorable tax treatment for the Contract. It
is unknown to what extent owners are permitted to select Funds, to make
transfers among the Funds or the number and type of Funds owners may select from
without being considered the owner of the shares. If any guidance is provided
which is considered a new position, then the guidance is generally applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Contract, could be treated as the owner of the Funds.
Types of Qualified Contracts
Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. Sales of Contracts for use with IRAs are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Section 408A of the Code provides that beginning in 1998, eligible individuals
may purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments are limited to $2,000 per year and are not deductible from taxable
income. Qualified distributions are free from federal income tax. Roth IRAs are
also subject to specific limitations as to eligibility, contributions,
transferability and distributions.
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. Furthermore, there are additional restrictions regarding transferability,
distributions, nondiscrimination and withdrawals.
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 permits 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
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans under Section 457 of the Code. The
amounts deferred under a Plan which meets the requirements of Section 457 of the
Code are not taxable as income to the participant until paid or otherwise made
available to the participant or beneficiary. In general, distributions from a
Plan are prohibited under Section 457 of the Code unless made after the
participating employee:
attains age 70 1/2,
separates from service,
dies, or
suffers an unforeseeable financial emergency as defined in the
Code.
Furthermore, the Code provides additional requirements and restrictions
regarding eligibility, contributions and distributions.
PERFORMANCE
We periodically advertise performance of the various Funds. We will calculate
performance by determining the percentage change in the accumulated value for
selected periods. This performance number reflects the deduction of the
mortality and expense risk charges. It does not reflect the deduction of any
surrender charge. The deduction of any surrender charges would reduce the
percentage increase or make greater any percentage decrease. Any advertisement
will also include total return figures which reflect the deduction of the
mortality and expense risk charges, and surrender charges.
We may, from time to time, include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
OTHER INFORMATION
Separate Account Two
We established Separate Account Two to hold the assets that underlie the
Contracts. The Separate Account was established on October 22, 1970 under
Missouri law, pursuant to authorization by our Board of Directors. We have
registered the Separate Account as a unit investment trust with the Securities
and Exchange Commission under the Investment Company Act of 1940.
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.
The assets of the Separate Account are held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the Contracts, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains, and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
Contracts and not against any other contracts we may issue.
Distributor of the Contracts
Walnut Street Securities, Inc. ("Walnut Street"), 400 South Fourth Street, Suite
1000, St. Louis, Missouri 63102 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.
Voting Rights
We are the legal owner of the Fund shares. However, we believe that when a Fund
solicits proxies in conjunction with a vote of shareholders, it is required to
obtain from you and other owners instructions as to how to vote those shares.
When we receive those instructions, we will vote all of the shares we own in
proportion to those instructions. This will also include any shares that we own
on our own behalf. Should we determine that we are no longer required to comply
with the above, we will vote the shares in our own right.
Written Notice or Written Request
A written notice or written request is any notice or request that you send to us
requesting any changes or making any request affecting your Contract. Such a
request or notice must be in a format and content acceptable to us.
Deferment of Payment
We may be required to suspend or postpone payments for surrenders or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
Funds is not reasonably practicable or we cannot reasonably value the
shares of the Funds;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
We may also 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.
Ownership
Owner. You, as the owner of the Contract, have all the rights under the
Contract. Prior to the Annuity Commencement Date, the owner is as designated at
the time the Contract is issued, unless changed.
The Beneficiary
The beneficiary is the person(s) or entity you or the annuitant name to receive
any death benefit. The beneficiary is named at the time the Contract is issued,
unless changed at a later date. Subject to any assignment of a Contract, the
beneficiary may be changed during the lifetime of the annuitant by providing us
with the proper forms in good order. If the joint and survivor option is
selected, the annuitant may not change the designation of a joint annuitant
after payments begin.
A change of beneficiary designation will not become effective unless we accept
the written request, at which time it will be effective as of the date of the
request. 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.
Assignments
With respect to individual non-qualified Contracts, an assignment or transfer of
the Contract or of any interest in it will not bind us 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. We are 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, you 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.
AN ASSIGNMENT MAY BE A TAXABLE EVENT.
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.
Table of Contents of the Statement of Additional Information
Company..................................3
Experts..................................3
Distribution.............................3
Performance Information..................4
Federal Tax Status.......................7
Annuity Provisions.......................17
General Matters..........................19
Safekeeping of Account Assets............21
State Regulation.........................21
Records and Reports......................22
Legal Proceedings........................22
Other Information........................22
Financial Statements.....................22
<TABLE>
<CAPTION>
APPENDIX A
HISTORICAL TABLE OF UNITS AND UNIT VALUES FOR QUALIFIED PLANS FOR SEPARATE ACCOUNT TWO
1980 1981 1982 1983 1984 1985 1986 1987 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
Accumulation unit value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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*
Number of units outstanding at end of period (in thousands)
175 169 138 162 162 148 170 255 263*
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL TABLE OF UNITS AND UNIT VALUES FOR NON-QUALIFIED PLANS FOR SEPARATE ACCOUNT TWO
1980 1981 1982 1983 1984 1985 1986 1987 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
Accumulation unit value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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*
Number of units outstanding at end of period (in thousands)
27 49 50 52 50 48 49 49 28*
</TABLE>
*Unit values and units outstanding represent the values and number of units at
the date of reorganization, February 23, 1988.
TABLE OF UNITS AND UNIT VALUES FOR SEPARATE ACCOUNT TWO
This Table shows unit values and the number of units of the Separate Account
invested in the Funds of General American Capital Company and Variable Insurance
Products Fund. There can be no assurance that the investment experience of these
Funds in the future will be comparable to past experience.
<TABLE>
<CAPTION>
Accumulation Qualified Plan Nonqualified Plan
Unit Value Accumulation Units Outstanding Units Outstanding
Beginning Unit Value End of Period End of Period
of Period* End of Period (in thousands) (in thousands)
---------- ------------- -------------- --------------
S & P 500 Index Fund Division**
<S> <C> <C> <C> <C>
1999 55.35 66.06 968 340
1998 43.62 55.35 987 342
1997 33.17 43.62 935 366
1996 27.27 33.17 808 325
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
1999 16.57 17.26 228 69
1998 15.85 16.57 124 79
1997 15.14 15.85 102 74
1996 14.50 15.14 117 62
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***
1999 20.97 20.16 148 60
1998 19.50 20.97 200 75
1997 18.01 19.50 163 80
1996 17.66 18.01 163 70
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 Qualified
1999 82.60 84.35 106 N/A
1998 72.99 82.60 126 N/A
1997 59.73 72.99 136 N/A
1996 49.83 59.73 153 N/A
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
Managed Equity Fund Division Nonqualified
1999 89.89 91.79 N/A 1
1998 79.43 89.89 N/A 1
1997 64.99 79.43 N/A 2
1996 54.22 64.99 N/A 2
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
Managed Equity Fund Division 88 Series
1999 42.70 43.56 246 49
1998 37.77 42.70 266 54
1997 30.94 37.77 280 67
1996 25.84 30.94 240 58
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
1999 33.12 40.46 463 163
1998 28.38 33.12 487 187
1997 24.14 28.38 496 187
1996 21.08 24.14 375 178
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
VIP: Equity-Income Portfolio Division
1999 22.41 23.60 736 299
1998 20.27 22.41 868 352
1997 15.98 20.27 838 351
1996 14.12 15.98 767 317
1995 10.55 14.12 552 207
1994 10.00 10.55 315 82
VIP: Growth Portfolio Division
1999 25.45 34.64 1,141 341
1998 18.42 25.45 1,127 342
1997 15.07 18.42 1,064 343
1996 13.27 15.07 974 362
1995 9.90 13.27 646 261
1994 10.00 9.90 356 116
VIP: Overseas Portfolio Division
1999 14.93 21.09 348 105
1998 13.37 14.93 355 98
1997 12.11 13.37 363 124
1996 10.80 12.11 346 107
1995 9.95 10.80 266 77
1994 10.00 9.95 240 52
</TABLE>
* At the date of first deposits into the Separate Account on May 16, 1988,
except for the Managed Equity Fund Division, which began on February 24, 1988;
the VIP: Equity-Income Portfolio Division and the VIP: Growth Portfolio Division
which began on January 6, 1994; and the VIP: Overseas Portfolio Division which
began on January 11, 1994.
**The name of the S & P 500 Index Fund was changed from "Equity Index Fund"
effective May 1, 1994.
***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.
Notes on Appendix A
The initial value of an accumulation unit in the Separate Account was set at
$10.00 as of May 28, 1971.
The Historical Tables of Units and Unit Values for Non-qualified Plans for
Separate Account 2 above 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).
