<PAGE> 1
File No. 33-10145
As filed with the Securities and Exchange Commission
on April 30, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 14 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 14 [ X ]
GENERAL AMERICAN CAPITAL COMPANY
(Exact Name of Registrant as Specified in Charter)
700 Market Street
St. Louis, MO 63101
(Address of Principal Executive Offices)
Registrant's Telephone Number,
including Area Code: (314) 444-0499
Christopher A. Martin
General American Life Insurance Company
700 Market Street
St. Louis, MO 63101
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
May 1, 1998
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on ( ) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on ( ) pursuant to paragraph (a)(2) of Rule 485.
<PAGE> 2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number of shares of capital stock
under the Securities Act of 1933. The Registrant will file the Rule 24f-2
Notice for the fiscal year ended December 31, 1997 on or about March 13,
1998.
Please send copies of all correspondence to:
Stephen R. Roth, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
<PAGE> 3
<TABLE>
GENERAL AMERICAN CAPITAL COMPANY
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
<CAPTION>
N-1A Item No. Location
<S> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1 Cover Page Cover Page
Item 2 Synopsis Table of Fees
and Expenses
Item 3 Condensed Financial Information Condensed
Financial
Information
Item 4 General Description of Registrant Investment
Funds;
Investment
Objectives and
Policies
Item 5 Management of the Fund Management of
the Company
Item 6 Capital Stock and Other Securities Capital Stock
Item 7 Purchase of Securities Being Offered Offering and
Redemption of
Shares
Item 8 Redemption or Repurchase Offering and
Redemption of
Shares
Item 9 Pending Legal Proceedings Pending Legal
Proceedings
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION
Item 10 Cover Page Cover Page
<PAGE> 4
Item 11 Table of Contents Table of
Contents
Item 12 General Information and History Business
History
Item 13 Investment Objectives and Policies Investment
Restrictions:
Description of
Certain
Investments
Item 14 Management of the Fund Investment
Advisory and
Other Services;
Management of
the Company
Item 15 Control Persons and Principal
Holders of Securities Capital Stock;
Fund Ownership;
Persons
Controlled by
or Under
Common
Control with
Registrant
Item 16 Investment Advisory and Other
Services Investment
Advisory and
Other Services
Item 17 Brokerage Allocation Portfolio
Transactions
and Brokerage
Allocations
Item 18 Capital Stock and Other Securities Capital Stock
<PAGE> 5
Item 19 Purchase, Redemption, and Pricing
of Securities Being Offered Offering and
Redemption of
Shares;
Determination
of Net Asset
Value
Item 20 Tax Status Taxes
Item 21 Underwriters Offering and
Redemption of
Shares
Item 22 Calculation of Performance Data Money Market
Yield
Information
Item 23 Financial Statements Not Applicable
<CAPTION>
PART C OTHER INFORMATION
<S>
An index to Part C is set forth on page C-1 of this Registration Statement.
</TABLE>
<PAGE> 6
GENERAL AMERICAN CAPITAL COMPANY
Prospectus Version A
<PAGE> 7
GENERAL AMERICAN CAPITAL COMPANY
700 Market Street, St. Louis, MO 63101
(314) 231-1700
General American Capital Company ("Capital Company") is an open-end
diversified management investment company which was incorporated in Maryland
on November 15, 1985, and commenced operations on October 1, 1987. Capital
Company offers variable life and variable annuity purchasers eight separate
Funds which operate as distinct investment vehicles. The names and investment
objectives of the Funds are as follows:
S&P 500 Index Fund (formerly known as the Equity 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
& Poor's 500 Stock Index<F*> 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.
Money Market Fund: The investment objective of this Fund is the
highest level of current income which is consistent with the
preservation of capital and maintenance of liquidity. This fund
invests primarily in high-quality, short-term money market
instruments. An investment in the Money Market Fund is neither
insured nor guaranteed by the U.S. Government.
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 in which the other Funds
may invest. The Asset Allocation Fund invests in a combination of
common stocks, bonds, or money market instruments, in accordance
with guidelines established from time to time by Capital
Company's Board of Directors.
International Index Fund (formerly known as the International
Equity Fund): The investment objective of this Fund is to seek to
obtain investment results that parallel the price and yield
performance of publicly-traded common stocks in the Morgan
Stanley Capital International Europe, Australia, and Far East
(EAFE) Index.
Mid-Cap Equity Fund (formerly known as the Special Equity Fund):
The investment objective of this Fund is to seek sustained growth
of capital by investing primarily in common stocks of United
States-based publicly traded companies with medium market
capitalizations. "Medium market capitalization companies" are
those whose market capitalization falls within the range of the
S&P MidCap 400 at the time of the Fund's investment.
Small-Cap Equity Fund: The investment objective of this Fund is to
provide a rate of return that corresponds to the performance of
the common stock of small companies, while incurring a level of
risk that is generally equal to the risks associated with small
company common stock. The Fund attempts to duplicate the
performance of the smallest 20% of companies, based on
capitalization size, that are based in the United States and
listed on the New York Stock Exchange.
There can be no assurance that the investment objectives of these Funds
will be achieved.
<PAGE> 8
This Prospectus sets forth basic information about Capital Company and
its Funds, and information that a prospective investor ought to know before
investing.
A Statement of Additional Information for Capital Company has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. This Statement is available upon request and without charge
from Capital Company at the address or telephone number above. Other
inquiries about Capital Company should be directed to the company at the same
address or telephone number.
This Prospectus should be read and retained for future reference.
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.
The Date of this Prospectus is May 1, 1998.
The Date of the Statement of Additional Information is May 1, 1998.
[FN]
- --------------
<F*> "Standard & Poor's" and "Standard & Poor's 500" are trademarks of the
Standard & Poor's Corporation and have been licensed for use by
General American Capital Company. The S&P 500 Index Fund is not
sponsored, sold, or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing
in the Fund.
2
<PAGE> 9
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Table of Fees and Expenses 4
Financial Highlights 6
Investment Funds 14
Investment Objectives And Policies 14
The S&P 500 Index Fund
Investment Objective 15
Investment Policies 15
Risk Factors 15
The Money Market Fund
Investment Objective 16
Investment Policies 16
Risk Factors 17
The Bond Index Fund
Investment Objective 17
Investment Policies 17
Risk Factors 17
The Managed Equity Fund
Investment Objective 17
Investment Policies 17
Risk Factors 18
The Asset Allocation Fund
Investment Objective 18
Investment Policies 18
Risk Factors 18
The International Index Fund
Investment Objective 19
Investment Policies 19
Risk Factors 19
The Mid-Cap Equity Fund
Investment Objective 20
Investment Policies 20
Risk Factors 20
The Small-Cap Equity Fund
Investment Objective 20
Investment Policies 21
Risk Factors 21
Investment Restrictions 21
Portfolio Turnover 21
Management of the Company 22
Capital Stock 24
Taxes and Dividends 24
Offering and Redemption of Shares 24
Pending Legal Proceedings 25
Contract Owner and Policyholder Inquiries 25
Appendix A-1
</TABLE>
3
<PAGE> 10
TABLE OF FEES AND EXPENSES
Shareholder Transaction Expenses
General American Capital Company makes no charge at the time of sale,
when dividends are reinvested, or upon a redemption or exchange, whether
partial or whole.
Annual Fund Operating Expenses (as a percentage of average net assets):
<TABLE>
<S> <C>
Investment Advisory Fees:
S&P 500 Index Fund .25 %
Money Market Fund .125%
Bond Index Fund .25 %
Managed Equity Fund .40 %<F*>
Asset Allocation Fund .50 %
International Index Fund .50 %<F*>
Mid-Cap Equity Fund .55 %<F*>
Small-Cap Equity Fund .25 %
Administration Fees:
S&P 500 Index Fund .05 %
Money Market Fund .08 %
Bond Index Fund .05 %
Managed Equity Fund .10 %
Asset Allocation Fund .10 %
International Index Fund .30 %
Mid-Cap Equity Fund .10 %
Small-Cap Equity Fund .05 %
Total Fund Operating Expenses:
S&P 500 Index Fund .30 %
Money Market Fund .205%
Bond Index Fund .30 %
Managed Equity Fund .50 %
Asset Allocation Fund .60 %
International Index Fund .80 %
Mid-Cap Equity Fund .65 %
Small-Cap Equity Fund .30 %
<FN>
- -----------
<F*>Investment Advisory Fees applicable to the Managed Equity Fund, the
International Index Fund, and the Mid-Cap Equity Fund decline ratably on the
average daily net assets in excess of $10 million (see page 20). The
investment advisory fees for the International Index Fund and the Managed
Equity Fund have been restated to reflect a reduction in the advisory fees
effective January 1, 1997 and March 1, 1997, respectively.
</TABLE>
Money enters the Funds through separate accounts (see page 12) which
may levy additional fees. The insurance or annuity contract giving access to
the separate account, together with a separate account Prospectus if there
is one, should be consulted for information on such fees.
4
<PAGE> 11
Example
You would pay the following cumulative expenses on a $1,000 investment,
assuming: (1) a 5% annual return, and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Fund $3.08 $ 9.66 $16.89 $38.13
Money Market Fund $2.10 $ 6.61 $11.56 $26.17
Bond Index Fund $3.08 $ 9.66 $16.89 $38.13
Managed Equity Fund $5.13 $16.08 $28.03 $62.94
Asset Allocation Fund $6.15 $19.27 $33.57 $75.17
International Index Fund $8.20 $25.64 $44.57 $99.28
Mid-Cap Equity Fund $6.66 $20.87 $36.33 $81.24
Small-Cap Equity Fund $3.08 $ 9.66 $16.89 $38.13
</TABLE>
Because there is no redemption fee, you would pay the same amounts if
you did not redeem at the end of the time period specified.
The purpose of the foregoing tables and example is to assist in
understanding the various costs and expenses that an investor will bear
directly or indirectly. This example should not be considered a
representation of past or future expenses. Actual expenses may differ from
those in the example.
5
<PAGE> 12
General American Capital Company S&P 500 Index Fund<F*>
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 29.67 $ 24.14 $ 17.64 $ 17.44 $ 15.88
-------- -------- -------- -------- --------
Income from operations:
Net investment income .52 0.53 0.46 0.44 0.41
Net realized and unrealized gain (loss)
on investments 9.21 5.00 6.04 (0.24) 1.15
-------- -------- -------- -------- --------
Net increase in asset value per share 9.73 5.53 6.50 0.20 1.56
-------- -------- -------- -------- --------
Net asset value, end of year $ 39.40 $ 29.67 $ 24.14 $ 17.64 $ 17.44
======== ======== ======== ======== ========
Total return<F2> 32.80% 22.89% 36.85% 1.15% 9.83%
Net assets, end of year (in thousands) $501,577 $340,201 $247,313 $169,303 $161,761
Ratio of expenses to average net assets<F3> .30% 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets<F3> 1.48% 1.97% 2.19% 2.50% 2.47%
Portfolio turnover rate 12.61% 8.93% 4.75% 7.38% 2.56%
Average commission rate<F4> $ 0.04 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 14.78 $ 11.35 $ 11.80 $ 9.09 $ 7.80
-------- -------- ------- ------- -------
Income from operations:
Net investment income 0.39 0.38 0.38 0.37 0.36
Net realized and unrealized gain (loss)
on investments 0.71 3.05 (0.83) 2.34 0.93
-------- -------- ------- ------- -------
Net increase (decrease) in asset value
per share 1.10 3.43 (0.45) 2.71 1.29
-------- -------- ------- ------- -------
Net asset value, end of year $ 15.88 $ 14.78 $ 11.35 $ 11.80 $ 9.09
======== ======== ======= ======= =======
Total return<F2> 7.45% 30.21% -3.82% 29.76% 16.65%
Net assets, end of year (in thousands) $123,458 $102,076 $72,665 $65,211 $28,917
Ratio of expenses to average net assets<F3> 0.30% 0.30% 0.30% 0.32% 0.30%
Ratio of net investment income to average
net assets<F3> 2.67% 2.89% 3.35% 3.57% 4.15%
Portfolio turnover rate 4.38% 3.92% 4.39% 20.56% 8.41%
Average commission rate<F4> -- -- -- -- --
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F*>This Fund formerly known as the Equity Index Fund.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
6
<PAGE> 13
General American Capital Company Money Market Fund
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 17.24 $ 16.34 $ 15.42 $ 14.80 $ 14.36
Income from operations:
Net investment income 0.99 0.90 0.92 0.62 0.44
-------- -------- ------- ------- -------
Net asset value, end of year $ 18.23 $ 17.24 $ 16.34 $ 15.42 $ 14.80
======== ======== ======= ======= =======
Total return<F2> 5.71% 5.51% 5.96% 4.21% 3.07%
Net assets, end of period (in thousands) $174,571 $101,426 $70,574 $93,339 $84,430
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 5.60% 5.37% 5.78% 4.17% 3.06%
Portfolio turnover rate<F4> -- -- -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 13.85 $ 13.04 $ 12.03 $ 10.98 $ 10.18
Income from operations:
Net investment income 0.51 0.81 1.01 1.05 0.80
------- ------- ------- ------- -------
Net asset value, end of year $ 14.36 $ 13.85 $ 13.04 $ 12.03 $ 10.98
======= ======= ======= ======= =======
Total return<F2> 3.71% 6.19% 8.43% 9.56% 7.76%
Net assets, end of year (in thousands) $84,880 $84,090 $85,901 $53,648 $52,323
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 3.68% 6.10% 8.17% 9.26% 7.46%
Portfolio turnover rate<F4> -- -- -- -- --
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> A portfolio turnover rate is not calculated for securities on which the
maturity or expiration dates at the time of acquisition were one year or
less.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
7
<PAGE> 14
General American Capital Company Bond Index Fund<F*>
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 21.21 $ 20.59 $ 17.30 $ 18.03 $ 16.33
------- ------- ------- ------- -------
Income from operations:
Net investment income 1.39 1.29 1.25 1.06 1.07
Net realized and unrealized gain (loss)
on investments .59 (0.67) 2.04 (1.79) 0.63
------- ------- ------- ------- -------
Net increase (decrease) in asset value
per share 1.98 0.62 3.29 (0.73) 1.70
------- ------- ------- ------- -------
Net asset value, end of year $ 23.19 $ 21.21 $ 20.59 $ 17.30 $ 18.03
======= ======= ======= ======= =======
Total return<F2> 9.34% 3.02% 19.02% -4.04% 10.39%
Net assets, end of period (in thousands) $48,330 $38,015 $39,316 $26,458 $47,636
Ratio of expenses to average
net assets<F3><F*> 0.30% 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets<F3> 6.25% 6.26% 6.43% 6.19% 6.11%
Portfolio turnover rate 47.40% 44.28% 35.35% 46.42% 8.80%
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 15.32 $ 13.44 $ 12.32 $11.17 $10.46
------- ------- ------- ------ ------
Income from operations:
Net investment income 1.09 1.08 1.03 0.98 0.90
Net realized and unrealized gain (loss)
on investments (0.08) 0.80 0.09 0.17 (0.19)
------- ------- ------- ------ ------
Net increase in asset value per share 1.01 1.88 1.12 1.15 0.71
------- ------- ------- ------ ------
Net asset value, end of year $ 16.33 $ 15.32 $ 13.44 $12.32 $11.17
======= ======= ======= ====== ======
Total return<F2> 6.57% 14.00% 9.09% 10.32% 6.78%
Net assets, end of year (in thousands) $20,217 $14,438 $11,137 $9,545 $6,571
Ratio of expenses to average
net assets<F3><F*> 0.39% 0.42% 0.42% 0.43% 0.43%
Ratio of net investment income to average
net assets<F3> 6.89% 7.63% 8.12% 8.24% 8.25%
Portfolio turnover rate 43.50% 2.23% 18.88% 28.57% 71.30%
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F*>Name and investment objective changed from Intermediate Bond Fund on October
1, 1992. The Investment advisor charges changed from .375 percent to .250
percent of the average daily value of the net assets on October 1, 1992. The
objective of the Bond Index Fund is to provide a rate of return that reflects
the performance of the publicly traded bond market as a whole.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
8
<PAGE> 15
General American Capital Company Managed Equity Fund
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 25.31 $ 20.93 $ 15.69 $ 16.27 $ 14.95
------- ------- ------- ------- -------
Income from operations:
Net investment income .63 0.68 0.58 0.43 0.32
Net realized and unrealized gain (loss)
on investments 5.26 3.70 4.66 (1.01) 1.00
------- ------- ------- ------- -------
Net increase (decrease) in asset value
per share 5.89 4.38 5.24 (0.58) 1.32
------- ------- ------- ------- -------
Net asset value, end of year $ 31.20 $ 25.31 $ 20.93 $ 15.69 $ 16.27
======= ======= ======= ======= =======
Total return<F2> 23.29% 20.92% 33.37% -3.58% 8.87%
Net assets, end of period (in thousands) $59,138 $48,587 $40,902 $31,487 $32,885
Ratio of expenses to average net
assets<F3><F5> 0.41% 0.47% 0.48% 0.49% 0.50%
Ratio of net investment income to average
net assets<F3> 2.19% 2.97% 3.14% 2.65% 2.07%
Portfolio turnover rate 49.43% 36.44% 44.82% 103.93% 25.89%
Average commission rate<F4> $ 0.06 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 14.02 $ 11.10 $ 11.45 $ 8.73 $ 7.82
------- ------- ------- ------- ------
Income from operations:
Net investment income 0.35 0.38 0.38 0.26 0.28
Net realized and unrealized gain (loss)
on investments 0.58 2.54 (0.73) 2.46 0.63
------- ------- ------- ------- ------
Net increase (decrease) in asset value
per share 0.93 2.92 (0.35) 2.72 0.91
------- ------- ------- ------- ------
Net asset value, end of year $ 14.95 $ 14.02 $ 11.10 $ 11.45 $ 8.73
======= ======= ======= ======= ======
Total return<F2> 6.66% 26.23% -2.99% 31.07% 11.62%
Net assets, end of year (in thousands) $29,401 $22,006 $14,769 $11,785 $7,303
Ratio of expenses to average net assets<F3> 0.51% 0.53% 0.57% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 2.55% 2.99% 3.47% 2.62% 3.24%
Portfolio turnover rate 9.34% 12.15% 28.38% 51.26% 15.54%
Average commission rate<F4> -- -- -- -- -
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F5> On March 1, 1997, Conning Asset Management Company took over the asset
management of the Managed Equity Fund. The management fee was reduced from
.50 percent to .40 percent on the first $10 million of assets, .from .35
percent to .30 percent on the balance over $10 million and less than $30
million and from .30 percent to .25 percent on the balance in excess of
$30 million.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
9
<PAGE> 16
General American Capital Company Asset Allocation Fund
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 26.83 $ 23.20 $ 18.00 $ 18.74 $ 17.11
-------- ------- ------- ------- -------
Income from operations:
Net investment income 0.96 0.93 0.82 0.68 0.60
Net realized and unrealized gain (loss)
on investments 4.07 2.70 4.38 (1.42) 1.03
-------- ------- ------- ------- -------
Net increase (decrease) in asset value
per share 5.03 3.63 5.20 (0.74) 1.63
-------- ------- ------- ------- -------
Net asset value, end of year $ 31.86 $ 26.83 $ 23.20 $ 18.00 $ 18.74
======== ======= ======= ======= =======
Total return<F2> 18.73% 15.66% 28.88% -3.95% 9.55%
Net assets, end of year (in thousands) $111,269 $86,191 $73,387 $59,975 $65,070
Ratio of expenses to average net assets<F3> 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 3.24% 3.77% 3.92% 3.70% 3.33%
Portfolio turnover rate 36.34% 32.78% 33.74% 75.24% 27.59%
Average commission rate<F4> $ 0.06 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 16.04 $ 13.39 $ 13.07 $10.90 $10.05
------- ------- ------- ------ ------
Income from operations:
Net investment income 0.62 0.65 0.69 0.60 0.57
Net realized and unrealized gain (loss)
on investments 0.45 2.00 (0.37) 1.57 0.28
------- ------- ------- ------ ------
Net increase in asset value per share 1.07 2.65 0.32 2.17 0.85
------- ------- ------- ------ ------
Net asset value, end of year $ 17.11 $ 16.04 $ 13.39 $13.07 $10.90
======= ======= ======= ====== ======
Total return<F2> 6.66% 19.81% 2.47% 19.91% 8.44%
Net assets, end of year (in thousands) $53.369 $21,149 $12,545 $5,244 $1,440
Ratio of expenses to average net assets<F3> 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 3.80% 4.37% 5.41% 4.82% 5.04%
Portfolio turnover rate 12.14% 5.14% 15.46% 28.06% 13.52%
Average commission rate<F4> -- -- -- -- --
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
10
<PAGE> 17
General American Capital Company International Index Fund<F*>
<TABLE>
Financial Highlights
<CAPTION>
February 16
(inception) to
December
Year ended December 31, 31,
--------------------------------------------------- --------------
1997 1996 1995 1994 1993
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $16.23 $15.11 $ 13.94 $13.10 $10.00
------ ------ ------- ------ ------
Income from operations:
Net investment income 0.26 0.24 0.25 0.13 0.14
Net realized and unrealized gain
on investments<F**> 0.11 0.88 0.92 0.71 2.96
------ ------ ------- ------ ------
Net increase in asset value per share 0.37 1.12 1.17 0.84 3.10
------ ------ ------- ------ ------
Net asset value, end of period $16.60 $16.23 $ 15.11 $13.94 $13.10
====== ====== ======= ====== ======
Total return<F2> 2.27% 7.40% 8.35% 6.42% 31.03%
Net assets, end of period (in thousands) $8,427 $7,015 $ 5,460 $4,242 $3,295
Ratio of expenses to average
net assets<F3><F*> 0.80% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average
net assets<F3> 1.53% 1.57% 1.79% 0.98% 1.38%
Portfolio turnover rate 57.70% 19.53% 113.91% 46.19% 26.97%
Average commission rate<F4> $ 0.01 $ 0.02 -- -- --
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> Total return is not annualized for the eleven months ended December 31,
1993. The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F*> Name and investment objective changed from the International Equity Fund on
January 1, 1997. In addition, Conning Asset Management Company took over the
asset management of the International Index Fund. The investment adviser fee
changed from .70 percent to .50 percent on the first $10 million of the
average daily value of the net assets, from .60 percent to .40 percent on
the balance over $10 million and less than $20 million, and from .50 percent
to .30 percent on the balance in excess of $20 million. The objective of the
International Index Fund is to obtain investment results that parallel the
price and yield performance of publicly traded common stocks in the EAFE
Index.
<F**>Also includes net realized and unrealized gain (loss) on foreign currency
conversions.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
11
<PAGE> 18
General American Capital Company Mid-Cap Equity Fund<F*>
<TABLE>
Financial Highlights
<CAPTION>
February 16
(inception)
to December
Year ended December 31, 31,
--------------------------------------------------- -----------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $16.42 $13.74 $11.35 $11.44 $10.00
------ ------ ------ ------ ------
Income from operations:
Net investment income 0.16 0.15 0.05 0.10 0.06
Net realized and unrealized gain
(loss) on investments 5.49 2.53 2.34 (0.19) 1.38
------ ------ ------ ------ ------
Net increase (decrease) in asset value
per share 5.65 2.68 2.39 (0.09) 1.44
------ ------ ------ ------ ------
Net asset value, end of period $22.07 $16.42 $13.74 $11.35 $11.44
====== ====== ====== ====== ======
Total return<F2> 34.46% 19.46% 21.09% -0.83% 14.44%
Net assets, end of period (in thousands) $6,852 $4,120 $4,260 $3,279 $1,998
Ratio of expenses to average net assets<F3> 0.65% 0.65% 0.65% 0.65% 0.64%
Ratio of net investment income to average
net assets<F3> .81% 1.02% 0.75% 0.85% 0.64%
Portfolio turnover rate 62.22% 56.31% 28.48% 29.48% 22.64%
Average commission rate<F4> $ 0.05 $ 0.06 -- -- --
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> Total return is not annualized for the eleven months ended December 31,
1993. The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F*> Name and investment objective changed from the Special Equity Fund
effective January 1, 1997. In addition, Conning Asset Management Company
took over the asset management of the Mid-Cap Equity Fund. The investment
objective is long term capital appreciation, which it pursues through
investment primarily in common stocks of US - based publicly traded
companies with medium market capitalizations.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
12
<PAGE> 19
General American Capital Company Small-Cap Equity Fund<F*>
<TABLE>
Financial Highlights
<CAPTION>
Eight
Months
Ended
December
31,
1997
--------
<S> <C>
Net asset value, beginning of period<F1> $ 36.84
-------
Income from operations:
Net investment income 0.29
Net realized and unrealized gain on investments 11.14
-------
Net increase in asset value per share 11.43
-------
Net asset value, end of period $ 48.27
=======
Total return<F2> 31.03%
Net assets, end of period (in thousands) $77,646
Ratio of expenses to average net assets<F3> 0.30%
Ratio of net investment income to average
net assets<F3> 0.97%
Portfolio turnover rate 24.47%
Average commission rate<F4> 0.03%
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> Total return is not annualized for the eight months ended December 31,
1997. The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F*>Small-Cap Equity Fund began operations May 1, 1997.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
13
<PAGE> 20
INVESTMENT FUNDS
General American Capital Company ("Capital Company") offers eight
investment funds. These are: the S&P 500 Index Fund, the Money Market Fund,
the Bond Index Fund, the Managed Equity Fund, the Asset Allocation Fund, the
International Index Fund (formerly known as the "International Equity Fund"),
the Mid-Cap Equity Fund (formerly known as the "Special Equity Fund"), and
the Small-Cap Equity Fund (collectively called "the Funds"). Capital
Company may add or delete Funds.
Shares of the Funds are offered to separate accounts established by
General American Life Insurance Company ("General American"), an insurance
company incorporated in Missouri, and its affiliates, as well as to separate
accounts of non-affiliated insurance companies, pursuant to the insurance
laws of Missouri. Most of these separate accounts accept funds only from
employee benefit plans. Some of the separate accounts are not registered with
the Securities and Exchange Commission ("SEC") because they are not offered
to the public at large and will not have more than 100 owners. General
American Separate Accounts Two and Eleven, however, are registered with the
SEC as unit investment trusts having Prospectuses of their own.
General American has created General American Separate Account Two for
funding variable annuity contracts and Separate Account Eleven for funding
variable life insurance policies. The owners of such contracts or policies
may allocate purchase or premium payments among the General Account of
General American and Divisions of General American Separate Accounts Two and
Eleven which correspond to the Funds. The Company currently does not foresee
any disadvantages to the holders of variable annuity contracts and variable
life insurance policies arising from the fact that the interests of the
holders of such contracts and policies may differ. Nevertheless, Capital
Company's Board of Directors intends to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto. Actions
might include requiring one separate account to withdraw from the Funds.
Capital Company sells shares to Separate Account One of RGA Reinsurance
Company, a company affiliated with General American. Capital Company also
offers its shares to other insurance companies with which General American is
affiliated, and to separate accounts of unaffiliated insurance companies.
Shares of each Fund are both offered and redeemed at their net asset
value without the addition of any sales load or redemption charge. See
"OFFERING AND REDEMPTION OF SHARES" on page 21.
The investment adviser for Capital Company is Conning Asset Management
Company (the "Investment Adviser"), a majority-owned subsidiary of General
American. Conning Asset Management Company was formerly known as General
American Investment Management Company.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described on the
next few pages. The investment objective of a Fund, and certain investment
restrictions that are discussed in the Statement of Additional Information,
may be changed only with the approval of the shareholders of each Fund that
is affected by such change. The investment policies used to achieve a Fund's
objectives may be changed by Capital Company's Board of Directors without a
vote of shareholders.
Because investment involves both opportunities for gain and risk of
loss, no assurance can be given that the Funds will achieve their objectives.
Prospective purchasers of insurance and annuity contracts participating in
the Funds should carefully review the objectives and policies of the Funds
and consider their ability to assume the risks involved before allocating
amounts to Funds other than the General
14
<PAGE> 21
Account. An investment in any Fund should be considered as a part of an
overall investment program rather than as a complete investment program.
The Funds are subject to certain types of risk, including varying
degrees of market risk, financial risk, and current income volatility. Market
risk refers to the possibility the price of the security will decline in
response to changes in conditions in the securities markets in general and,
with particular reference to debt securities, changes in the overall level of
interest rates. Financial risk refers to the ability of an issuer of a debt
security to pay principal and interest when due, and to the earnings
stability and overall financial soundness of an issuer of an equity security.
Current income volatility refers to the degree and rapidity with which
changes in dividend payments and the overall level of interest rates become
reflected in the level of current income of the Funds.
More about the investment characteristics of and risks associated with
the Funds is contained in the Statement of Additional Information. See
"DESCRIPTION OF CERTAIN INVESTMENTS" in the Statement of Additional
Information.
THE S&P 500 INDEX FUND
Investment Objective. The objective of the S&P 500 Index Fund is to
obtain investment results that parallel the price and yield performance of
publicly-traded common stocks in the aggregate. The Fund uses the total
return of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500" or
"Index") as its standard for performance comparison. The Fund attempts to
duplicate the performance of the S&P 500 and includes dividend income as
another component of the Fund's total return. The Fund is not managed by
Standard & Poor's.
Investment Policies. The portfolio will be composed of a large number
of stock issues drawn from the S&P 500. Issues of bankrupt companies and
companies whose stock would not be eligible for purchase under Missouri
insurance law will not be purchased. At times, the Fund may not invest in all
the stocks in the S&P 500.
In order to match the performance of the Index, all securities in the
index are purchased in their proper weights. Trading generally will be
performed when changes occur in the cash position of the Fund, or in the
weightings of the Index. Dividend income will be reinvested in stocks so as
to keep the portfolio composition in line with the Index. The goal is to have
all Fund assets in qualified stocks at all times. Trading will occur only if
the expected return from trading, net of trading costs, is greater than the
expected return from not trading. In the case where trading is not
beneficial, stock index futures contracts may be used for hedging, where the
cash sums involved are too small to be directly invested in proper relation
to the Index.
Risk Factors. The Fund will not seek to out-perform the chosen Index
but to match it, before consideration of Fund expenses, which means that the
Fund will be allowed to decline in asset value when the prices of most common
stocks decline. This high level of market risk is offset by the relatively
low degree of risk that the large companies whose shares are owned will
encounter financial difficulty, and the corresponding protection against
financial risk afforded by the Fund's extensive diversification. There is no
guarantee that the Fund will duplicate the performance of the Index.
15
<PAGE> 22
THE MONEY MARKET FUND
Investment Objective. The objective of the Money Market Fund is to
obtain the highest level of current income which is consistent with the
preservation of capital and maintenance of liquidity.
Investment Policies. The Fund invests only in: (1) obligations of the
U.S. Government; (2) obligations issued by agencies or instrumentalities of
the United States Government; (3) instruments that are secured or
collateralized by obligations of the United States Government, its agencies,
or its instrumentalities; (4) short-term obligations of United States banks
and savings and loan associations and companies having assets of more than
$1,000,000,000; (5) instruments fully secured or collateralized by such bank
and savings and loan obligations; (6) dollar denominated short-term
obligations of foreign banks, foreign branches of foreign or U.S. banks
(referred to as "Eurodollars"), and short-term obligations of U.S. branches
and agencies of foreign banks (referred to as "Yankee dollars"); (7)
commercial paper and short-term corporate debt securities rated in one of the
two highest categories for short term debt securities by at least two
nationally recognized securities rating services or one such service if only
one has rated the security (see the Appendix for a description of commercial
paper ratings); (8) corporate or other notes guaranteed by letters of credit
from banks in the United States (satisfying the criteria described in (4),
above) or collateralized by United States Government obligations; and (9)
obligations of (i) consumer and commercial finance companies, (ii) securities
brokerage companies, (iii) leasing companies, and (iv) insurance companies.
Certain of these obligations may be variable or floating rate instruments.
The Fund will enter into repurchase agreements under which it purchases
securities, subject to agreement by the seller to repurchase the securities
at a higher price on a specified date, with the gain establishing the yield
during the Fund's holding period. The Adviser, under general policies
established by the Company's Directors, reviews the creditworthiness of the
other party to any repurchase agreement, and will only enter into repurchase
agreements with parties whose credit is deemed satisfactory. If the seller
becomes bankrupt, the Fund may experience delays in recovering its money,
fail to recover part or all of its investment, and incur costs in disposing
of the securities used as collateral for the sellers repurchase obligation.
The Fund may also enter into reverse repurchase agreements when the
Adviser considers them to be advantageous to the Fund and only for temporary
liquidity purposes not to exceed 60 days, without renewal or extension.
Reverse repurchase agreements permit the Fund to leverage its investment
portfolio by selling securities while agreeing to repurchase them at an
agreed time and price. The bankruptcy of the other party to a reverse
repurchase agreement could cause the Fund to experience delays in recovering
its securities. If, in the meantime, the value of the securities fluctuated,
the Fund could experience a loss.
The Fund will not invest in "firm commitments" or "when issued"
securities.
The Fund may only invest in U.S. dollar-denominated instruments that
are determined to present minimal credit risks and that, at the time of
acquisition, are rated in one of the two highest rating categories by at
least two nationally recognized securities rating organizations ("NRSROs") or
by the only NRSRO that has rated the instrument, or in the case of unrated
instruments, have been determined to be of comparable quality to either of
the above. The Fund's investments must also meet the maturity and
diversification requirements applicable to money market funds.
See "Investment Policies" in the Statement of Additional Information
for information about the quality of the securities in which the Fund may
invest and more complete descriptions of repurchase agreements and other
obligations that the Fund may hold.
16
<PAGE> 23
Risk Factors. The principal risks associated with the investment in the
Money Market Fund are the risk of fluctuations in the short-term interest
rates, the risks associated with entering into repurchase agreements
described above, and the risk of default among one or more issuers of
securities which comprise the Fund's assets.
THE BOND INDEX FUND
The Bond Index Fund began its current operations on October 1, 1992. On
that date the portfolio of the Intermediate Bond Fund was adjusted to reflect
the investment objective of the Bond Index Fund and the Intermediate Bond
Fund ceased to exist. The historical performance of the Intermediate Bond
Fund, shown in this Prospectus, should not be viewed as historical financial
data of the Bond Index Fund.
Investment Objective. The objective of the Bond Index 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.
Investment Policies. The portfolio will consist of bond issues drawn
from the Lehman Brothers Government/Corporate Bond Index. This Index is
composed of approximately 5,000 corporate and U.S. Government debt issues
rated Baa or better, with at least one year to maturity and with a total par
value of at least $25 million outstanding. The Index is weighted by the
market value of the issues included in the Index. The Fund will not invest in
all the bonds in the Index. In attempting to parallel the performance of the
Index, the Fund uses a sampling method. Sampling calls for the Investment
Adviser to maintain approximately the same mix of sectors, as measured by
quality and duration, that the Index has, while not holding all of the bonds
in each Index sector. Some money market investments such as those held by
the Money Market Fund may be purchased, but they must meet the quality
criteria set forth above. Fixed income obligations of the U.S. Government and
its agencies and instrumentalities will also be included in the Fund's
portfolio from time to time. The emphasis of the Fund will be on bonds with
maturities in the range of those associated with the Lehman Brothers
Government/Corporate Bond Index.
This Fund will not concentrate in any segment of industry, nor in any
rating category. The Fund will be diversified in accordance with the
diversification of the Lehman Brothers Government/Corporate Bond Index.
Risk Factors. The Fund will not seek to outperform the Index but to
match it, which means the Fund's value will decline when bond prices decline.
Interest rate changes can have a powerful effect on the value of fixed bond
portfolios of this quality level and maturity. Therefore, this Fund should be
regarded as having a moderate level of market risk and current income
volatility, while being subject to relatively little risk that the bond
issuers will default (financial risk).
THE MANAGED EQUITY FUND
Investment Objective. The objective of the Managed Equity Fund is to
obtain long-term growth from investment in common stocks. Securing current
income is a secondary objective.
Investment Policies. This Fund invests in common stocks of companies
that are expected to benefit from changes in secular and cyclical trends and
which are considered to be undervalued based on various valuation criteria.
The Fund's investments are made with the philosophy that a
high-quality, diversified portfolio of undervalued securities will outperform
the market over the longer term, as well as preserve principal in a difficult
market environment. The opportunity to purchase securities at less than
their underlying value arises from the market's less-than-perfect ability to
forecast the future, plus the market's bias toward overvaluing exciting
companies and underestimating those which are generally out of favor.
17
<PAGE> 24
Investments considered attractive for the Fund will normally have the
following characteristics:
1. Stocks selling at a relatively low price-earnings ratio or a relatively
low price-to-book ratio, and having a high dividend yield.
2. Stocks which are undervalued relative to their earning power, break-up
value, and/or inherent profitability.
3. Stocks which have under-performed the general market due to a lower
level of investor expectations regarding the earnings outlook.
4. Stocks whose issuers are of high quality, exhibiting sound financial
strength.
In managing this Fund, the Investment Adviser takes a long-term
investment approach. Emphasis is placed on a stock's value rather than the
potential for a short-term change in its general market price. The Fund will
invest only in common stocks issued by companies that the Investment Adviser
feels are high in quality, and the portfolio will be diversified as to types
of industries.
Risk Factors. The composition of this Fund will change, as it is not
attempting to parallel an index of identified stocks. Financial risk should
be reduced by the active management of this account but the Fund will be
subject to the risk that the prices of most publicly-traded stocks might
decline (market risk). Portfolio turnover (discussed on page 19) will be
relatively low for this Fund.
THE ASSET ALLOCATION FUND
Investment Objective. The primary objective of the Asset Allocation
Fund is to obtain 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 risks.
Investment Policies. This Fund will invest in common stocks,
publicly-traded bonds of intermediate maturity, and money market instruments.
It will observe the same quality restrictions on such investments as are
observed by the related Funds which specialize in one investment medium. The
mixture of investments by type will vary as the Investment Adviser exercises its
discretion in its effort to produce the highest total return consistent with
prudence and preservation of capital. At times, the emphasis will be on
capital growth; at other times, income will be given a higher priority than
growth. The Investment Adviser will respond to economic circumstances in
structuring the portfolio, with total return as the key factor.
Risk Factors. As with the Managed Equity Fund, the active management of
this Fund is apt to produce a higher level of portfolio turnover than the S&P
500 Index Fund or the Bond Index Fund have. Individuals who direct premium
dollars into this Fund are relying more on the skill of the Investment
Adviser to build and maintain an appropriate portfolio than they are when
they select a fund that is devoted to a single investment medium. The Fund
may, at times, be subject to high levels of market and financial risk and
income volatility. These risks will always be present to some degree.
18
<PAGE> 25
THE INTERNATIONAL INDEX FUND
The International Index Fund began its current operations on January 1, 1997.
On that date, the portfolio of the International Equity Fund was adjusted to
reflect the investment objective of the International Index Fund and the
International Equity Fund ceased to exist. The historical performance of the
International Equity Fund, shown in this Prospectus, should not be viewed as
historical financial data of the International Index Fund.
Investment Objective. The objective of the International Index Fund is
to obtain investment results that parallel the price and yield performance of
publicly-traded common stocks in the Morgan Stanley Capital International
Europe, Australia, and Far East Index ("EAFE Index").
Investment Policies. This Fund will initially invest in a statistically
selected sample of approximately 100 securities included in the EAFE Index,
maintaining at least 80% of its total assets, under normal market conditions,
in stocks in the EAFE Index and related derivative instruments. If the
Fund's assets were to increase, the number of securities held by the Fund
would be increased. The Fund may invest up to 20% of its total assets in
stock index options or futures contracts to maintain cash reserves while
remaining fully invested, to facilitate trading, or to reduce transaction
costs. In addition, the Fund may invest up to 10% of its assets in index and
currency exchange swap agreements. The Fund also reserves the right to
invest in foreign currency exchange agreements, using currencies, options,
futures contracts or options on futures contracts, or forward contracts for
any purpose, including to protect against foreign currency exchange risks
involving securities the Fund owns or plans to own.
Risk Factors. The Fund will not seek to out-perform the EAFE Index, but
to match it, which means that the Fund's assets value will generally decline
when the prices of common stocks in the EAFE Index decline. There is no
guarantee that the Fund will be able to track the EAFE Index due to
transaction costs, changes in either the makeup of the EAFE Index or number
of shares outstanding for the components of the index, the inability to
purchase all of the stocks represented in the EAFE Index, and the timing and
amount of contributions to and redemptions from the Fund by shareholders.
Investments in foreign securities can be more volatile and involve
additional risks than U.S. Investments. The securities of foreign issuers
generally will not be registered with the SEC, nor will these issuers be
subject to the SEC's reporting requirements. Foreign companies generally are
not subject to standards such as are applied to companies organized in the
U.S., and there may be less publicly available information about foreign
issuers. Some foreign securities trade in markets providing less liquidity
and less regulation than U.S. markets do, so foreign stock prices may be more
volatile than comparable U.S. stock prices.
Foreign brokerage commissions may be higher, as may the cost of
custodial services and transaction and settlement costs. Foreign stocks may
be subject to taxes in their country of issue, or other restrictions on the
removal of funds may be imposed by a foreign country.
The Fund may use various techniques to increase or decrease its
exposure to changing security prices, interest rates, currency exchange
rates, commodity prices, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into currency exchange contracts or
swap agreements, purchasing indexed securities, and selling securities short.
The Fund's Investment Adviser can use techniques to adjust the risk and
return characteristics of the Fund's portfolio of investments. If the
Investment Adviser judges market conditions incorrectly or employs a strategy
that does not correlate well with the Fund's investments, these techniques
could result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may
19
<PAGE> 26
increase the volatility of the Fund and may involve a small investment of
cash relative to the magnitude of the risks assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction does
not perform as promised.
THE MID-CAP EQUITY FUND
The Mid-Cap Equity Fund began its current operations on January 1,
1997. On that date the portfolio of the Special Equity Fund was adjusted to
reflect the investment objective of the Mid-Cap Equity Fund and the Special
Equity Fund ceased to exist. The historical performance of the Special
Equity Fund, shown in the Prospectus, should not be viewed as historical
financial data of the Mid-Cap Equity Fund.
Investment Objective. The Mid-Cap Equity Fund seeks sustained growth of
capital by investing primarily in common stocks of United States-based
publicly traded companies with medium market capitalizations. "Medium market
capitalization companies" are those whose market capitalization falls within
the range of the S&P MidCap 400 at the time of the Fund's investment.
Investment Policies. The Fund invests substantially all of its assets
in common stocks selected for their growth potential. The Fund will invest
in stocks of mid-sized companies that have above-average growth potential but
that are undervalued in the market, and, therefore, are reasonably priced.
Fundamental, or "bottom-up," analysis will be used to build a portfolio of
stocks with an investment style characterized as
"growth-at-a-reasonable-price."
The Mid-Cap Equity Fund avoids stocks with an excessive relative
premium for earnings growth. Instead, the Fund seeks stocks with valuation
discrepancies and, therefore, an improved risk-reward profile. For example,
the Fund's investments may include "special situation" stocks, such as stocks
of securities that have experienced a price decline as the result of a
particular risk factor, being a member of an industry that is out of favor,
or that is in the bottom of an economic cycle, but that may hold sustained
growth potential and consistent profitability, with the purchase of foreign
stocks not being permitted.
Investing in mid-capitalization companies allows the Mid-Cap Equity
Fund to continue to benefit from the higher potential for growth that is
associated with smaller companies, while affording the Fund the advantages of
the greater financial stability associated with larger business entities.
Mid-sized companies may have completed their "start-up" cycle and, therefore,
be poised for growth with established product lines and experienced
management.
Risk Factors. The securities of mid-size companies may be less liquid
than those of larger companies that command a larger market, and so their
price movements may be more abrupt or erratic. A fund that specializes in
such securities, and that is active in selling to realize appreciation, may
incur a relatively high degree of portfolio turnover (see below) and related
transaction costs. The Fund's investments may also be subject to market risk
which is the risk that the prices of all stocks will decline. Since
appreciation is the Fund's objective, current income may be less than in
funds that concentrate on income.
THE SMALL-CAP EQUITY FUND
Investment Objective. The Small-Cap Equity Fund seeks to provide a rate
of return that corresponds to the performance of the common stock of small
companies, while incurring a level of risk that is generally equal to the
risks associated with small company common stock. The Fund attempts to
duplicate the performance of the smallest 20% of companies, based on
capitalization size, that are based in the United States and listed on the
New York Stock Exchange ("NYSE").
20
<PAGE> 27
Investment Policies. The Fund is passively managed as it attempts to
replicate the return of the smallest capitalization quintile of the NYSE. As
such the Fund is allowed to decline in value when the prices of most stocks
in the smallest capitalization quintile decline. Stocks are chosen solely on
the basis of achieving a distribution by economic sector and industry group
that approximates the distribution of the smallest capitalization quintile.
The Fund is constantly monitored, and rebalancing is performed when
necessitated by changes in the securities' capitalization weightings or when
significant withdrawals and deposits occur. Specific securities are sold
when (1) their weightings are overrepresented, or (2) their weightings fall
to insignificant size, or (3) when they are deleted from the universe of
available securities, or (4) when their broad industry sector is
overrepresented. Purchases are made to keep the Fund close to fully invested
at all times.
At times the Fund may temporarily invest in short-term money market
instruments consisting of U.S. Government securities, certificates of
deposit, banker's acceptances, and high quality commercial paper. All
short-term securities will have maturities of one year or less.
Risk Factors. Historically, small capitalization stocks are subject to
greater volatility than larger capitalization issues. The securities of
smaller companies are less liquid than those of larger companies that command
a larger market, and so the price movements of smaller-company stock may be
more abrupt or erratic. In addition, the Fund is subject to market risk--the
risk that the prices of all stocks will decline. Because this Fund is
passively managed, portfolio turnover will be less than in most
actively-managed funds but can still be higher than in funds investing in
securities of higher-capitalization companies.
INVESTMENT RESTRICTIONS
Investments of the Funds are further restricted by certain policies
that may not be changed without a vote of shareholders. See "INVESTMENT
RESTRICTIONS" in the Statement of Additional Information.
PORTFOLIO TURNOVER
The annual rate at which the composition of each Fund changes is
referred to as the portfolio turnover rate, which is defined as the lesser of
the purchases or sales of securities in a Fund stated as a percentage of the
assets in the Fund. Portfolio turnover reflects the extent of trading in the
portfolio, and trading is usually accompanied by the payment of commissions
to brokers. Commission expenses will reduce the return on a Fund. Portfolio
turnover should vary among the different Funds, as well as over time. Actual
turnover figures are included in the Financial Highlights on pages 6 through
11.
The S&P 500 Index Fund is not likely to experience turnover in excess
of 50% per year as its portfolio will always be structured so as to parallel
the Standard & Poor's 500 stocks.
The Bond Index Fund is not likely to experience turnover in excess of
50% as its portfolio will always be structured to parallel the Lehman
Brothers Government/Corporate Bond Index.
The International Index Fund is not likely to experience turnover in
excess of 50% as its portfolio will always be structured to parallel the
Morgan Stanley Capital International Europe, Australia and Far East Index.
The Managed Equity Fund, the Asset Allocation Fund, and the Mid-Cap
Equity Fund are liable to have turnover in excess of 200% at times, as they
will be actively managed in pursuit of their objectives.
The Small-Cap Equity Fund is not likely to experience turnover in
excess of 50% per year as its portfolio will always be structured so as to
parallel the smallest 20% of U.S. companies, based on capitalization size,
that are listed on the New York Stock Exchange.
21
<PAGE> 28
MANAGEMENT OF THE COMPANY
The Board of Directors of Capital Company is responsible for the
management of Capital Company's business and affairs, and creates and
supervises the execution of the investment policies of Capital Company, which
are administered by the Investment Adviser (Conning Asset Management Company,
formerly known as General American Investment Management Company, an
affiliate of General American Life Insurance Company). The Investment Adviser
was formed in 1982 to manage General American's separate accounts and the
funds of affiliated clients. The Investment Adviser's address is 700 Market
Street, St. Louis, Missouri 63101, the same address as that of General
American. The Investment Adviser selects investments and provides investment
advice and some administrative services for all of Capital Company's Funds.
In addition, the Investment Adviser reviews the practices of broker-dealers
buying and selling investments for Capital Company.
The manager of the S&P 500 Index Fund, Money Market Fund, and
Small-Cap Equity Fund is Douglas R. Koester, CFA, senior vice president of
Conning Asset Management Company (the Investment Adviser). He has managed the
S&P 500 Index Fund and Money Market Fund since their inception on October 1,
1987, and has managed the Small-Cap Equity Fund since its inception on May
1, 1997. Mr. Koester earned bachelor's and master's degrees from Washington
University (St. Louis, Missouri). He has served as vice president of the
Investment Adviser since 1986.
The Bond Index Fund is managed by Wm. Michael Cody, CFA, vice president
of the Investment Adviser. He has managed the Bond Index Fund since January
1, 1996. Prior to joining the Investment Adviser in 1995, Mr. Cody worked
for seven years for Walnut Street Securities, Inc. He has a bachelor's
degree from Marquette University and an MBA degree from Drake University.
The Managed Equity Fund is managed by John W. Zimmerman, CFA, senior
vice president of the Investment Adviser. He has managed the Managed Equity
Fund since April 1997. Mr. Zimmerman served as an equity analyst and vice
president/manager of fundamental research at NationsBank Private Investments
(formerly Boatmen's Trust Company) for 10 years before coming to the
Investment Adviser in 1997. He earned a bachelor's degree from the
University of Missouri-Columbia and a master's degree from St. Louis
University.
The manager of the Asset Allocation Fund, International Index Fund, and
Mid-Cap Equity Fund is David A. Kaslow, vice president of the Investment
Adviser. Mr. Kaslow has managed the Asset Allocation Fund, International
Index Fund and Mid-Cap Equity Fund since January 1, 1997. He worked as an
equity analyst for more than two years at FBW Investment Management prior to
joining Conning Asset Management Company. Mr. Kaslow has a bachelor's degree
from Tulane University and a master's degree from Washington University in
St. Louis, Missouri.
As of December 1997, the Investment Adviser provided investment advice
to 70 clients that were unaffiliated with General American, and to the
general account and 32 separate accounts of General American.
For its services to the Funds, the Investment Adviser charges a fee
that is accrued daily against each Fund. The fees charged each Fund, except
the Managed Equity Fund, the International Index Fund, and the Mid-Cap Equity
Fund, stated as an annual percentage of the average daily value of the net
assets, are:
S&P 500 Index Fund .25 %
Money Market Fund .125%
22
<PAGE> 29
Bond Index Fund .25 %
Asset Allocation Fund .50 %
Small-Cap Equity Fund .25 %
The fees charged the Managed Equity Fund, the International Index Fund, and
the Mid-Cap Equity Fund are stated as a series of annual percentages of the
average daily value of the net assets of the Funds. The percentages decrease
with respect to assets of the Funds above certain amounts, as follows:
Managed Equity Fund Assets Total Fee
-------------------------- ---------
First $10 million .40%
Next $20 million .30%
Balance over $30 million .25%
International Index Fund Assets Total Fee
------------------------------- ---------
First $10 million .50%
Next $10 million .40%
Balance over $20 million .30%
Mid-Cap Equity Fund Assets Total Fee
-------------------------- ---------
First $10 million .55%
Next $10 million .45%
Balance over $20 million .40%
General American and the Investment Adviser perform certain
administrative services and also pay certain administrative expenses for
Capital Company. These services and expenses include: recording the issuance
and redemption of shares of Capital Company; valuing the liabilities of each
Fund; computing the daily income and net asset value of each Fund;
recommending independent auditors and custodians, and coordinating and
supervising their activities; preparing and filing tax returns, reports and
filings that pertain to federal and state securities laws; scheduling and
planning the agenda for meetings of Capital Company's directors and
shareholders; paying directors who are not interested persons of Capital
Company, including any travel expenses they may have; printing and
distributing communications to current shareholders of Capital Company, and
paying for such printing and distribution; paying insurance premiums; paying
charges and expenses of the custodian, accountants, and counsel; and
maintaining records not otherwise maintained.
General American charges Capital Company a fee for these services and
expenses, at an annual rate based on the average daily value of the net
assets in each Fund, as follows:
S&P 500 Index Fund .05%
Money Market Fund .08%
Bond Index Fund .05%
Managed Equity Fund .10%
Asset Allocation Fund .10%
International Index Fund .30%
Mid-Cap Equity Fund .10%
Small-Cap Equity Fund .05%
CAPITAL STOCK
Capital Company issues a separate series of capital stock for each
Fund. Each share of capital stock issued with respect to a Fund has a pro
rata interest in the net assets of the Fund. Each share of capital stock is
entitled to one vote on all matters submitted to a vote of shareholders of
Capital Company, and fractional shares are entitled to a corresponding
fractional vote. An affirmative vote of a majority of the
23
<PAGE> 30
outstanding shares of each Fund affected by any matter is required for any
action to be approved by the shareholders of Capital Company. Shares of a
Fund will be voted separately from shares of other Funds, however, on matters
affecting only that Fund, such as approval of the investment advisory
agreement, an investment sub-advisory agreement, or changes in the
fundamental investment objectives or restrictions of a Fund. The assets of
each Fund are charged with the liabilities of the Fund and a proportionate
share of the general liabilities of Capital Company. All shares may be
redeemed at any time.
TAXES AND DIVIDENDS
For federal income tax purposes, each Fund is treated as a separate
entity. Each Fund intends to qualify and elect to be taxed as a "regulated
investment company" under Subchapter M of the Internal Revenue Code (the
"Code"). If each Fund qualifies as a "regulated investment company" and
complies with the provisions of the Code relieving regulated investment
companies which distribute substantially all of their net income (both
ordinary income and capital gain) from federal income tax and the 4%
nondeductible federal excise tax, each Fund will be relieved of such taxes on
the amounts distributed. (See the Statement of Additional Information for a
more detailed discussion.)
Since the sole shareholders of Capital Company will be separate
accounts of General American, separate accounts of General American
affiliates, and separate accounts of unaffiliated companies, no discussion is
included herein as to federal income tax consequences at the shareholder
level. For information concerning the federal tax consequences to purchasers
of variable annuity contracts funded by General American Separate Account Two
or of the flexible premium variable life insurance policies funded by General
American Separate Account Eleven, see the respective Prospectuses for those
contracts or policies.
OFFERING AND REDEMPTION OF SHARES
Shares of capital stock of each Fund of Capital Company are offered to
separate accounts of General American, separate accounts of insurance
companies affiliated with General American, and separate accounts of
unaffiliated insurance companies.
Shares are sold and redeemed at their net asset value as next
determined following receipt by a separate account of premium payments,
surrender requests under policies, loan payments, transfer requests, and
similar or related transactions. There is no selling commission or redemption
charge.
Net asset value is determined as of the close of trading (4 p.m.
Eastern time) on the New York Stock Exchange on each day during which the
Exchange is open, except the day after Thanksgiving, when Capital Company is
closed, provided, however, if the day after Thanksgiving is the last business
day of the month the net asset value is determined on that day.
An equity security listed on a stock exchange is valued at the
security's closing price. Securities traded in the over-the-counter market
are valued at the closing sale price, and if closing sale prices are not
available, at the latest available bid price.
Occasionally, events affecting the values of such securities may occur
after the close of the New York Stock Exchange. If, during such periods,
events occur which materially affect the value of the securities of a Fund,
such securities will be valued at fair value as determined in good faith by
or under the direction of the Board of Directors of Capital Company.
Debt instruments with maturities of 60 days or less are valued on an
amortized cost basis. This means a purchased instrument is valued at cost on
the date of purchase or, in the case of securities purchased more than 60
days prior to maturity, at the market value on the 61st day before maturity.
Thereafter a constant rate of amortization of any discount or premium and of
accrual of interest income is assumed,
24
<PAGE> 31
regardless of any intervening change in general interest rates or the market
value of the instrument. Other debt instruments are valued at market value,
provided market quotations are readily available.
All other assets are valued at their fair value as determined in good
faith by, or under the direction of, the Board of Directors of Capital
Company.
Further discussion of asset valuation methods is included in the
Statement of Additional Information under the heading "DETERMINATION OF NET
ASSET VALUE."
PENDING LEGAL PROCEEDINGS
There are no legal proceedings pending to which Capital Company is a party.
CONTRACT OWNER AND POLICYHOLDER INQUIRIES
Inquiries should be directed to:
VUL Administration Variable Annuity Administration
General American Life Insurance Company P.O. Box 14490
P.O. Box 14490 St. Louis, Missouri 63178-4490
St. Louis, Missouri 63178-4490 Telephone: 1-800-449-6447
Telephone: 1-800-638-9294
25
<PAGE> 32
APPENDIX
Description of Corporate Bond Ratings
Moody's Investors Service, Inc.
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are commonly referred
to as "gilt-edged." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuations of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
larger than Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa-Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, l, 2, and 3, in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier l indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a midrange ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
26
<PAGE> 33
Standard & Poor's Corporation
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB-B-CCC-CC-Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
C-The rating C is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to relative standing within the major rating categories.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics. Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned. Relative strength
or weakness of the above factors determines whether the issuer's commercial
paper is rated A-1, A-2, or A-3.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's Investor's Service, Inc. Among the factors considered by
Moody's in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trends of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
presented or may arise as a result of public interest questions and
preparations to meet such obligations.
27
<PAGE> 34
GENERAL AMERICAN CAPITAL COMPANY
Prospectus Version B
<PAGE> 35
GENERAL AMERICAN CAPITAL COMPANY
700 Market Street, St. Louis, MO 63101
(314) 231-1700
General American Capital Company ("Capital Company") is an open-end
diversified management investment company which was incorporated in Maryland
on November 15, 1985, and commenced operations on October 1, 1987. Capital
Company offers variable life and variable annuity purchasers five separate
Funds which operate as distinct investment vehicles. The names and investment
objectives of the Funds are as follows:
S&P 500 Index Fund (formerly known as the Equity 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 & Poor's
500 Stock Index<F*> 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.
Money Market Fund: The investment objective of this Fund is the
highest level of current income which is consistent with the
preservation of capital and maintenance of liquidity. This fund
invests primarily in high-quality, short-term money market
instruments. An investment in the Money Market Fund is neither insured
nor guaranteed by the U.S. Government.
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 in which the other Funds may invest. The Asset
Allocation Fund invests in a combination of common stocks, bonds, or
money market instruments, in accordance with guidelines established
from time to time by Capital Company's Board of Directors.
There can be no assurance that the investment objectives of these Funds
will be achieved.
This Prospectus sets forth basic information about Capital Company and
its Funds, and information that a prospective investor ought to know before
investing.
A Statement of Additional Information for Capital Company has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. This Statement is available upon request and without charge
from Capital Company at the address or telephone number above. Other
inquiries about Capital Company should be directed to the company at the same
address or telephone number.
This Prospectus should be read and retained for future reference.
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.
-----------------------------
The Date of this Prospectus is May 1, 1998.
The Date of the Statement of Additional Information is May 1, 1998.
[FN]
- --------------------
<F*>"Standard & Poor's," and "Standard & Poor's 500" are trademarks of the
Standard & Poor's Corporation and have been licensed for use by
General American Capital Company. The S&P 500 Index Fund is not
sponsored, sold, or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing
in the fund.
<PAGE> 36
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Table of Fees and Expenses 3
Financial Highlights 4
Investment Funds 9
Investment Objectives And Policies 9
The S&P 500 Index Fund
Investment Objective 10
Investment Policies 10
Risk Factors 10
The Money Market Fund
Investment Objective 10
Investment Policies 10
Risk Factors 11
The Bond Index Fund
Investment Objective 11
Investment Policies 11
Risk Factors 12
The Managed Equity Fund
Investment Objective 12
Investment Policies 12
Risk Factors 12
The Asset Allocation Fund
Investment Objective 12
Investment Policies 13
Risk Factors 13
Investment Restrictions 13
Portfolio Turnover 13
Management of the Company 13
Capital Stock 15
Taxes and Dividends 15
Offering and Redemption of Shares 15
Pending Legal Proceedings 16
Contract Owner and Policyholder Inquiries 16
Appendix A-1
</TABLE>
2
<PAGE> 37
TABLE OF FEES AND EXPENSES
Shareholder Transaction Expenses
General American Capital Company makes no charge at the time of sale,
when dividends are reinvested, or upon a redemption or exchange, whether
partial or whole.
Annual Fund Operating Expenses (as a percentage of average net assets):
<TABLE>
<S> <C>
Investment Advisory Fees:
S&P 500 Index Fund .25 %
Money Market Fund .125%
Bond Index Fund .25 %
Managed Equity Fund .40 %<F*>
Asset Allocation Fund .50 %
Administration Fees:
S&P 500 Index Fund. .05 %
Money Market Fund. .08 %
Bond Index Fund. .05 %
Managed Equity Fund. .10 %
Asset Allocation Fund. .10 %
Total Fund Operating Expenses:
S&P 500 Index Fund .30 %
Money Market Fund .205%
Bond Index Fund .30 %
Managed Equity Fund .50 %<F*>
Asset Allocation Fund .60 %
<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 page
15) and have been restated to reflect a reduction in the advisory fees
effective March 1, 1997.
</TABLE>
Money enters the Funds through separate accounts (see page 9) which may
levy additional fees. The insurance or annuity contract giving access to the
separate account, together with a separate account prospectus if there is
one, should be consulted for information on such fees.
Example
You would pay the following cumulative expenses on a $1,000 investment,
assuming: (1) a 5% annual return, and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Fund $3.08 $ 9.66 $16.89 $38.13
Money Market Fund $2.10 $ 6.61 $11.56 $26.17
Bond Index Fund $3.08 $ 9.66 $16.89 $38.13
Managed Equity Fund $5.13 $16.08 $28.03 $62.94
Asset Allocation Fund $6.15 $19.27 $33.57 $75.17
</TABLE>
Because there is no redemption fee, you would pay the same amounts if
you did not redeem at the end of the time period specified.
The purpose of the foregoing tables and example is to assist in
understanding the various costs and expenses that an investor will bear
directly or indirectly. This example should not be considered a
representation of past or future expenses. Actual expenses may differ from
those in the example.
3
<PAGE> 38
<TABLE>
General American Capital Company S&P 500 Index Fund<F*>
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 29.67 $ 24.14 $ 17.64 $ 17.44 $ 15.88
-------- -------- -------- -------- --------
Income from operations:
Net investment income .52 0.53 0.46 0.44 0.41
Net realized and unrealized gain (loss)
on investments 9.21 5.00 6.04 (0.24) 1.15
-------- -------- -------- -------- --------
Net increase in asset value per share 9.73 5.53 6.50 0.20 1.56
-------- -------- -------- -------- --------
Net asset value, end of year $ 39.40 $ 29.67 $ 24.14 $ 17.64 $ 17.44
======== ======== ======== ======== ========
Total return<F2> 32.80% 22.89% 36.85% 1.15% 9.83%
Net assets, end of year (in thousands) $501,577 $340,201 $247,313 $169,303 $161,761
Ratio of expenses to average net assets<F3> .30% 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets<F3> 1.48% 1.97% 2.19% 2.50% 2.47%
Portfolio turnover rate 12.61% 8.93% 4.75% 7.38% 2.56%
Average commission rate<F4> $ 0.04 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 14.78 $ 11.35 $ 11.80 $ 9.09 $ 7.80
-------- -------- -------- -------- --------
Income from operations:
Net investment income 0.39 0.38 0.38 0.37 0.36
Net realized and unrealized gain (loss)
on investments 0.71 3.05 (0.83) 2.34 0.93
-------- -------- -------- -------- --------
Net increase (decrease) in asset value
per share 1.10 3.43 (0.45) 2.71 1.29
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.88 $ 14.78 $ 11.35 $ 11.80 $ 9.09
======== ======== ======== ======== ========
Total return<F2> 7.45% 30.21% -3.82% 29.76% 16.65%
Net assets, end of year (in thousands) $123,458 $102,076 $ 72,665 $ 65,211 $ 28,917
Ratio of expenses to average net assets<F3> 0.30% 0.30% 0.30% 0.32% 0.30%
Ratio of net investment income to average
net assets<F3> 2.67% 2.89% 3.35% 3.57% 4.15%
Portfolio turnover rate 4.38% 3.92% 4.39% 20.56% 8.41%
Average commission rate<F4> -- -- -- -- --
<FN>
Notes:
<F1>Components are computed and accumulated on a daily basis.
<F2>The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3>Computed on an annualized basis.
<F4>Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F*>This Fund formerly known as the Equity Index Fund.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
4
<PAGE> 39
<TABLE>
General American Capital Company Money Market Fund
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 17.24 $ 16.34 $ 15.42 $ 14.80 $ 14.36
Income from operations:
Net investment income 0.99 0.90 0.92 0.62 0.44
-------- -------- -------- -------- --------
Net asset value, end of year $ 18.23 $ 17.24 $ 16.34 $ 15.42 $ 14.80
======== ======== ======== ======== ========
Total return<F2> 5.71% 5.51% 5.96% 4.21% 3.07%
Net assets, end of period (in thousands) $174,571 $101,426 $ 70,574 $ 93,339 $ 84,430
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 5.60% 5.37% 5.78% 4.17% 3.06%
Portfolio turnover rate<F4> --- --- --- --- ---
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 13.85 $ 13.04 $ 12.03 $ 10.98 $ 10.18
Income from operations:
Net investment income 0.51 0.81 1.01 1.05 0.80
-------- -------- -------- -------- --------
Net asset value, end of year $ 14.36 $ 13.85 $ 13.04 $ 12.03 $ 10.98
======== ======== ======== ======== ========
Total return<F2> 3.71% 6.19% 8.43% 9.56% 7.76%
Net assets, end of year (in thousands) $ 84,880 $ 84,090 $ 85,901 $ 53,648 $ 52,323
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 3.68% 6.10% 8.17% 9.26% 7.46%
Portfolio turnover rate<F4> --- --- --- --- ---
<FN>
Notes:
<F1>Components are computed and accumulated on a daily basis.
<F2>The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3>Computed on an annualized basis.
<F4>A portfolio turnover rate is not calculated for securities on which the
maturity or expiration dates at the time of acquisition were one year or
less.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
5
<PAGE> 40
<TABLE>
General American Capital Company Bond Index Fund<F*>
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 21.21 $ 20.59 $ 17.30 $ 18.03 $ 16.33
-------- -------- -------- -------- --------
Income from operations:
Net investment income 1.39 1.29 1.25 1.06 1.07
Net realized and unrealized gain (loss)
on investments .59 (0.67) 2.04 (1.79) 0.63
-------- -------- -------- -------- --------
Net increase (decrease) in asset value
per share 1.98 0.62 3.29 (0.73) 1.70
-------- -------- -------- -------- --------
Net asset value, end of year $ 23.19 $ 21.21 $ 20.59 $ 17.30 $ 18.03
======== ======== ======== ======== ========
Total return<F2> 9.34% 3.02% 19.02% -4.04% 10.39%
Net assets, end of period (in thousands) $ 48,330 $ 38,015 $ 39,316 $ 26,458 $ 47,636
Ratio of expenses to average net assets<F3><F*> 0.30% 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets<F3> 6.25% 6.26% 6.43% 6.19% 6.11%
Portfolio turnover rate 47.40% 44.28% 35.35% 46.42% 8.80%
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 15.32 $ 13.44 $ 12.32 $ 11.17 $ 10.46
-------- -------- -------- -------- --------
Income from operations:
Net investment income 1.09 1.08 1.03 0.98 0.90
Net realized and unrealized gain (loss)
on investments (0.08) 0.80 0.09 0.17 (0.19)
-------- -------- -------- -------- --------
Net increase in asset value per share 1.01 1.88 1.12 1.15 0.71
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.33 $ 15.32 $ 13.44 $ 12.32 $ 11.17
======== ======== ======== ======== ========
Total return<F2> 6.57% 14.00% 9.09% 10.32% 6.78%
Net assets, end of year (in thousands) $ 20,217 $ 14,438 $ 11,137 $ 9,545 $ 6,571
Ratio of expenses to average net assets<F3><F*> 0.39% 0.42% 0.42% 0.43% 0.43%
Ratio of net investment income to average
net assets<F3> 6.89% 7.63% 8.12% 8.24% 8.25%
Portfolio turnover rate 43.50% 2.23% 18.88% 28.57% 71.30%
<FN>
Notes:
<F1>Components are computed and accumulated on a daily basis.
<F2>The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3>Computed on an annualized basis.
<F*>Name and investment objective changed from Intermediate Bond Fund on October
1, 1992. The Investment advisor charges changed from .375 percent to .250
percent of the average daily value of the net assets on October 1, 1992. The
objective of the Bond Index Fund is to provide a rate of return that reflects
the performance of the publicly traded bond market as a whole.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
6
<PAGE> 41
<TABLE>
General American Capital Company Managed Equity Fund
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 25.31 $ 20.93 $ 15.69 $ 16.27 $ 14.95
-------- -------- -------- -------- --------
Income from operations:
Net investment income .63 0.68 0.58 0.43 0.32
Net realized and unrealized gain (loss)
on investments 5.26 3.70 4.66 (1.01) 1.00
-------- -------- -------- -------- --------
Net increase (decrease) in asset value
per share 5.89 4.38 5.24 (0.58) 1.32
-------- -------- -------- -------- --------
Net asset value, end of year $ 31.20 $ 25.31 $ 20.93 $ 15.69 $ 16.27
======== ======== ======== ======== ========
Total return<F2> 23.29% 20.92% 33.37% -3.58% 8.87%
Net assets, end of period (in thousands) $ 59,138 $ 48,587 $ 40,902 $ 31,487 $ 32,885
Ratio of expenses to average net assets<F3><F5> 0.41% 0.47% 0.48% 0.49% 0.50%
Ratio of net investment income to average
net assets<F3> 2.19% 2.97% 3.14% 2.65% 2.07%
Portfolio turnover rate 49.43% 36.44% 44.82% 103.93% 25.89%
Average commission rate<F4> $ 0.06 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 14.02 $ 11.10 $ 11.45 $ 8.73 $ 7.82
-------- -------- -------- -------- --------
Income from operations:
Net investment income 0.35 0.38 0.38 0.26 0.28
Net realized and unrealized gain (loss)
on investments 0.58 2.54 (0.73) 2.46 0.63
-------- -------- -------- -------- --------
Net increase (decrease) in asset value
per share 0.93 2.92 (0.35) 2.72 0.91
-------- -------- -------- -------- --------
Net asset value, end of year $ 14.95 $ 14.02 $ 11.10 $ 11.45 $ 8.73
======== ======== ======== ======== ========
Total return<F2> 6.66% 26.23% -2.99% 31.07% 11.62%
Net assets, end of year (in thousands) $ 29,401 $ 22,006 $ 14,769 $ 11,785 $ 7,303
Ratio of expenses to average net assets<F3> 0.51% 0.53% 0.57% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 2.55% 2.99% 3.47% 2.62% 3.24%
Portfolio turnover rate 9.34% 12.15% 28.38% 51.26% 15.54%
Average commission rate<F4> -- -- -- -- --
<FN>
Notes:
<F1>Components are computed and accumulated on a daily basis.
<F2>The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3>Computed on an annualized basis.
<F4>Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
<F5>On March 1, 1997, Conning Asset Management Company took over the asset
management of the Managed Equity Fund. The management fee was reduced from
.50 percent to .40 percent on the first $10 million of assets, from .35
percent to .30 percent on the balance over $10 million and less than $30
million, and from .30 percent to .25 percent on the balance in excess of $30
million.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
7
<PAGE> 42
<TABLE>
General American Capital Company Asset Allocation Fund
Financial Highlights
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 26.83 $ 23.20 $ 18.00 $ 18.74 $ 17.11
-------- -------- -------- -------- --------
Income from operations:
Net investment income 0.96 0.93 0.82 0.68 0.60
Net realized and unrealized gain (loss)
on investments 4.07 2.70 4.38 (1.42) 1.03
-------- -------- -------- -------- --------
Net increase (decrease) in asset value
per share 5.03 3.63 5.20 (0.74) 1.63
-------- -------- -------- -------- --------
Net asset value, end of year $ 31.86 $ 26.83 $ 23.20 $ 18.00 $ 18.74
======== ======== ======== ======== ========
Total return<F2> 18.73% 15.66% 28.88% -3.95% 9.55%
Net assets, end of year (in thousands) $111,269 $ 86,191 $ 73,387 $ 59,975 $ 65,070
Ratio of expenses to average net assets<F3> 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 3.24% 3.77% 3.92% 3.70% 3.33%
Portfolio turnover rate 36.34% 32.78% 33.74% 75.24% 27.59%
Average commission rate<F4> $ 0.06 $ 0.04 -- -- --
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 16.04 $ 13.39 $ 13.07 $ 10.90 $ 10.05
-------- -------- -------- -------- --------
Income from operations:
Net investment income 0.62 0.65 0.69 0.60 0.57
Net realized and unrealized gain (loss)
on investments 0.45 2.00 (0.37) 1.57 0.28
-------- -------- -------- -------- --------
Net increase in asset value per share 1.07 2.65 0.32 2.17 0.85
-------- -------- -------- -------- --------
Net asset value, end of year $ 17.11 $ 16.04 $ 13.39 $ 13.07 $ 10.90
======== ======== ======== ======== ========
Total return<F2> 6.66% 19.81% 2.47% 19.91% 8.44%
Net assets, end of year (in thousands) $ 53.369 $ 21,149 $ 12,545 $ 5,244 $ 1,440
Ratio of expenses to average net assets<F3> 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income to average
net assets<F3> 3.80% 4.37% 5.41% 4.82% 5.04%
Portfolio turnover rate 12.14% 5.14% 15.46% 28.06% 13.52%
Average commission rate<F4> -- -- -- -- --
<FN>
Notes:
<F1>Components are computed and accumulated on a daily basis.
<F2>The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3>Computed on an annualized basis.
<F4>Computed only for funds that invest greater than 10 percent of the value
of average net assets in equity securities. Computation represents total
commissions paid divided by the sum of shares purchased and sold for which
commissions were charged.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
8
<PAGE> 43
INVESTMENT FUNDS
General American Capital Company ("Capital Company") offers five
investment funds. These are: the S&P 500 Index Fund, the Money Market Fund,
the Bond Index Fund, the Managed Equity Fund, and the Asset Allocation Fund
(collectively called "the Funds"). Capital Company also offers three
additional funds, through a separate prospectus. The financial results of
these three funds are not expected to have any effect on Capital Company or
the Funds described in this version of its Prospectus. Capital Company may
also add or delete Funds.
Shares of the Funds are offered to separate accounts established by
General American Life Insurance Company ("General American"), an insurance
company incorporated in Missouri, and its affiliates, as well as to separate
accounts of non-affiliated insurance companies pursuant to the insurance laws
of Missouri. Most of these separate accounts accept funds only from employee
benefit plans. Some of the separate accounts are not registered with the
Securities and Exchange Commission ("SEC") because they are not offered to
the public at large and will not have more than 100 owners. General American
Separate Accounts Two and Eleven, however, are registered with the SEC as
unit investment trusts having Prospectuses of their own.
General American has created General American Separate Account Two for
funding variable annuity contracts and Separate Account Eleven for funding
variable life insurance policies. The owners of such contracts or policies
may allocate purchase or premium payments among the General Account of
General American and Divisions of General American Separate Accounts Two and
Eleven which correspond to the Funds. The Company currently does not foresee
any disadvantages to the holders of variable annuity contracts and variable
life insurance policies arising from the fact that the interests of the
holders of such contracts and policies may differ. Nevertheless, Capital
Company's Board of Directors intends to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto. Actions
might include requiring one separate account to withdraw from the Funds.
Capital Company sells shares to Separate Account One of RGA Reinsurance
Company, a company affiliated with General American. Capital Company also
offers its shares to other insurance companies with which General American is
affiliated, and to separate accounts of unaffiliated insurance companies.
Shares of each Fund are both offered and redeemed at their net asset
value without the addition of any sales load or redemption charge. See
"OFFERING AND REDEMPTION OF SHARES" on pages l6 - 17.
The investment adviser for Capital Company is Conning Asset Management
Company (the "Investment Adviser"), a majority-owned subsidiary of General
American. Conning Asset Management Company was formerly known as General
American Investment Management Company.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described on the
next few pages. The investment objective of a Fund, and certain investment
restrictions that are discussed in the Statement of Additional Information,
may be changed only with the approval of the shareholders of each Fund that
is affected by such change. The investment policies used to achieve a Fund's
objectives may be changed by Capital Company's Board of Directors without a
vote of shareholders.
Because investment involves both opportunities for gain and risk of
loss, no assurance can be given that the Funds will achieve their objectives.
Prospective purchasers of insurance and annuity contracts participating in
the Funds should carefully review the objectives and policies of the Funds
and consider their ability to assume the risks involved before allocating
amounts to Funds other than the General Account. An investment in any Fund
should be considered as a part of an overall investment program rather than
as a complete investment program.
9
<PAGE> 44
The Funds are subject to certain types of risk, including varying
degrees of market risk, financial risk, and current income volatility. Market
risk refers to the possibility the price of the security will decline in
response to changes in conditions in the securities markets in general and,
with particular reference to debt securities, changes in the overall level of
interest rates. Financial risk refers to the ability of an issuer of a debt
security to pay principal and interest when due, and to the earnings
stability and overall financial soundness of an issuer of an equity security.
Current income volatility refers to the degree and rapidity with which
changes in dividend payments and the overall level of interest rates become
reflected in the level of current income of the Funds.
More about the investment characteristics of and risks associated with
the Funds is contained in the Statement of Additional Information. See
"DESCRIPTION OF CERTAIN INVESTMENTS" in the Statement of Additional
Information.
THE S&P 500 INDEX FUND
Investment Objective. The objective of the S&P 500 Fund is to obtain
investment results that parallel the price and yield performance of
publicly-traded common stocks in the aggregate. The Fund uses the total
return of the Standard & Poor's 500 Composite Stock Index ("S&P 500" or
"Index") as its standard for performance comparison. The Fund attempts to
duplicate the performance of the S&P 500 and includes dividend income as
another component of the Fund's total return. The Fund is not managed by
Standard & Poor's.
Investment Policies. The portfolio is composed of a large number of
stock issues drawn from the S&P 500. Issues of bankrupt companies and
companies whose stock would not be eligible for purchase under Missouri
insurance law will not be purchased. At times, the Fund may not invest in all
the stocks in the S&P 500.
In order to match the performance of the Index, all securities in the
index are purchased in their proper weights. Trading generally will be
performed when changes occur in the cash position of the Fund, or in the
weightings of the Index. Dividend income will be reinvested in stocks so as
to keep the portfolio composition in line with the Index. The goal is to have
all Fund assets in qualified stocks at all times. Trading will occur only if
the expected return from trading, net of trading costs, is greater than the
expected return from not trading. In the case where trading is not
beneficial, stock index futures contracts may be used for hedging, where the
cash sums involved are too small to be directly invested in proper relation
to the Index.
Risk Factors. The Fund will not seek to out-perform the chosen Index
but to match it, before consideration of fund expenses, which means that the
Fund will be allowed to decline in asset value when the prices of most common
stocks decline. This high level of market risk is offset by the relatively
low degree of risk that the large companies whose shares are owned will
encounter financial difficulty, and the corresponding protection against
financial risk afforded by the Fund's extensive diversification. There is no
guarantee that the Fund will duplicate the performance of the Index.
THE MONEY MARKET FUND
Investment Objective. The objective of the Money Market Fund is to
obtain the highest level of current income which is consistent with the
preservation of capital and maintenance of liquidity.
Investment Policies. The Fund invests only in: (1) obligations of the
U.S. Government; (2) obligations issued by agencies or instrumentalities of
the United States Government; (3) instruments that are secured or
collateralized by obligations of the United States Government, its agencies,
or its instrumentalities; (4) short-term obligations of United States banks
and savings and loan associations and companies having assets of more than
$1,000,000,000; (5) instruments fully secured or collateralized by such bank
and savings and loan obligations; (6) dollar denominated short-term
obligations of foreign banks, foreign branches of foreign or U.S. banks
(referred to as "Eurodollars"), and short-term obligations of U.S. branches
and agencies of foreign banks (referred to as "Yankee dollars"); (7)
commercial paper and short-term corporate debt securities rated in one of the
two highest categories for short term debt securities by at least two
nationally recognized securities rating services or one such service if only
one has rated the security (see the Appendix for a description of commercial
paper ratings); (8) corporate or other notes guaranteed by letters of credit
from banks in the United States (satisfying the criteria described in (4),
above) or collateralized by United States Government obligations; and (9)
obligations of (i) consumer and commercial finance companies, (ii) securities
brokerage companies, (iii) leasing companies, and (iv) insurance companies.
Certain of these obligations may be variable or floating rate instruments.
10
<PAGE> 45
The Fund will enter into repurchase agreements under which it purchases
securities, subject to agreement by the seller to repurchase the securities
at a higher price on a specified date, with the gain establishing the yield
during the Fund's holding period. The Adviser, under general policies
established by the Company's Directors, reviews the creditworthiness of the
other party to any repurchase agreement, and will only enter into repurchase
agreements with parties whose credit is deemed satisfactory. If the seller
becomes bankrupt, the Fund may experience delays in recovering its money,
fail to recover part or all of its investment, and incur costs in disposing
of the securities used as collateral for the sellers repurchase obligation.
The Fund may also enter into reverse repurchase agreements when the
Adviser considers them to be advantageous to the Fund and only for temporary
liquidity purposes not to exceed 60 days, without renewal or extension.
Reverse repurchase agreements permit the Fund to leverage its investment
portfolio by selling securities while agreeing to repurchase them at an
agreed time and price. The bankruptcy of the other party to a reverse
repurchase agreement could cause the Fund to experience delays in recovering
its securities. If, in the meantime, the value of the securities fluctuated,
the Fund could experience a loss.
The Fund will not invest in "firm commitments" or "when issued"
securities.
The Fund may only invest in U.S. dollar-denominated instruments that
are determined to present minimal credit risks and that, at the time of
acquisition, are rated in one of the two highest rating categories by at
least two nationally recognized securities rating organizations ("NRSROs") or
by the only NRSRO that has rated the instrument, or in the case of unrated
instruments, have been determined to be of comparable quality to either of
the above. The Fund's investments must also meet the maturity and
diversification requirements applicable to money market funds.
See "Investment Policies" in the Statement of Additional Information
for information about the quality of the securities in which the Fund may
invest and more complete descriptions of repurchase agreements and other
obligations that the Fund may hold.
Risk Factors. The principal risks associated with the investment in the
Money Market Fund are the risk of fluctuations in the short-term interest
rates, the risks associated with entering into repurchase agreements
described above, and the risk of default among one or more issuers of
securities which comprise the Fund's assets.
THE BOND INDEX FUND
The Bond Index Fund began its current operations on October 1, 1992. On
that date the portfolio of the Intermediate Bond Fund was adjusted to reflect
the investment objective of the Bond Index Fund and the Intermediate Bond
Fund ceased to exist. The historical performance of the Intermediate Bond
Fund, shown in this Prospectus, should not be viewed as historical financial
data of the Bond Index Fund.
Investment Objective. The objective of the Bond Index 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.
Investment Policies. The portfolio will consist of bond issues drawn
from the Lehman Brothers Government/Corporate Bond Index. This Index is
composed of approximately 5,000 corporate and U.S. Government debt issues
rated Baa or better, with at least one year to maturity and with a total par
value of at least $25 million outstanding. The Index is weighted by the
market value of the issues included in the Index. The Fund will not invest in
all the bonds in the Index. In attempting to parallel the performance of the
Index, the Fund uses a sampling method. Sampling calls for the Investment
Adviser to maintain approximately the same mix of sectors, as measured by
quality and duration, that the Index has, while not holding all of the bonds
in each Index sector. Some money market investments such as those held by
the Money Market Fund may be purchased, but they must meet the quality
criteria set forth above. Fixed income obligations of the U.S. Government and
its agencies and instrumentalities will also be included in the Fund's
portfolio from time to time. The emphasis of the Fund will be on bonds with
maturities in the range of those associated with the Lehman Brothers
Government/Corporate Bond Index.
11
<PAGE> 46
This Fund will not concentrate in any segment of industry, nor in any
rating category. The Fund will be diversified in accordance with the
diversification of the Lehman Brothers Government/Corporate Bond Index.
Risk Factors. The Fund will not seek to outperform the Index but to
match it, which means the Fund's value will decline when bond prices decline.
Interest rate changes can have a powerful effect on the value of fixed bond
portfolios of this quality level and maturity. Therefore, this Fund should be
regarded as having a moderate level of market risk and current income
volatility, while being subject to relatively little risk that the bond
issuers will default (financial risk).
THE MANAGED EQUITY FUND
Investment Objective. The objective of the Managed Equity Fund is to
obtain long-term growth from investment in common stocks. Securing current
income is a secondary objective.
Investment Policies. This Fund invests in common stocks of companies
that are expected to benefit from changes in secular and cyclical trends and
which are considered to be undervalued based on various valuation criteria.
The Fund's investments are made with the philosophy that a high-quality,
diversified portfolio of undervalued securities will outperform the market
over the longer term, as well as preserve principal in a difficult market
environment. The opportunity to purchase securities at less than their
underlying value arises from the market's less-than-perfect ability to forecast
the future, plus the market's bias toward overvaluing exciting companies and
underestimating those which are generally out of favor.
Investments considered attractive for the Fund will normally have the
following characteristics:
1. Stocks selling at a relatively low price-earnings ratio or a relatively
low price-to-book ratio, and having a high dividend yield.
2. Stocks which are undervalued relative to their earning power, break-up
value, and/or inherent profitability.
3. Stocks which have under-performed the general market due to a lower
level of investor expectations regarding the earnings outlook.
4. Stocks whose issuers are of high quality, exhibiting sound financial
strength.
In managing this Fund, the Investment Adviser takes a long-term
investment approach. Emphasis is placed on a stock's value rather than the
potential for a short-term change in its general market price. The Fund will
invest only in common stocks issued by companies that the Investment Adviser
believes are high in quality, and the portfolio will be diversified as to
types of industries.
Risk Factors. The composition of this Fund will change, as it is not
attempting to parallel an index of identified stocks. Financial risk should
be reduced by the active management of this account but the Fund will be
subject to the risk that the prices of most publicly-traded stocks might
decline (market risk). Portfolio turnover (discussed on the next page) will
be relatively low for this Fund.
THE ASSET ALLOCATION FUND
Investment Objective. The primary objective of the Asset Allocation
Fund is to obtain 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 risks.
Investment Policies. This Fund will invest in common stocks,
publicly-traded bonds of intermediate maturity, and money market instruments.
It will observe the same quality restrictions on such investments as are
observed by the related Funds which specialize in one investment medium. The
mixture of investments by type will vary as the Investment Adviser exercises
its discretion in its effort to produce the highest total return consistent
with prudence
12
<PAGE> 47
and preservation of capital. At times, the emphasis will be on capital
growth; at other times income will be given a higher priority than growth.
The Investment Adviser will respond to economic circumstances in structuring
the portfolio, with total return as the key factor.
Risk Factors. As with the Managed Equity Fund, the active management of
this Fund is apt to produce a higher level of portfolio turnover than the S&P
500 Index Fund or the Bond Index Fund have. Individuals who direct premium
dollars into this Fund are relying more on the skill of the Investment
Adviser to build and maintain an appropriate portfolio than they are when
they select a fund that is devoted to a single investment medium. The Fund
may, at times, be subject to high levels of market and financial risk and
income volatility. These risks will always be present to some degree.
INVESTMENT RESTRICTIONS
Investments of the Funds are further restricted by certain policies
that may not be changed without a vote of shareholders. See "INVESTMENT
RESTRICTIONS" in the Statement of Additional Information.
PORTFOLIO TURNOVER
The annual rate at which the composition of each Fund changes is
referred to as the portfolio turnover rate, which is defined as the lesser of
the purchases or sales of securities in a Fund stated as a percentage of the
assets in the Fund. Portfolio turnover reflects the extent of trading in the
portfolio, and trading is usually accompanied by the payment of commissions
to brokers. Commission expenses will reduce the return on a Fund. Portfolio
turnover should vary among the different Funds, as well as over time. Actual
turnover figures are included in the Financial Highlights on pages 4 through 8.
The S&P 500 Index Fund is not likely to experience turnover in excess
of 50% per year as its portfolio will always be structured so as to parallel
the Standard & Poor's 500 stocks.
The Bond Index Fund is not likely to experience turnover in excess of
50% as its portfolio will always be structured to parallel the Lehman
Brothers Government/Corporate Bond Index.
The Managed Equity Fund and the Asset Allocation Fund are liable to
have turnover in excess of 200% at times, as they will be actively managed in
pursuit of their objectives.
MANAGEMENT OF THE COMPANY
The Board of Directors of Capital Company is responsible for the
management of Capital Company's business and affairs, and creates and
supervises the execution of the investment policies of Capital Company, which
are administered by the Investment Adviser (Conning Asset Management Company,
an affiliate of General American and formerly known as General American
Investment Management Company). The Investment Adviser was formed in 1982 to
manage General American's separate accounts and funds of affiliated clients.
The Investment Adviser's address is 700 Market Street, St. Louis, Missouri
63101, the same address as that of General American. The Investment Adviser
selects investments and provides investment advice and some administrative
services for all of Capital Company's Funds. In addition, the Investment
Adviser reviews the practices of broker-dealers buying and selling
investments for Capital Company.
The manager of the S&P 500 Index Fund and the Money Market Fund is
Douglas R. Koester, CFA, senior vice president of Conning Asset Management
Company (the Investment Adviser). He has managed the S&P 500 Index Fund and
Money Market Fund since their inception October 1, 1987. Mr. Koester earned
bachelor's and master's degrees from Washington University (St. Louis,
Missouri). He has served as vice president of the Investment Adviser since
1986.
The Bond Index Fund is managed by Wm. Michael Cody, CFA, vice president
of the Investment Adviser. He has managed the Bond Index Fund since January
1, 1996. Prior to joining the Investment Adviser in 1995, Mr.
13
<PAGE> 48
Cody worked for seven years for Walnut Street Securities, Inc. He has a
bachelor's degree from Marquette University and an MBA degree from Drake
University.
The Managed Equity Fund is managed by John W. Zimmerman, CFA, senior
vice president of the Investment Adviser. He has managed the Managed Equity
Fund since April 1997. Mr. Zimmerman served as an equity analyst and vice
president/manager of fundamental research at NationsBank Private Investments
(formerly Boatmen's Trust Company) for 10 years before coming to the
Investment Adviser in 1997. He earned a bachelor's degree from the
University of Missouri-Columbia and a master's degree from St. Louis
University.
The manager of the Asset Allocation Fund is David A. Kaslow, vice
president of the Investment Adviser. Mr. Kaslow has managed the Asset
Allocation Fund since January 1, 1997. He worked as an equity analyst for
more than two years at FBW Investment Management prior to joining Conning
Asset Management Company. Mr. Kaslow has a bachelor's degree from Tulane
University and a master's degree from Washington University in St. Louis,
Missouri.
As of December 1997, the Investment Adviser provided investment advice
to 70 clients that were unaffiliated with General American, and to the
general account and 32 separate accounts of General American.
For its services to the Funds, the Investment Adviser charges a fee
that is accrued daily against each Fund. The fees charged each Fund, except
the Managed Equity Fund, stated as an annual percentage of the average daily
value of the net assets, are:
<TABLE>
<S> <C>
S&P 500 Index Fund .25 %
Money Market Fund .125%
Bond Index Fund .25 %
Asset Allocation Fund .50 %
</TABLE>
The fee charged the Managed Equity Fund is stated as a series of annual
percentages of the average daily value of the net assets of that Fund. The
percentages decrease with respect to assets of the Fund above certain
amounts, as follows:
<TABLE>
<CAPTION>
Assets Total Fee
------ ---------
<S> <C>
First $10 million .40%
Next $20 million .30%
Balance over $30 million .25%
</TABLE>
General American and the Investment Adviser perform certain
administrative services and also pay certain administrative expenses for
Capital Company. These services and expenses include: recording the issuance
and redemption of shares of Capital Company; valuing the liabilities of each
Fund; computing the daily income and net asset value of each Fund;
recommending independent auditors and custodians, and coordinating and
supervising their activities; preparing and filing tax returns, reports and
filings that pertain to federal and state securities laws; scheduling and
planning the agenda for meetings of Capital Company's directors and
shareholders; paying directors who are not interested persons of Capital
Company, including any travel expenses they may have; printing and
distributing communications to current shareholders of Capital Company, and
paying for such printing and distribution; paying insurance premiums; paying
charges and expenses of the custodian, accountants, and counsel; and
maintaining records not otherwise maintained.
General American charges Capital Company a fee for these services and
expenses, at an annual rate based on the average daily value of the net
assets in each Fund, as follows:
<TABLE>
<S> <C>
S&P 500 Index Fund .05%
Money Market Fund .08%
Bond Index Fund .05%
Managed Equity Fund .10%
Asset Allocation Fund .10%
</TABLE>
14
<PAGE> 49
CAPITAL STOCK
Capital Company issues a separate series of capital stock for each
Fund. Each share of capital stock issued with respect to a Fund has a pro
rata interest in the net assets of the Fund. Each share of capital stock is
entitled to one vote on all matters submitted to a vote of shareholders of
Capital Company, and fractional shares are entitled to a corresponding
fractional vote. An affirmative vote of a majority of the outstanding shares
of each Fund affected by any matter is required for any action to be approved
by the shareholders of Capital Company. Shares of a Fund will be voted
separately from shares of other Funds, however, on matters affecting only
that Fund, such as approval of the investment advisory agreement, an
investment sub-advisory agreement, or changes in the fundamental investment
objectives or restrictions of a Fund. The assets of each Fund are charged
with the liabilities of the Fund and a proportionate share of the general
liabilities of Capital Company. All shares may be redeemed at any time.
TAXES AND DIVIDENDS
For federal income tax purposes, each Fund is treated as a separate
entity. Each Fund intends to qualify and elect to be taxed as a "regulated
investment company" under Subchapter M of the Internal Revenue Code (the
"Code"). If each Fund qualifies as a "regulated investment company" and
complies with the provisions of the Code relieving regulated investment
companies which distribute substantially all of their net income (both
ordinary income and capital gain) from federal income tax and the 4%
nondeductible federal excise tax, each Fund will be relieved of such taxes on
the amounts distributed. (See the Statement of Additional Information for a
more detailed discussion.)
Since the sole shareholders of Capital Company will be separate
accounts of General American, separate accounts of General American
affiliates, and separate accounts of unaffiliated companies, no discussion is
included herein as to federal income tax consequences at the shareholder
level. For information concerning the federal tax consequences to purchasers
of variable annuity contracts funded by General American Separate Account Two
or of the flexible premium variable life insurance policies funded by General
American Separate Account Eleven, see the respective Prospectuses for those
contracts or policies.
OFFERING AND REDEMPTION OF SHARES
Shares of capital stock of each Fund of Capital Company are offered to
separate accounts of General American, separate accounts of insurance
companies affiliated with General American, and separate accounts of
unaffiliated insurance companies.
Shares are sold and redeemed at their net asset value as next
determined following receipt by a separate account of premium payments,
surrender requests under policies, loan payments, transfer requests, and
similar or related transactions. There is no selling commission or redemption
charge.
Net asset value is determined as of the close of trading (4 p.m.
Eastern time) on the New York Stock Exchange on each day during which the
Exchange is open, except the day after Thanksgiving, when Capital Company is
closed, provided, however, if the day after Thanksgiving is the last business
day of the month then net asset value is determined that day.
An equity security listed on a stock exchange is valued at the
security's closing price. Securities traded in the over-the-counter market
are valued at the closing sale price, and if closing sale prices are not
available, at the latest available bid price.
Occasionally, events affecting the values of such securities may occur
after the close of the New York Stock Exchange. If, during such periods,
events occur which materially affect the value of the securities of a Fund,
such securities will be valued at fair value as determined in good faith by
or under the direction of the Board of Directors of Capital Company.
15
<PAGE> 50
Debt instruments with maturities of 60 days or less are valued on an
amortized cost basis. This means a purchased instrument is valued at cost on
the date of purchase or, in the case of securities purchased more than 60
days prior to maturity, at the market value on the 61st day before maturity.
Thereafter a constant rate of amortization of any discount or premium and of
accrual of interest income is assumed, regardless of any intervening change
in general interest rates or the market value of the instrument. Other debt
instruments are valued at market value, provided market quotations are
readily available.
All other assets are valued at their fair value as determined in good
faith by, or under the direction of, the Board of Directors of Capital
Company.
Further discussion of asset valuation methods is included in the
Statement of Additional Information under the heading "DETERMINATION OF NET
ASSET VALUE."
PENDING LEGAL PROCEEDINGS
There are no legal proceedings pending to which Capital Company is a party.
CONTRACT OWNER AND POLICYHOLDER INQUIRIES
Inquiries should be directed to:
VUL Administration Variable Annuity Administration
General American Life Insurance Company P.O. Box 14490
P.O. Box 14490 St. Louis, Missouri 63178-4490
St. Louis, Missouri 63178-4490 Telephone: 1-800-449-6447
Telephone: 1-800-638-9294
16
<PAGE> 51
APPENDIX
Description of Corporate Bond Ratings
Moody's Investors Service, Inc.
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are commonly referred
to as "gilt-edged." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuations of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
larger than Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa-Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1,2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier l indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's Corporation
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
17
<PAGE> 52
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB-B-CCC-CC-Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
C-The rating C is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to relative standing within the major rating categories.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics. Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned. Relative strength
or weakness of the above factors determines whether the issuer's commercial
paper is rated A-1, A-2, or A-3.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's Investor's Service, Inc. Among the factors considered by
Moody's in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trends of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
presented or may arise as a result of public interest questions and
preparations to meet such obligations.
18
<PAGE> 53
GENERAL AMERICAN CAPITAL COMPANY
Prospectus Version C
<PAGE> 54
GENERAL AMERICAN CAPITAL COMPANY
700 Market Street, St. Louis, MO 63101
(314) 231-1700
General American Capital Company ("Capital Company") is an open-end
diversified management investment company which was incorporated in Maryland
on November 15, 1985, and commenced operations on October 1, 1987. Capital
Company offers variable life insurance and variable annuity purchasers a
single fund that operates as a distinct investment vehicle. The name and
investment objective of the Fund is as follows:
Money Market Fund: The investment objective of the Money Market
Fund (sometimes referred to herein as "the Fund") is to obtain 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. An investment in the Money Market Fund is neither insured
nor guaranteed by the U.S. Government.
There can be no assurance that the investment objective of the Money
Market Fund will be achieved.
This Prospectus sets forth basic information about Capital Company and
the Money Market Fund, and information that a prospective investor ought to
know before investing.
A Statement of Additional Information for Capital Company has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. This Statement is available upon request and without charge
from Capital Company at the address or telephone number above. Other
inquiries about Capital Company should be directed to the company at the same
address or telephone number.
This Prospectus should be read and retained for future reference.
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.
-----------------------
The Date of this Prospectus is May 1, 1998.
The Date of the Statement of Additional Information is May 1, 1998.
1
<PAGE> 55
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Table of Fees and Expenses 3
Financial Highlights 4
Investment Fund 5
Investment Objectives And Policies 5
Money Market Fund
Investment Objective 6
Investment Policies 6
Risk Factors 7
Investment Restrictions 7
Management of the Company 7
Capital Stock 8
Taxes and Dividends 8
Offering and Redemption of Shares 9
Pending Legal Proceedings 9
Contract Owner and Policyholder Inquiries 9
Appendix A-1
</TABLE>
2
<PAGE> 56
TABLE OF FEES AND EXPENSES
Shareholder Transaction Expenses
General American Capital Company makes no charge at the time of sale,
when dividends are reinvested, or upon a redemption or exchange, whether
partial or whole.
Annual Fund Operating Expenses (as a percentage of average net assets)
Investment Advisory Fees:
Money Market Fund .125%
Administration Fees:
Money Market Fund .08 %
Total Fund Operating Expenses:
Money Market Fund .205%
- --------------
Money enters the Money Market Fund through separate accounts (see page
5) which may levy additional fees. The insurance or annuity contract giving
access to the separate account, together with a separate account prospectus
if there is one, should be consulted for information on such fees.
Example
You would pay the following cumulative expenses on a $1,000 investment,
assuming: (1) a 5% annual return, and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
l Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund $2.10 $6.61 $11.56 $26.17
</TABLE>
Because there is no redemption fee, you would pay the same amounts if
you did not redeem at the end of the time period specified.
The purpose of the foregoing tables and the example is to assist in
understanding the various costs and expenses that an investor will bear
directly or indirectly. This example should not be considered a
representation of past or future expenses. Actual expenses may differ from
those in the example.
3
<PAGE> 57
General American Capital Company Money Market Fund
<TABLE>
Financial Highlights
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 17.24 $ 16.34 $ 15.42 $ 14.80 $ 14.36
Income from operations:
Net investment income 0.99 0.90 0.92 0.62 0.44
-------- -------- ------- ------- -------
Net asset value, end of year $ 18.23 $ 17.24 $ 16.34 $ 15.42 $ 14.80
======== ======== ======= ======= =======
Total return<F2> 5.71% 5.51% 5.96% 4.21% 3.07%
Net assets, end of period (in thousands) $174,571 $101,426 $70,574 $93,339 $84,430
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 5.60% 5.37% 5.78% 4.17% 3.06%
Portfolio turnover rate<F4> --- --- --- --- ---
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year<F1> $ 13.85 $ 13.04 $ 12.03 $ 10.98 $ 10.18
Income from operations:
Net investment income 0.51 0.81 1.01 1.05 0.80
------- ------- ------- ------- -------
Net asset value, end of year $ 14.36 $ 13.85 $ 13.04 $ 12.03 $ 10.98
======= ======= ======= ======= =======
Total return<F2> 3.71% 6.19% 8.43% 9.56% 7.76%
Net assets, end of year (in thousands) $84,880 $84,090 $85,901 $53,648 $52,323
Ratio of expenses to average net assets<F3> 0.21% 0.21% 0.21% 0.21% 0.21%
Ratio of net investment income to average
net assets<F3> 3.68% 6.10% 8.17% 9.26% 7.46%
Portfolio turnover rate<F4> --- --- --- --- ---
<FN>
Notes:
<F1> Components are computed and accumulated on a daily basis.
<F2> The total return information shown in this table does not reflect
expenses that apply to the separate accounts investing in the Fund or to the
insurance or variable annuity contracts. Inclusion of these charges would
reduce the total return figures for all periods shown.
<F3> Computed on an annualized basis.
<F4> A portfolio turnover rate is not calculated for securities on which the
maturity or expiration dates at the time of acquisition were one year or
less.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the General
American Capital Company Annual Report dated December 31, 1997. The annual
report is not included with this prospectus but may be obtained without
charge.
4
<PAGE> 58
INVESTMENT FUND
General American Capital Company ("Capital Company") offers a single
investment fund, the Money Market Fund ("the Fund"), through this prospectus.
Capital Company also offers seven additional funds, through a separate
prospectus. The financial results of these seven funds are not expected to
have any effect on Capital Company or the Money Market Fund described in this
version of its Prospectus. Capital Company may also add or delete Funds.
Shares of the Money Market Fund are currently offered to separate
accounts established by General American Life Insurance Company ("General
American"), an insurance company incorporated in Missouri, and its
affiliates, as well as to separate accounts of non-affiliated insurance
companies, pursuant to the insurance laws of Missouri. Most of these
separate accounts accept funds only from employee benefit plans. Some of the
separate accounts are not registered with the Securities and Exchange
Commission ("SEC") because they are not offered to the public at large and
will not have more than 100 owners. General American Separate Accounts Two
and Eleven, however, are registered with the SEC as unit investment trusts
having Prospectuses of their own.
General American has created General American Separate Account Two for
funding variable annuity contracts and Separate Account Eleven for funding
variable life insurance policies. The owners of such contracts or policies
may allocate purchase or premium payments among the General Account of
General American and Divisions of General American Separate Accounts Two and
Eleven. The Company currently does not foresee any disadvantages to the
holders of variable annuity contracts and variable life insurance policies
arising from the fact that the interests of the holders of such contracts and
policies may differ. Nevertheless, Capital Company's Board of Directors
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any,
should be taken in response thereto. Actions might include requiring one
separate account to withdraw from the Money Market Fund.
Capital Company sells shares to Separate Account One of RGA Reinsurance
Company, a company affiliated with General American. Capital Company also
offers its shares to other insurance companies with which General American is
affiliated, and to separate accounts of unaffiliated insurance companies.
Shares of the Money Market Fund are both offered and redeemed at their
net asset value without the addition of any sales load or redemption charge.
See "OFFERING AND REDEMPTION OF SHARES" on page 10.
The investment adviser for Capital Company is Conning Asset Management
Company (the "Investment Adviser"), a majority-owned subsidiary of General
American. Conning Asset Management Company was formerly known as General
American Investment Management Company.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of the Money Market Fund are
described below and on the next page. The investment objective of the Fund,
and certain investment restrictions that are discussed in the Statement of
Additional Information, may be changed only with the approval of the
shareholders of the Fund. The investment policies used to achieve the Fund's
objectives may be changed by Capital Company's Board of Directors without a
vote of shareholders.
Because investment involves both opportunities for gain and risk of
loss, no assurance can be given that the Fund will achieve its objective.
Prospective purchasers of insurance and annuity contracts participating in
the Fund should carefully review the objectives and policies of the Fund and
consider
5
<PAGE> 59
their ability to assume the risks involved before allocating amounts to the
Fund. An investment in the Fund should be considered as a part of an overall
investment program rather than as a complete investment program.
The Fund is subject to certain types of risk, including varying degrees
of market risk, financial risk, and current income volatility. Market risk
refers to the possibility the price of the security will decline in response
to changes in conditions in the securities markets in general and, with
particular reference to debt securities, changes in the overall level of
interest rates. Financial risk refers to the ability of an issuer of a debt
security to pay principal and interest when due, and to the earnings
stability and overall financial soundness of an issuer of an equity security.
Current income volatility refers to the degree and rapidity with which
changes in dividend payments and the overall level of interest rates become
reflected in the level of current income of the Fund.
More about the investment characteristics and risks associated with the
Fund is contained in the Statement of Additional Information. See
"Description of Certain Investments" in the Statement of Additional
Information.
THE MONEY MARKET FUND
Investment Objective. The objective of the Money Market Fund is to
obtain the highest level of current income which is consistent with the
preservation of capital and maintenance of liquidity.
Investment Policies. The Fund invests only in: (1) obligations of the
U.S. Government; (2) obligations issued by agencies or instrumentalities of
the United States Government; (3) instruments that are secured or
collateralized by obligations of the United States Government, its agencies,
or its instrumentalities; (4) short-term obligations of United States banks
and savings and loan associations and companies having assets of more than
$1,000,000,000; (5) instruments fully secured or collateralized by such bank
and savings and loan obligations; (6) dollar denominated short-term
obligations of foreign banks, foreign branches of foreign or U.S. banks
(referred to as "Eurodollars"), and short-term obligations of U.S. branches
and agencies of foreign banks (referred to as "Yankee dollars"); (7)
commercial paper and short-term corporate debt securities rated in one of the
two highest categories for short term debt securities by at least two
nationally recognized securities rating services or one such service if only
one has rated the security (see the Appendix for a description of commercial
paper ratings); (8) corporate or other notes guaranteed by letters of credit
from banks in the United States (satisfying the criteria described in (4),
above) or collateralized by United States Government obligations; and (9)
obligations of (i) consumer and commercial finance companies, (ii) securities
brokerage companies, (iii) leasing companies, and (iv) insurance companies.
Certain of these obligations may be variable or floating rate instruments.
The Fund will enter into repurchase agreements under which it purchases
securities, subject to agreement by the seller to repurchase the securities
at a higher price on a specified date, with the gain establishing the yield
during the Fund's holding period. The Investment Adviser, under general
policies established by the Company's Directors, reviews the creditworthiness
of the other party to any repurchase agreement, and will only enter into
repurchase agreements with parties whose credit is deemed satisfactory. If
the seller becomes bankrupt, the Fund may experience delays in recovering its
money, fail to recover part or all of its investment, and incur costs in
disposing of the securities used as collateral for the sellers repurchase
obligation.
The Fund may also enter into reverse repurchase agreements when the
Adviser considers them to be advantageous to the Fund and only for temporary
liquidity purposes not to exceed 60 days, without renewal or extension.
Reverse repurchase agreements permit the Fund to leverage its investment
6
<PAGE> 60
portfolio by selling securities while agreeing to repurchase them at an
agreed time and price. The bankruptcy of the other party to a reverse
repurchase agreement could cause the Fund to experience delays in recovering
its securities. If, in the meantime, the value of the securities fluctuated,
the Fund could experience a loss.
The Fund will not invest in "firm commitments" or "when issued"
securities.
The Fund may only invest in U.S. dollar-denominated instruments that
are determined to present minimal credit risks and that, at the time of
acquisition, are rated in one of the two highest rating categories by at
least two nationally recognized securities rating organizations ("NRSROs") or
by the only NRSRO that has rated the instrument, or in the case of unrated
instruments, have been determined to be of comparable quality to either of
the above. The Fund's investments must also meet the maturity and
diversification requirements applicable to money market funds.
See "Investment Policies" in the Statement of Additional Information
for information about the quality of the securities in which the Fund may
invest and more complete descriptions of repurchase agreements and other
obligations that the Fund may hold.
Risk Factors. The principal risks associated with the investment in the
Money Market Fund are the risk of fluctuations in the short-term interest
rates, the risks associated with entering into repurchase agreements
described above, and the risk of default among one or more issuers of
securities which comprise the Fund's assets.
INVESTMENT RESTRICTIONS
Investments of the Money Market Fund are further restricted by certain
policies that may not be changed without a vote of shareholders. See
"INVESTMENT RESTRICTIONS" in the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
The Board of Directors of Capital Company is responsible for the
management of Capital Company's business and affairs, and creates and
supervises the execution of the investment policies of Capital Company, which
are administered by the Investment Adviser (Conning Asset Management Company,
an affiliate of General American Life Insurance Company and formerly known as
General American Investment Management Company). The Investment Adviser was
formed in 1982 to manage General American's separate accounts and funds of
affiliated clients. The Investment Adviser's address is 700 Market Street,
St. Louis, Missouri 63101, the same address as that of General American. The
Investment Adviser provides investment advice and some administrative
services for Capital Company's Funds, including selecting investments and
reviewing the practices of broker-dealers buying and selling investments for
Capital Company.
The manager of the Money Market Fund is Douglas R. Koester, CFA, senior
vice president of Conning Asset Management Company (the Investment Adviser).
He has managed the Fund since its inception October 1, 1987. Mr. Koester
earned bachelor's and master's degrees from Washington University (St. Louis,
Missouri). He has served as vice president of Conning Asset Management
Company since 1986.
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<PAGE> 61
As of December 1997, the Investment Adviser provided investment advice
to 70 clients that were unaffiliated with General American, and to the
general account and 32 separate accounts of General American.
For its services to the Fund, the Investment Adviser charges a fee that
is accrued daily against the Fund. The fee charged the Fund, stated as an
annual percentage of the average daily value of the net assets, is .125%.
General American and the Investment Adviser perform certain
administrative services and also pay certain administrative expenses for
Capital Company. These services and expenses include: recording the issuance
and redemption of shares of Capital Company; valuing the liabilities of each
Fund; computing the daily income and net asset value of each Fund;
recommending independent auditors and custodians, and coordinating and
supervising their activities; preparing and filing tax returns, reports and
filings that pertain to federal and state securities laws; scheduling and
planning the agenda for meetings of Capital Company's directors and
shareholders; paying directors who are not interested persons of Capital
Company, including any travel expenses they may have; printing and
distributing communications to current shareholders of Capital Company, and
paying for such printing and distribution; paying insurance premiums; paying
charges and expenses of the custodian, accountants, and counsel; and
maintaining records not otherwise maintained. General American charges
Capital Company a fee for these services and expenses, at an annual rate of
.08% based on the average daily value of the net assets in the Fund.
CAPITAL STOCK
Capital Company issues a separate series of capital stock for the Fund.
Each share of capital stock issued with respect to the Fund has a pro rata
interest in the net assets of the Fund. Each share of capital stock is
entitled to one vote on all matters submitted to a vote of shareholders of
Capital Company, and fractional shares are entitled to a corresponding
fractional vote. An affirmative vote of a majority of the outstanding shares
of the Fund affected by any matter is required for any action to be approved
by the shareholders of Capital Company. Shares of the Fund will be voted
separately from shares of other Funds, however, on matters affecting only
that Fund, such as approval of the investment advisory agreement, an
investment sub-advisory agreement, or changes in the fundamental investment
objectives or restrictions of a Fund. The assets of the Fund are charged with
the liabilities of the Fund and a proportionate share of the general
liabilities of Capital Company. All shares may be redeemed at any time.
TAXES AND DIVIDENDS
For federal income tax purposes, the Fund is treated as a separate
entity. The Fund intends to qualify and elect to be taxed as a "regulated
investment company" under Subchapter M of the Internal Revenue Code (the
"Code"). If the Fund qualifies as a "regulated investment company" and
complies with the provisions of the Code relieving regulated investment
companies which distribute substantially all of their net income (both
ordinary income and capital gain) from federal income tax and the 4%
nondeductible federal excise tax, the Fund will be relieved of such taxes on
the amounts distributed. (See the Statement of Additional Information for a
more detailed discussion.)
Since the sole shareholders of Capital Company will be separate
accounts of General American, separate accounts of General American
affiliates, and separate accounts of unaffiliated companies, no discussion is
included herein as to federal income tax consequences at the shareholder
level. For information concerning the federal tax consequences to purchasers
of variable annuity contracts funded by Separate Account Two or of the
flexible premium variable life insurance policies funded by Separate Account
Eleven, see the respective Prospectuses for those contracts or policies.
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<PAGE> 62
OFFERING AND REDEMPTION OF SHARES
Shares of capital stock of the Money Market Fund of Capital Company are
offered to separate accounts of General American, separate accounts of
insurance companies affiliated with General American, and separate accounts
of unaffiliated insurance companies.
Shares are sold and redeemed at their net asset value as next
determined following receipt by a separate account of premium payments,
surrender requests under policies, loan payments, transfer requests, and
similar or related transactions. There is no selling commission or redemption
charge.
Net asset value is determined as of the close of trading (4 p.m.
Eastern time) on the New York Stock Exchange on each day during which the
Exchange is open, except the day after Thanksgiving, when Capital Company is
closed, provided, however, if the day after Thanksgiving is the last business
day of the month then net asset value is determined that day.
An equity security listed on a stock exchange is valued at the
security's closing price. Securities traded in the over-the-counter market
are valued at the closing sale price, and if closing sale prices are not
available, at the latest available bid price.
Occasionally, events affecting the values of such securities may occur
after the close of the New York Stock Exchange. If, during such periods,
events occur which materially affect the value of the securities of the Fund,
such securities will be valued at fair value as determined in good faith by
or under the direction of the Board of Directors of Capital Company.
Debt instruments with maturities of 60 days or less are valued on an
amortized cost basis. This means a purchased instrument is valued at cost on
the date of purchase or, in the case of securities purchased more than 60
days prior to maturity, at the market value on the 61st day before maturity.
Thereafter a constant rate of amortization of any discount or premium and of
accrual of interest income is assumed, regardless of any intervening change
in general interest rates or the market value of the instrument. Other debt
instruments are valued at market value, provided market quotations are
readily available.
All other assets are valued at their fair value as determined in good
faith by, or under the direction of, the Board of Directors of Capital
Company.
Further discussion of asset valuation methods is included in the
Statement of Additional Information under the heading "DETERMINATION OF NET
ASSET VALUE."
PENDING LEGAL PROCEEDINGS
There are no legal proceedings pending to which Capital Company is a
party.
CONTRACT OWNER AND POLICYHOLDER INQUIRIES
Inquiries should be sent to:
VUL Administration Variable Annuity Administration
General American Life Insurance Company P.O. Box 14490
P.O. Box 14490 St. Louis, Missouri 63178-4490
St. Louis, Missouri 63178-4490 Telephone: 1-800-449-6447
Telephone: 1-800-638-9294
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<PAGE> 63
APPENDIX
Description of Corporate Bond Ratings
Moody's Investors Service, Inc.
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are commonly referred
to as "gilt-edged." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuations of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
larger than Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa-Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1,2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier l indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
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<PAGE> 64
Standard & Poor's Corporation
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB-B-CCC-CC-Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
C-The rating C is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to relative standing within the major rating categories.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics. Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned. Relative strength
or weakness of the above factors determines whether the issuer's commercial
paper is rated A-1, A-2, or A-3.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's Investor's Service, Inc. Among the factors considered by
Moody's in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trends of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
presented or may arise as a result of public interest questions and
preparations to meet such obligations.
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PART B
GENERAL AMERICAN CAPITAL COMPANY
700 Market Street
St. Louis, MO 63101
(314) 231-1700
A No-Load Series Company
with an
S&P 500 Index Fund, Investing in Stocks
Contained in the Standard and Poor's 500 Index,
Money Market Fund, Investing
Primarily in Money Market Instruments,
Bond Index Fund, Investing Primarily in Bonds,
Managed Equity Fund, Investing Primarily in Stocks,
International Index Fund (formerly known as the International Equity Fund),
Investing in Stocks Contained in the Morgan Stanley Capital International,
Europe, Australia, and Far East ("EAFE") Index,
Mid-Cap Equity Fund (formerly known as the Special Equity Fund), Investing in
Stocks of Companies with Medium Levels of Capitalization to Obtain Capital
Appreciation,
Small-Cap Equity Fund, Investing in Stocks of Companies with Smaller Levels
of Capitalization to Obtain Capital Appreciation, and an
Asset Allocation Fund, Investing in Whatever Combination of
Stocks, Bonds, and Money Market Investments is Expected to Produce the
Highest Return.
This Statement of Additional Information is not a Prospectus but supplements,
and should be read in conjunction with the Prospectus for General American
Capital Company. It is incorporated by reference into the Prospectus. A
copy of the Prospectus may be obtained from the Company at the address and
telephone number above.
The date of the Prospectus to which this Statement of Additional Information
relates is May 1, 1998.
The date of this Statement of Additional Information is May 1, 1998.
B-1
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Business History B-4
Investment Restrictions B-4
Description of Certain Investments B-6
United States Government Obligations B-6
Bank Obligations B-7
Repurchase Agreements B-8
Reverse Repurchase Agreements B-8
Commercial Paper B-9
Stock Index Futures Contracts B-9
Forward Foreign Currency Transactions B-11
Investment Advisory and Other Services B-12
Investment Advisory Agreement B-12
Accountants B-14
Custodian B-14
Custodian for International Index Fund B-15
Payment of Expenses B-15
Portfolio Transactions and Brokerage Allocations B-15
Management of the Company B-16
Capital Stock B-19
Fund Ownership B-19
Persons Controlled by or under Common Control with
Registrant B-20
Offering and Redemption of Shares B-20
Determination of Net Asset Value B-21
Investment Performance B-22
Money Market Yield Information B-23
Taxes and Dividends B-24
B-2
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<CAPTION>
Page
<S> <C>
Additional Information B-25
Legal Matters B-25
Reports B-25
Other Information B-25
Financial Statements B-25
</TABLE>
B-3
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BUSINESS HISTORY
General American Capital Company ("Company") is an open-ended diversified
management investment company established by General American Life Insurance
Company ("General American") to provide for the investment of assets of
separate accounts of General American and affiliated insurance companies as
well as for the investment of assets of separate accounts of insurance
companies not affiliated with General American. Currently, shares are
offered to General American Separate Account Two, General American Separate
Account Eleven, unregistered separate accounts of General American, separate
accounts of RGA Reinsurance Company, Security Equity Life Insurance Company,
Cova Financial Services Life Insurance Company, Cova Financial Life
Insurance Company, and First Cova Life Insurance Company, all affiliates of
General American. Separate Account Two's assets represent payments for
variable annuity contracts, as do the assets of the Cova separate accounts.
Separate Account Eleven's assets and those of RGA Reinsurance Company, and
Security Equity Life Insurance Company are derived from premium payments made
to purchase and continue flexible premium variable life insurance policies.
The unregistered separate accounts hold funds for tax-qualified employee
benefit plans, or variable life contracts sold to a limited number of wealthy
and sophisticated purchasers.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of the Company
and may not be changed without approval of a majority of the outstanding
shares of each affected Series (or "Fund"). Each restriction applies to each
Fund of the Company unless otherwise indicated. A change in policy affecting
only one Fund may be effected with the approval of a majority of the
outstanding shares of that Fund only. (As used in the Prospectus and this
Statement of Additional Information, the term "majority of the outstanding
voting shares" means the lesser of: (1) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented; or
(2) more than 50% of the outstanding shares.) A Fund will not:
1. Invest more than 10% of the value of the total assets of the Fund in
securities that are not readily marketable, such as repurchase agreements
having a maturity of more than seven days and securities which are secured by
interests in real estate. This restriction does not apply to obligations
issued or guaranteed by the United States government, its agencies, or
instrumentalities and does not apply to the International Index Fund's
entrance into forward foreign currency contracts as described herein;
In determining the liquidity of Rule 144A Securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the
United States government or its agencies and instrumentalities, the
investment manager, under guidelines established by the board of directors of
the Company, will consider any relevant factors including the frequency of
trades, the number of dealers willing to purchase or sell the security, and
the nature of marketplace trades.
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In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
as amended, the investment manager, under guidelines established by the board
of directors of the Company, will evaluate relevant factors such as the
issuer and the size and nature of its commercial paper programs, the
willingness and ability of the issuer or dealer to repurchase the paper, and
the nature of the clearance and settlement procedures for the commercial
paper.
2. Invest more than 5% of the value of the total assets of the Fund in
equity securities that are not readily marketable;
3. Invest in real estate, although it may buy securities of companies
which deal in real estate and securities which are secured by interests in
real estate, including interests in real estate investment trusts;
4. Invest in commodities or commodity contracts, except to the extent
provided in Item 14 below;
5. Purchase securities of other investment companies if, as a result, the
Fund would own more than 3% of the total outstanding voting stock of any one
investment company, or more than 5% of the Fund's assets would be invested in
any one investment company, or more than 10% of the Fund's assets would be
invested in investment company securities. These limitations do not apply to
securities acquired in connection with a merger, consolidation, acquisition,
or reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer's commission or
profit, other than customary broker's commission, is involved, and so long as
immediately thereafter not more than 10% of such Fund's total assets, taken
at market value, would be invested in such securities;
6. Make loans, except by the purchase of debt obligations customarily
distributed privately to institutional investors, and except that the Fund
may buy repurchase agreements and the International Index Fund may enter into
forward foreign currency contracts as described herein;
7. As to 75% of the value of the total assets of the Fund, invest more
than 5% of the value of such assets in securities of any one issuer, except
that this restriction shall not apply to securities issued or guaranteed by
the United States government, its agencies, or instrumentalities;
8. As to 75% of the value of the total assets of the Fund, invest in more
than 10% of the outstanding voting securities of any one issuer;
9. Act as an underwriter of securities of other issuers, except to the
extent that it may be deemed to be an underwriter in reselling securities,
such as restricted securities, acquired in private transactions and
subsequently registered under the Securities Act of 1933, as amended;
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<PAGE> 70
10. Borrow money, except that the Money Market Fund may enter into reverse
repurchase agreements with banks and except that, as a temporary measure for
extraordinary or emergency purposes (such as to permit the Fund to honor
redemption requests without being required to dispose of investments in an
inopportune or untimely manner) and not for investment purposes, any Fund may
borrow from banks up to 5% of its assets taken at cost, provided in each case
that the total borrowings have an asset coverage, based on value, of at least
300% and except that the International Index Fund may enter into forward
foreign currency contracts in accordance with its investment policies;
11. Issue securities senior to its common stock except to the extent set
out in paragraph 10 above;
12. Sell securities short, or maintain a short position provided that the
International Index Fund's use of forward foreign currency contracts as
described herein shall not be deemed to be selling securities short or to be
maintaining a short position;
13. Buy securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities provided that margin payments and other deposits in connection
with the International Index Fund's use of forward foreign currency
contracts shall not be deemed to constitute purchasing securities on margin;
14. Invest in or write puts, calls, straddles, or spreads. However, this
restriction shall not prohibit the Funds (other than the Money Market Fund)
from writing, selling, or purchasing futures contracts in order to close
transactions or to hedge against market risk or interest rate movements nor
shall it prohibit the International Index Fund from entering into forward
foreign currency contracts as described herein; nor
15. Invest in companies for the purpose of exercising control of
management. If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage beyond the specified
limit resulting from a change in values of portfolio securities or amount of
net assets shall not be considered a violation of the restrictions.
In addition to the investment restrictions described above, the Funds will
comply with restrictions contained in any current insurance laws in order
that the assets of insurance company separate accounts may be invested in
Fund shares.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which may be
made by the Funds:
UNITED STATES GOVERNMENT OBLIGATIONS
All of the Funds may invest in United States government obligations. These
consist of both United States government securities and government agency
securities.
B-6
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Various types of marketable securities are issued by the United States
Treasury, that is, bills, notes, and bonds. Such securities are direct
obligations of the United States government and differ mainly in the length
of their maturity. Treasury bills, the most frequently issued marketable
government security, have a maturity of up to one year and are issued on a
discount basis. Treasury notes have maturities of more than one and up to
ten years. Treasury bonds have maturities of ten years or more.
Government agency securities are the various types of instruments currently
outstanding or which may be offered in the future issued by agencies and
instrumentalities of the United States government. Agencies include, among
others, the Federal Housing Administration, Government National Mortgage
Association, Farmers Home Administration, Export-Import Bank of the United
States, Maritime Administration, General Services Administration, and
Tennessee Valley Authority. Instrumentalities include, for example, the
Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
and the United States Postal Service. A Fund will purchase such securities
only so long as they are either guaranteed by the United States Treasury
(e.g., Government National Mortgage Association mortgage-backed securities)
or supported by the issuing agency's or instrumentality's credit or right to
borrow from the United States Treasury (e.g., Federal National Mortgage
Association Discount Notes). Not all securities issued by agencies or
instrumentalities of the United States government have a guarantee
representing the full faith and credit of the United States government.
BANK OBLIGATIONS
All of the Funds may acquire obligations of banks, which include certificates
of deposit, time deposits, and bankers' acceptances.
Certificates of deposit are generally short-term, interest-bearing negotiable
certificates issued by banks or savings and loan associations against funds
deposited in the issuing institution.
Time deposits are funds in a bank or other financial institution for a
specified period of time at a fixed interest rate for which a negotiable
certificate is not received.
A bankers' acceptance is a time draft drawn on a bank which unconditionally
guarantees to pay the draft at its face amount on the maturity date. A bank
customer, which is also liable for the draft, typically uses the funds
represented by the draft to finance the import, export, or storage of goods.
The Funds will not invest in any security issued by a commercial bank unless
the bank is organized and operating in the United States, has total assets of
at least $1 billion, and is a member of the Federal Deposit Insurance
Corporation.
B-7
<PAGE> 72
REPURCHASE AGREEMENTS
All of the funds may invest in repurchase agreements.
A repurchase agreement customarily obligates the seller, at the time it sells
securities to the Fund, to repurchase the securities at a mutually
agreed-upon time and price. The total amount received on repurchase would be
calculated to exceed the price paid by the Fund, the difference reflecting an
agreed upon interest rate to the settlement date that would not necessarily
be related to the interest rate on the underlying securities. The
differences between the total amount to be received upon repurchase of the
securities and the price which was paid by the Fund upon their acquisition
are accrued as interest and included in the Fund's net income as dividends.
The Company has the right to sell securities subject to repurchase agreements
but would be required to deliver identical securities upon maturity of the
repurchase agreements unless the seller fails to pay the repurchase price.
No Fund will sell securities subject to repurchase agreements prior to the
agreement's maturity unless it is advantageous for the Fund to do so.
During the holding period of a repurchase agreement, the seller must provide
additional collateral if the market value of the obligation falls below the
repurchase price. If a Fund acquires a repurchase agreement and then the
seller defaults at a time when the value of the underlying securities is less
than the obligation of the seller, the Company could incur a loss. If the
seller defaults or becomes insolvent, a Fund could experience delays in
recovering its money, may fail to recover part or all of its investment, and
may incur costs in disposing of securities used as collateral. The Funds
will enter into repurchase agreements only with sellers that the Investment
Adviser, applying criteria established by the board of directors of the
Company, believes to present minimal credit risks.
REVERSE REPURCHASE AGREEMENTS
The Money Market Fund and the Asset Allocation Fund may enter into reverse
repurchase agreements.
Reverse repurchase agreements involve the sale of money market securities
held by the Fund pursuant to an agreement to repurchase the securities at an
agreed upon price, date, and interest payment. Both Funds may use the
proceeds of reverse repurchase agreements for the following purposes: (1) to
cover net redemptions, (2) to avoid a premature sale of securities, and (3)
to purchase other money market securities which either mature, or can be sold
under an agreement to resell, at or prior to the expiration of the reverse
repurchase agreement. The Funds will generally utilize reverse repurchase
agreements when the interest income to be earned from the investment of
proceeds from the transaction is expected to be greater than the interest
expense of the reverse repurchase transaction. When effecting reverse
repurchase transactions, the Funds will hold cash and liquid securities in a
segregated account at a custodian bank with a dollar value equal to the
Fund's obligations under the reverse repurchase agreements.
B-8
<PAGE> 73
COMMERCIAL PAPER
Commercial paper involves an unsecured obligation that is usually sold on a
discount basis and has a maturity at the time of issuance of one year or
less. On the date of investment by the Fund, such paper must be rated in the
highest category for short term debt securities by at least two nationally
recognized securities rating services such as Standard & Poor's or Moody's
Investor's Services (or by one such rating service, if only one such rating
service has rated the security). The Fund can invest in unrated commercial
paper if the Board of Directors of the Company determines, in accordance with
the procedures of Rule 2a-7, that the unrated security is of comparable
quality to rated securities.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: (1) the issuer's liquidity ratios are adequate to meet cash
requirements and its long-term senior debt is rated "A" or better, although
in some cases "BBB" credits may be allowed; (2) the issuer has access to at
least two additional channels of borrowing; (3) basic earnings and cash flow
of the issuer have an upward trend, with allowances made for unusual
circumstances; (4) typically, the issuer's industry is well established and
the issuer has a strong position within the industry; and (5) the reliability
and quality of management are unquestioned. Relative strength or weakness of
the above factors determines whether the issuer's commercial paper is rated
A-1, A-2, or A-3.
The rating Prime-1 ("P-1") is the highest commercial paper rating assigned by
Moody's Investor's Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks that may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trends of earnings over a period of ten years; (7) financial strength of
any parent company and the relationships that exist with the issuer; and (8)
recognition by the management of obligations that may be presented or may
arise as a result of public interest questions and preparations to meet such
obligations.
STOCK INDEX FUTURES CONTRACTS
The S&P 500 Index Fund and International Index Fund may purchase stock index
futures for the purpose of hedging against an increase in the price of
securities it intends to purchase, or sell stock index futures for the
purpose of hedging against a decline in values of securities the Funds
already own.
A stock index future obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
The S&P 500 Index Fund and International Index Fund intend to purchase and
sell futures contracts on the Standard & Poor's 500 Index and the EAFE Index,
respectively.
B-9
<PAGE> 74
No consideration will be paid or received by a Fund upon the purchase or sale
of a futures contract. Initially, a Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to 5% to 10% of the
contract amount. This amount is subject to change by the exchange board of
trade on which the contract is traded and members of such exchange board of
trade may charge a higher amount. This amount is known as "initial margin,"
and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as "variation margin," will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-market." At
any time prior to the expiration of a futures contract, a Fund may elect to
close the position by taking an opposite position, which will operate to
terminate the Fund's existing position in the contract.
Although the S&P 500 Index Fund and the International Index Fund intend to
purchase or sell futures contracts only if market conditions are favorable,
no assurance can be given that a liquid market will exist for the contracts
at any particular time. Most futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contracts during a single trading
day. Once the daily limit has been reached in a particular contract, no
trade may be made that day at a price beyond that limit. Futures contract
prices could move to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses. In such
event and in the event of adverse price movements, a Fund would be required
to make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being hedged, if any,
may offset partially or completely losses on the futures contract.
There can be no assurance of a Fund's success at using stock index futures as
a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the stock index future and movements in the
price of the securities that are the subject of the hedge. The risk of
imperfect correlation increases as the composition of the Fund's securities
portfolio diverges from the securities included in the index. If the price
of the stock index future moves less than the price of the securities which
are the subject of the hedge, the hedge will not be fully effective but, if
the price of the securities being hedged were to move in an unfavorable
direction, the Fund would be in a better position than if it had not hedged
at all. If the price of the securities being hedged were to move in a
favorable direction, this advantage would be partially offset by changes in
the future's value. If the price of the future were to move more than the
price of the stock, the Fund would experience either a loss or a gain on the
future which would not be completely offset by movements in the price of the
securities which are the subject of the hedge.
When futures are purchased to hedge against a possible increase in the price
of stocks before a Fund is able to invest its cash (or cash equivalents) in
stocks in an orderly fashion, it is possible that the market may decline
instead; if the Fund then decides not to purchase hedged
B-10
<PAGE> 75
stocks because of the concern as to possible further market decline or for
other reasons, the Fund would realize a loss on the futures contract that
would not be offset by a reduction in the price of securities purchased.
FORWARD FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the International Index Fund as measured in United
States dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may
incur costs in connection with conversions between various currencies.
The International Index Fund may use forward contracts to purchase or sell
foreign currencies in an effort to control some of the uncertainties of
foreign currency exchange rate fluctuations. A forward foreign currency
exchange contract will involve an obligation by the Fund to purchase or sell
a specific amount of currency at a future date, which may be any fixed number
of days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged at any stage for trades.
Forward foreign currency transactions will not eliminate fluctuations in the
prices of the Fund's securities or prevent loss if the prices of such
securities should decline.
The International Index Fund may enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the United States dollar price of the
security. The Fund will then enter into a forward contract for the purchase
or sale, for a fixed amount of dollars, of the amount of foreign currency
involved in the underlying securities transactions. In this manner the Fund
will be better able to protect itself against a possible loss resulting from
an adverse change in the relationship between the United States dollar and
the subject foreign currency during the period between the date the
securities are purchased or sold and the date on which payment is made or
received.
Second, when the Fund's Investment Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the
United States dollar, it may enter into a forward contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence
of market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of short-term hedging strategy is highly uncertain. The
Fund does not intend to enter into such forward contracts under this second
circumstance on a regular or continuous basis. The Fund will also not enter
into such forward contracts or maintain a net exposure to
B-11
<PAGE> 76
such contracts when the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency. The Investment
Adviser believes that it is important to have the flexibility to enter into
such forward foreign currency contracts when it determines that to do so is
in the best interests of the Fund. The Fund's custodian bank segregates cash
or equity or debt securities in amounts not less than the value of the Fund's
total assets committed to forward foreign currency exchange contracts entered
into under this second type of transaction. If the value of the securities
segregated declines, additional cash or securities are added so that the
segregated amount is not less than the amount of the Fund's commitments with
respect to such contracts. Under normal circumstances, the Fund expects that
any appreciation or depreciation on such forward exchange contracts will be
approximately offset by the depreciation or appreciation in translation of
the underlying foreign investment arising from fluctuations in foreign
currency exchange rates.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Company has entered into an Investment Advisory Agreement with Conning
Asset Management Company, formally known as General American Investment
Management Company ("Investment Adviser"), with respect to all of its current
Funds.
During the year from January 1, 1997 through December 31, 1997, the
Investment Adviser charged Company's Funds these amounts:
S&P 500 Index Fund $1,069,692
Money Market Fund $131,728
Bond Index Fund $94,380
Managed Equity Fund $168,326
Asset Allocation Fund $508,306
International Index Fund<F1> $39,558
Mid-Cap Equity Fund<F2> $27,991
Small-Cap Equity Fund $114,841
[FN]
<F1> This Fund formerly known as the International Equity Fund.
<F2> This Fund formerly known as the Special Equity Fund.
Investment Adviser is a majority owned subsidiary of General American Life
Insurance Company.
Richard A. Liddy, Matthew P. McCauley, E. Thomas Hughes, and Christopher A.
Martin are each affiliated with both the Company and with General American
Life Insurance Company. Mr. McCauley is also affiliated with Investment
Adviser.
B-12
<PAGE> 77
The investment advisory agreement between the Company and Investment Adviser
(the "Investment Advisory Agreement") provides that Investment Adviser,
subject to control and review by the Company's board of directors, is
responsible for the overall management and supervision of each Fund and for
providing certain administrative services to the Company. (See "MANAGEMENT
OF THE COMPANY" in the Prospectus.)
Investment Adviser may provide investment advice to other clients, including,
but not limited to, mutual funds, individuals, pension funds and
institutional investors. Occasions may arise when combined sales or
purchases of securities are made for more than one client in order to obtain
favorable execution and low brokerage commissions. It is the practice of
Investment Adviser to allocate such purchases or sales insofar as feasible
among its several clients in a manner deemed equitable and consistent with
legal obligations. The goal in making allocations is achieving the same
average price for the principal factors which Investment Adviser considers in
making such allocation are the investment objectives of each client, the
relative size of the holdings of each client of the same or comparable
securities, and the availability in each client's account of funds for
investment. Despite these precautions, there may be circumstances when
purchases and sales of securities for one or more clients will have an
adverse effect on other clients, including a Fund of the Company.
For its services to the Funds, Investment Adviser charges a fee which is
accrued daily against each Fund. The fees charged each Fund, stated as an
annual percentage of the average daily value of the Fund's net assets, are:
S&P 500 Index Fund .25 percent
Money Market Fund .125 percent
Bond Index Fund .25 percent
Asset Allocation Fund .50 percent
Small-Cap Equity Fund .25 percent
The fee charged the International Index Fund, the Mid-Cap Equity Fund, and
the Managed Equity Fund is stated as a series of annual percentages of the
average daily value of the net assets of the funds. The percentages decrease
with respect to assets of the Funds above certain amounts, as follows:
B-13
<PAGE> 78
<TABLE>
<CAPTION>
Fund Assets Percentage
- ---- ------ ----------
<S> <C> <C>
International Index First $10 million .50 percent
Fund Next $10 million .40 percent
Balance over $20 million .30 percent
Mid-Cap Equity Fund First $10 million .55 percent
Next $10 million .45 percent
Balance over $20 million .40 percent
Managed Equity Fund First $10 million .40 percent
Next $20 million .30 percent
Balance over $30 million .25 percent
</TABLE>
The Investment Advisory Agreement also obliges Investment Adviser to perform
certain administrative services which are described more completely in the
Prospectus. Investment Adviser is not responsible for providing trading desk
services or valuations of assets for any Fund. As to the performance of
these functions, and how the Company pays for them, see "PORTFOLIO
TRANSACTIONS AND BROKERAGE ALLOCATIONS," in this Statement of Additional
Information.
The Investment Advisory Agreement was approved at the annual meeting of
shareholders of the Company held July 22, 1993 and was amended pursuant to
shareholder approvals on December 16, 1996 and April 28, 1997. The Investment
Advisory Agreement will continue in effect henceforth from year to year with
respect to each Fund if approved annually: (1) by the board of directors of
the Company or by a majority of the outstanding shares of that Series, as
determined pursuant to the Investment Company Act of 1940 (the "1940 Act");
and (2) by a majority of the board of directors of the Company who are not
interested persons, within the meaning of the 1940 Act. The Investment
Advisory Agreement is not assignable and may be terminated without penalty on
60 days' written notice at the option of either party or, with respect to any
Fund, by the requisite vote of the shareholders of that Fund. See "CAPITAL
STOCK" in this Statement of Additional Information.
ACCOUNTANTS
KPMG Peat Marwick LLP have been selected as the independent public
accountants of the Company, subject to annual ratification by the Company's
shareholders.
CUSTODIAN
The Bank of New York, 110 Washington Street, New York, NY acts by itself or
in conjunction with Depository Trust Company as custodian of all of the
funds.
B-14
<PAGE> 79
All securities which are eligible for deposit at Depository Trust Company of
New York, 55 Water Street, New York, NY are deposited there, in the name and
account of the custodian.
CUSTODIAN FOR INTERNATIONAL INDEX FUND
The custodian for all securities and assets of the International Index Fund
is The Bank of New York. Securities purchased for the Fund outside of the
United States may be maintained in the custody of foreign banks and trust
companies which are members of The Bank of New York's international custodian
network and foreign depositories (foreign sub-custodians) used by such
members. The Bank of New York has been approved by the Company's board of
directors in accordance with regulations under the Investment Company Act of
1940. If foreign sub-custodians are used they too will be reviewed and
approved by the Board.
The board of directors of the Company will review, at least annually, whether
it is in the best interests of the Fund and its shareholders to maintain the
Fund's assets in each custodial institution. However, with respect to
foreign sub-custodians, there can be no assurance that the Fund and the value
of its shares, will not be adversely affected by acts of foreign governments,
financial or operational difficulties of the foreign sub-custodians,
difficulties and costs of pursuing legal remedies against the foreign
sub-custodians, or application of foreign law to the Fund's foreign
sub-custodial arrangements. Accordingly, an investor should be aware that
non-investment risks attendant to holding assets abroad may exceed those
associated with investing in the United States.
PAYMENT OF EXPENSES
General American Life Insurance Company has paid the organization costs of
the Company as well as the cost of certain administrative expenses, and it
may be reimbursed by the Company for the cost of other administrative
expenses, as described in the Prospectus under the heading "MANAGEMENT OF THE
COMPANY."
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
Under the Investment Advisory Agreement, Investment Adviser has
responsibility for selecting the broker-dealers through which securities are
to be purchased and sold for most of the Funds, subject to the general
control of the board of directors. No brokerage commissions were paid on
behalf of the Money Market Fund or the Bond Index Fund.
The Money Market Fund's investments are usually purchased on a principal
basis directly from issuers, underwriters, or dealers. Accordingly, minimal
brokerage charges are expected to be paid on such transactions. Purchases
from an underwriter generally include a commission or concession paid by the
issuer, and transactions with a dealer usually include the dealer's mark-up.
In placing orders for securities transactions, Investment Adviser's policy is
to attempt to obtain the most favorable price and efficient execution
available. Investment Adviser, subject to the
B-15
<PAGE> 80
review of the Company's board of directors, may pay more than the lowest
possible commission in order to obtain better than average execution of
transactions or valuable investment research information, or both. Research
information ordinarily consists of assessments and analyses of the business
or prospects of a company, industry, or economic sector. In the opinion of
Investment Adviser, improved execution and investment research information
will benefit the performance of each of the Funds.
Investment Adviser evaluates factors relating to the liquidity of commercial
paper issued in transactions not involving a public offering under Section
4(2) of the Securities Act of 1933.
Factors considered include the nature and the size of the issuer and its
commercial paper programs, the willingness and ability of the issuer or
dealer to repurchase the paper, and the nature of the clearance of settlement
procedures for the paper.
When selecting broker-dealers to execute portfolio transactions, Investment
Adviser considers factors including the rate of commission or size of the
broker-dealer's "spread;" the size and difficulty of the order; the nature of
the market for the security, the reliability, financial condition, and
general execution and operational capabilities of the broker-dealer; and the
research, statistical, and economic data furnished by the broker-dealer to
Investment Adviser. In some cases, Investment Adviser may use such
information to assist other investment accounts that it advises and not
exclusively for the Funds. Brokers or dealers which supply research may be
selected for execution of transactions for such other accounts, while the
data may be used by Investment Adviser in providing investment advisory
services to the Funds.
To the best knowledge of management, no director or officer of the Company,
of Investment Adviser, or any person affiliated with either of them has any
material direct or indirect interest in any broker employed by or on behalf
of the Company.
MANAGEMENT OF THE COMPANY
The directors and officers of the Company, their addresses, their positions
with the Company, and their principal occupations for the past five years are
set forth below:
<TABLE>
<CAPTION>
Position Principal Occupations
Held With During the Past
Name, Address, and Age Registrant Five Years
- ---------------------- ---------- ---------------------
<S> <C> <C>
Theodore M. Armstrong (58) Director Senior Vice President-
424 South Woods Mill Road Finance and Administration
Chesterfield, MO 63017-3467 and Chief Financial Officer,
Angelica Corporation, St. Louis,
Missouri. (Uniform manufacture
and sale, and laundry business).
B-16
<PAGE> 81
Alan C. Henderson (52) Director Executive Vice President
7733 Forsyth Blvd. and Chief Financial
Suite 1700 Officer, RehabCare
St. Louis, MO 63105 Corporation, St. Louis,
Missouri (Disability rehabilitation
business).
<F*>Richard A. Liddy (62) President Chairman, President, and 700
Market Street and Director Chief Executive Officer,
St. Louis, MO 63101 General American Life Insurance
Company, St. Louis, Missouri, Jan.
1995 to present. President and
Chief Executive Officer, May 1992
to Jan. 1995.
<F*>Matthew P. McCauley (56) Director Associate General Counsel
700 Market Street and Vice President
St. Louis, MO 63101 General American Life Insurance
Company, St. Louis, Missouri.
Harry E. Rich (58) Director Executive Vice President
8300 Maryland Avenue and Chief Financial
St. Louis, MO 63105 Officer, Brown Group, Inc.
<F*>E. Thomas Hughes, Jr. (56) Treasurer Corporate Actuary and Treasurer,
700 Market Street General American Life Insurance
St. Louis, MO 63101 Company, St. Louis, Missouri
John W. Barber (61) Controller Vice President and
13045 Tesson Ferry Road Controller, General
St. Louis, MO 63128 American Life Insurance
Company, St. Louis,
Missouri
Christopher A. Martin (35) Secretary Counsel, General American Life
700 Market Street Insurance Company, 1996 to
St. Louis, MO 63110 present. Associate, Lewis, Rice
& Fingersh 1994 to 1996.
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<PAGE> 82
<FN>
<F*> Messrs. Liddy, McCauley, Hughes, and Martin are "interested persons"
within the meaning of Section 2(a)(19) of the 1940 Act since Mr. Liddy
is President, Mr. McCauley is a Vice President, Mr. Hughes is the
Corporate Actuary and Treasurer, and Mr. Martin is Counsel of General
American Life Insurance Company. Mr. McCauley is also General Counsel
of Investment Adviser.
</TABLE>
<TABLE>
Management Compensation
<CAPTION>
- ---------------------------------------------------------------------------------------------
NAME, TOTAL TOTAL COMPENSATION
POSITION WITH COMPENSATION FROM THE COMPANY
THE COMPANY FROM THE COMPANY<F*> AND FUND COMPLEX<F**>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Theodore M. Armstrong $5,500 $8,000
Director
Alan C. Henderson $5,500 $8,000
Director
Richard A. Liddy 0 0
Director and Chairman
Matthew P. McCauley 0 0
Director
Harry E. Rich $5,500 $8,000
Director
E. Thomas Hughes, Jr. 0 0
Treasurer
Christopher A. Martin 0 0
Secretary
<FN>
- ---------------------------------
<F*> Compensation is the sum paid in 1997.
<F**> Includes compensation from The Walnut Street Prime Reserve Fund, operated
by an affiliate of General American Life Insurance Company.
</TABLE>
B-18
<PAGE> 83
CAPITAL STOCK
The Company is authorized to issue five hundred million (500,000,000) shares
of capital stock having a par value of one cent ($.01) per share. Of these
authorized shares, one hundred thirty million (130,000,000) have been
allocated to the respective series of stock issued by each of the Company's
Funds, with the balance of the authorized stock available for allocation as
needed in the future.
The present allocations, which are subject to revision by the board of
directors of the Company, are:
Shares Series
------ ------
40,000,000 S&P 500 Index Fund
20,000,000 Money Market Fund
10,000,000 Bond Index Fund
20,000,000 Managed Equity Fund
10,000,000 International Index Fund
10,000,000 Mid-Cap Equity Fund
10,000,000 Asset Allocation Fund
10,000,000 Small-Cap Equity Fund
The assets received by the Company for the issuance or sale of shares of each
Fund, and all income, earnings, profits and proceeds thereof, are
specifically allocated to each Fund. They constitute the underlying assets
of each Fund, are required to be segregated on the books of account, and are
to be charged with the expenses of such Fund. Any assets that are not
clearly allocable to a particular Fund or Funds will be allocated in a manner
determined by the board of directors. Accrued liabilities which are not
clearly allocable to one or more Funds will generally be allocated among the
Funds in proportion to their relative net assets before adjustment for such
unallocated liabilities. Each issued and outstanding share in a Fund is
entitled to participate equally in dividends and distributions declared with
respect to such Fund, and in the net assets of such Fund remaining after
satisfaction of outstanding liabilities upon liquidation or dissolution.
The shares of each Fund, when issued, will be fully paid and non-assessable,
will have no preference, preemptive, conversion, exchange, or similar rights,
and will be freely transferable. Shares do not have cumulative voting
rights.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
B-19
<PAGE> 84
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Shares of the Funds are sold to separate accounts of General American Life
Insurance Company and affiliated insurance companies to fund the benefits
under certain variable life insurance policies and variable annuity contracts
as well as to separate accounts of unaffiliated insurance companies. As of
the date hereof, all shares of the Funds were held by General American Life
Insurance Company and affiliated insurance companies.
The purchasers of insurance contracts participating in a separate account
that is registered with the Securities and Exchange Commission (a "Registered
Separate Account") and invests in one of the Funds will have the right to
instruct the insurance company from whom they purchased the contract with
respect to the voting of the Registrant's shares which are held by the
separate account on behalf of insurance contract holders. Shares
attributable to policies for which no instructions are received, and shares
that are owned by the insurance company but not attributable to policies
funded by registered separate accounts, will be voted by the insurance
company on each issue in the same proportion as shares for which there are
instructions.
General American Life Insurance Company may form additional separate accounts
which may invest in some or all of the Funds, or its subsidiaries may form
such separate accounts. In addition, unaffiliated insurance companies may
direct that their separate accounts invest in some or all of the Funds.
OFFERING AND REDEMPTION OF SHARES
The Company is currently offering shares of each Fund without sales charge
and at each Fund's net asset value per share, which is determined in the
manner set forth below under "DETERMINATION OF NET ASSET VALUE." Shares in
the Company's Funds are sold directly to the separate accounts purchasing the
shares; there is no underwriter or distributor. General American Life
Insurance Company pays any distribution expenses and costs (that is, those
arising from any activity which is primarily intended to result in the sale
of shares issued by the Company), including expenses and costs attributable
to the Company, which are related to the printing and distributing of
prospectuses and periodic reports to new or prospective owners of policies
except for such costs which are attributable to sales to non-affiliates of
General American Life Insurance Company.
The Company redeems all full and fractional shares of its Funds at the net
asset value per share applicable to each Fund next calculated after the
redemption request is received. See "DETERMINATION OF NET ASSET VALUE"
below.
Payment upon redemption is made in cash and ordinarily will occur within
seven days of receipt of a proper notice of redemption. The right to redeem
shares or to receive payment with respect to any redemption of shares of any
Fund may only be suspended: (1) for any period during which trading on the
New York Stock Exchange is restricted or such Exchange is closed, other than
customary weekend and holiday closings; (2) for any period during which
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<PAGE> 85
an emergency exists as a result of which disposal of securities or
determination of the net asset value of that Fund is not reasonably
practicable; or (3) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of shareholders of that
Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund of the Company is determined
at the close of trading on the New York Stock Exchange immediately after the
declaration by the Company of dividends, if any, on each day during which the
New York Stock Exchange is open for business. The net asset value per share
of each Fund is computed by dividing the sum of the value of the securities
held by that Fund, plus any cash or other assets and minus all liabilities,
by the total number of outstanding shares of that Fund at such time. Any
expenses borne by the Company, including the investment management fee
payable to Investment Adviser, are accrued daily, except for extraordinary or
non-recurring expenses. See "INVESTMENT ADVISORY AND OTHER SERVICES -
PAYMENT OF EXPENSES," above.
Fund securities which are traded on national stock exchanges are valued at
the securities' closing prices. In the absence of any reported sales, Fund
securities are valued at the latest available bid price. Securities traded
in the over-the-counter market for which closing sale prices are available
are valued at such prices. Over-the-counter securities for which closing
sales prices are not available are valued at the latest bid price.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the
direction of the board of directors of the Company.
The value of a foreign security held by the International Index Fund is
determined based upon its sale price on the foreign exchange or market on
which it is traded and in the currency of that market, as of the close of the
appropriate exchange or, if there have been no sales during the day, at the
mean of the closing bid and asked prices. Trading in securities on exchanges
and over-the-counter markets in Europe, Australia, and the Far East is
normally completed at various times prior to 3:00 p.m. St. Louis time, the
current closing time of the New York Stock Exchange. Trading on foreign
exchanges may not take place on every day the New York Stock Exchange is
open. Conversely, trading in various foreign markets may take place on days
when the New York Stock Exchange is not open and on other days when the
Fund's net asset value is not calculated. Consequently, the calculation of
the net asset value for the Fund may not occur contemporaneously with the
determination of the most current market prices of the securities included in
such calculation. In addition, the value of the net assets held by the Fund
may be significantly affected on days when shares are not available for
purchase or redemption.
Quotations of foreign securities in foreign currencies are converted into the
U.S. dollar equivalents at the prevailing market rates as compared by The
Bank of New York, custodian of the assets of the International Index Fund at
the close of business on the New York Stock Exchange (currently 3:00 p.m.,
St. Louis time).
B-21
<PAGE> 86
Debt instruments with maturities of 60 days or more will be valued at their
market price and there will be no attempt made to keep the value of a share
in any Fund constant.
Debt instruments with a remaining maturity of less than 60 days held by any
of the Funds are valued on an amortized cost basis. Under this method of
valuation, the security is initially valued at cost on the date of purchase
or, in the case of securities purchased with 60 days or more remaining to
maturity, the market value at the beginning of the 59th day prior to
maturity. Thereafter, straight line amortization of discount or premium is
assumed until maturity regardless of the impact of fluctuating interest rates
on the market value of the security. While valuation at amortized cost
provides a more consistent rate of return, it may result in periods during
which the price which could be received upon sale of the instrument is higher
or lower than its amortized cost value. If for any reason the fair value of
any security is not fairly reflected through the amortized cost method of
valuation, such security will be valued by market quotations, if available,
or otherwise as determined in good faith by or under the direction of the
board of directors of the Company.
INVESTMENT PERFORMANCE
The investment performance of each of the funds is presented in the Annual
Report to Shareholders of the Company for the fiscal year ended December 31,
1997, as filed with the Commission pursuant to Rule 30a-1.
Capital Company may include quotations of a Fund's total return in connection
with the total return for the appropriate underlying Separate Account, in
advertisements, sales literature, or reports to annuity and policy holders or
to prospective investors. Total return for a Fund reflects only the
performance of a hypothetical investment in the Fund during the particular
time period shown as calculated based on the historical performance of the
Fund during that period. Such quotations do not in any way indicate or
project future performance. Quotations of total return will not reflect
charges and deductions against the insurance policies or annuity contracts.
Where relevant, the prospectuses for the insurance policies and annuity
contracts contain performance information which show total return for the
Separate Accounts, insurance policies, or annuity contracts.
Total return refers to the annual percentage change in value of an investment
in a Fund held for a stated period of time as of a stated ending date. When
a Fund has been in operation for the stated period, the total return for such
period will be provided if performance information is quoted. Total return
quotations are expressed as annual compound rates of return for each of the
periods quoted. They also reflect the deduction of a Fund's investment
advisory fee and administrative expenses, and assume that all dividends and
capital gains distributions during the period are reinvested in the Fund when
made.
The Small-Cap Equity Fund commenced operations on May 1, 1997 subsequent to a
transfer of assets from General American Life Insurance Company Separate
Account Twenty, which has identical investment objectives, policies, and
limitations, in exchange for shares of the Small-Cap Equity Fund. While
Separate Account Twenty continues to exist, its assets now
B-22
<PAGE> 87
consist solely of shares of the Small-Cap Equity Fund. The Small-Cap Equity
Fund's portfolio of investments on May 1, 1997 was the same as the portfolio
of Separate Account Twenty immediately prior to the transfer.
Separate Account Twenty is not a registered investment company, as it is
exempt from registration under the Investment Company Act of 1940 (the "1940
Act"). Since, in a practical sense, Separate Account Twenty constitutes a
"predecessor" of the Small-Cap Equity Fund, Capital Company calculates the
performance for the Small-Cap Equity Fund for periods commencing prior to the
transfer of the Separate Account Twenty assets to the Small-Cap Equity Fund
by including the Separate Account Twenty total return.
The quoted performance data for the Small-Cap Equity Fund includes the
performance of Separate Account Twenty for periods before the Small-Cap
Equity Fund began operations. As noted above, Separate Account Twenty was
not registered under the 1940 Act and thus was not subject to certain
investment restrictions that are imposed by the 1940 Act, nor was it subject
to restrictions imposed by the Internal Revenue Code. If Separate Account
Twenty had been registered under the 1940 Act and subject to the Internal
Revenue Code, its performance might have been adversely affected.
Each of the Funds from time to time may advertise certain investment
performance figures. These figures are based on historic earnings but past
performance data is not necessarily indicative of future performance of the
Funds.
Annualized Total Returns for the year ended December 31, 1997:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Small-Cap Equity Fund
and its predecessor
Separate Account Twenty 30.47% 27.14% 19.57% 17.15%
</TABLE>
MONEY MARKET YIELD INFORMATION
The Company may make current yield and effective yield quotations available
for the Money Market Fund. The Money Market Fund's yield is its investment
income, less expenses, expressed as a percentage of assets on an annualized
basis for a seven-day period. The yield is expressed as a simple annualized
yield and as a compounded effective yield.
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
seven-day period, subtracting a hypothetical charge reflecting deductions
from the account, dividing the net change in account value by the value of the
account at the beginning of the period, and annualizing the resulting quotient
(base period return) on a 365-day basis (i.e.,
B-23
<PAGE> 88
multiplying it by 365/7). The net change in unit value reflects the value of
additional shares purchased with dividends from the original shares in the
account during the seven-day period, dividends declared on such additional
shares during the period, and expenses accrued during the period.
The compounded effective yield is computed by determining the unannualized
base period return, 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,
as follows:
365/7
Effective yield = [(seven day period return + 1) ] - 1
The Money Market Fund's actual yields will fluctuate, and are not necessarily
indicative of future actual yields. Actual yields will depend on such
variables as portfolio quality, average portfolio maturity, the type of
portfolio instruments in which investments are made, changes in interest
rates on money market instruments, portfolio expenses and other factors.
Because the Fund's actual yields will fluctuate, such information may not
provide a basis for comparison with bank deposits, other investments which
pay a fixed yield for a stated period of time, or other investment companies
which may use a different method of determining yield. In addition, the
yield quotation does not reflect the charges deducted from the Separate
Accounts (see the prospectus for the variable life insurance policies or
annuity contracts funded by the Company). If these charges were deducted to
reflect the effective yield to a policy owner, that yield would be lower than
the yield calculated for the Money Market Fund.
TAXES AND DIVIDENDS
For federal income tax purposes, each Fund of the Company is treated as a
separate entity. Each Fund intends to qualify and elect to be taxed as a
"regulated investment company" under certain provisions of the Internal
Revenue Code (the "Code"). If a Fund qualifies as a "regulated investment
company," and complies with the provisions of the Code relieving regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gain) from federal income tax, it
will be relieved from such tax on the part of its net ordinary income and net
realized capital gain which it distributes to shareholders. To qualify for
treatment as a "regulated investment company," each Fund must, among other
things, derive in each taxable year at least 90 percent of its gross income
from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock or securities or foreign
currencies (subject to the authority of the Secretary of the Treasury to
exclude foreign currency gains which are not ancillary to the Fund's
principal business of investing in stock or securities or options and futures
with respect to such stock or securities), or other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to its investing in such stocks, securities, or currencies. In
addition, to qualify as a "regulated investment company," each Fund must
derive less than 30% of its gross income in each taxable year from gains
(without deduction for losses) from the sale or other disposition of
securities held for less than three months.
B-24
<PAGE> 89
The funds follow the accounting practice known as consent dividending,
whereby substantially all of its net investment income and realized gains are
treated as being distributed daily to shareholders and are immediately
reinvested in that fund.
The federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to an amount, if any, by which such
company does not meet distribution requirements specified in such tax laws.
Each Fund of the Company intends to comply with such distribution
requirements and thus does not expect to incur the four percent nondeductible
excise tax.
Since the sole shareholders of the Company will be separate accounts of
General American and separate accounts of General American affiliates and,
possibly in the future, separate accounts of unaffiliated insurance
companies, there is no discussion herein as to the federal income tax
consequences at the shareholder level.
ADDITIONAL INFORMATION
LEGAL MATTERS
Sutherland, Asbill & Brennan, Washington, DC, has provided advice on certain
matters relating to the federal securities laws.
REPORTS
Annual and semi-annual reports containing financial statements of the
Company, as well as proxy soliciting material for the Company, will be sent
to owners of policies participating in the Funds.
OTHER INFORMATION
This Statement of Additional Information and the Prospectus for the Company
do not contain all the information set forth in the Registration Statement
and exhibits relating thereto, which the Company has filed with the
Securities and Exchange Commission, Washington, DC, under the Securities Act
of 1933 and the Investment Company Act of 1940. Anyone seeking further
information should refer to the Registration Statement and its exhibits.
FINANCIAL STATEMENTS
The audited financial statements for the Company, including the notes
thereto, are included in the Annual Report to Shareholders of the Company for
the fiscal year ended December 31, 1997. Such financial statements are
incorporated herein by reference. You may receive a copy of such financial
statements without charge upon request to General American Capital Company at
the address and phone number shown on the cover of this Statement of
Additional Information.
B-25
<PAGE> 90
PART C
Financial Statements and Exhibits C-1
Persons Controlled by or Under Common Control
with Registrant C-3
Number of Holders of Securities C-3
Indemnification C-4
Business and Other Connections of Investment Adviser C-4
Principal Underwriter C-9
Location of Accounts and Records C-9
Management Services C-9
Undertakings C-9
Signatures C-10
Exhibit 5a - Investment Advisory Agreement C-12
Exhibit 10 - Opinion and Consent of Counsel C-19
Exhibit 11b - Consent of the Independent Public Accountant C-20
Exhibit 16 - Diagram of Subsidiaries of General American Life
Insurance Company C-21
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS. Financial statements for the Company
are incorporated into Part B of this Registration Statement by reference from
the Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1997, as filed with the Commission pursuant to Rule 30a-1.
(b) EXHIBITS
1) Articles of Incorporation <F2>
2) Bylaws <F1>
5a) Investment Advisory Agreement - filed herewith
8) Custodian Agreement <F6>
10) Opinion and Consent of Counsel - filed herewith
11a) Consents of the Independent Public Accountant - filed herewith
13) Stock Subscription Agreement with General American Life regarding
Asset Allocation Fund <F1>
16) Diagram of Subsidiaries of General American Life Insurance
Company - filed herewith
17) Management Services Agreement <F2>
C-1
<PAGE> 91
18) Powers of Attorney for:
Theodore M. Armstrong <F4>
Alan C. Henderson <F3>
Richard A. Liddy <F6>
Harry E. Rich <F8>
******
[FN]
<F1> Filed with Registration Statement, 12 November 1986
<F2> Filed with Pre-Effective Amendment No. 1 to the Registration Statement,
25 June 1987
<F3> Filed with Post-Effective Amendment No. 4, April 1990
<F4> Filed with Post-Effective Amendment No. 5, 25 April 1991
<F5> Filed with Post-Effective Amendment No. 6, 23 April 1992
<F6> Filed with Post-Effective Amendment No. 7, 1 December 1992
<F7> Filed with Post-Effective Amendment No. 8, 28 April 1993
<F8> Filed with Post-Effective Amendment No. 9, 29 April 1994
C-2
<PAGE> 92
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Because as of the date hereof all of the shares of the Funds are held by
separate accounts of General American Life Insurance Company and its
affiliates, General American Life Insurance Company may be said to control
the Company. "Echo voting," the practice under which General American Life
Insurance Company solicits instructions from purchasers of insurance
contracts for voting shares of the Company, and votes shares attributable to
unregistered separate accounts in accordance with the instructions received,
means that this control is not exercised. Nevertheless, a schedule of
General American Life Insurance Company's corporate organization is attached.
No financial statements for any of these companies is included in the
Company's Registration Statement because the company is owned and controlled
by the purchasers of participating registered separate accounts.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2)
Number of Record
Holders as of
Title of Class December 31, 1997
- -------------- -----------------
<S> <C>
S&P 500 Index Fund Capital Stock Four
($.01 par value)
Money Market Fund Capital Stock Sixteen
($.01 par value)
Bond Index Fund Capital Stock Four
($.01 par value)
Managed Equity Fund Capital Stock Three
($.01 par value)
Asset Allocation Fund Capital Stock Four
($.01 par value)
International Index Fund Capital Stock Two
($.01 par value)
Mid-Cap Equity Fund Capital Stock Two
($.01 par value)
Small-Cap Equity Fund Capital Stock Three
($.01 par value)
</TABLE>
C-3
<PAGE> 93
ITEM 27. INDEMNIFICATION
Reference is made to Article Eight of the Registrant's Articles of
Incorporation, filed previously as Exhibit 1 to this Registration Statement,
and to Article 11 of the Registrant's Bylaws (Exhibit 2). The Articles and
Bylaws provide that the Registrant will indemnify its directors and officers
to the extent permitted or required by Maryland law. A resolution of the
board of directors specifically approving payment or advancement of expenses
to an officer is required by the Bylaws. Indemnification may not be made if
the director or officer has incurred liability by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties in
the conduct of his office ("Disabling Conduct"). The means of determining
whether indemnification shall be made are either: (1) a final decision by a
court or other body before whom the proceeding is brought that the director
or officer was not liable by reason of Disabling Conduct; or (2) in the
absence of such a decision, a reasonable determination, based on a review of
the facts, that the director or officer was not liable by reason of Disabling
Conduct. Such latter determination may be made either by: (a) vote of a
majority of a quorum of directors who are neither interested persons (as
defined in the 1940 Act) nor parties to the proceeding or (b) any other
reasonable and fair means consistent with the objectives outlined in the
Registrant's Bylaws. The advancement of legal expenses may not occur unless
the director or officer agrees to repay the advance (if it is determined that
he is not entitled to the indemnification) and one of three other conditions
is satisfied: (1) he provides security for his agreement to repay; (2) the
Registrant is insured against loss by reason of lawful advances; or (3) a
majority of a quorum of the directors who are not interested persons and are
not parties to the proceedings, determine that there is reason to believe
that the director or officer will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("the Act") 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Conning Asset Management Company, formally known as General American
Investment Management Company, ("Investment Adviser") was incorporated in
Missouri on 13 September 1982. It is registered as an investment adviser
with the Securities and Exchange Commission and the State of Missouri. It is
a wholly-owned subsidiary of General American
C-4
<PAGE> 94
Holding Company which, in turn, is wholly-owned by General American Life
Insurance Company.
Investment Adviser serves as investment adviser to all of the General
American Life Insurance Company separate accounts. Investment Adviser also
has clients which are not affiliated with General American Life Insurance
Company.
<TABLE>
<CAPTION>
Name of Director or Position at Other Business
Officer of Conning Conning Asset Profession Vocation
Asset Management Management or Employment
Company Company During Past Two Years
- ------------------- ------------- ---------------------
<S> <C> <C>
Douglas R. Koester Senior Vice Treasurer of Cova Corporation;
President Chief Investment Officer and
and Director Director of Cova Investment
Advisory Corporation
Leonard M. Rubenstein Chief Executive Chairman and Chief Executive
Officer and Officer of Conning Corporation
Director and Conning Asset Management
Company; Chief Executive Officer of
Conning, Inc.; Director of General
Life Insurance Company of America,
General Life Insurance Company,
Security Equity Life Insurance
Company, Cova Corporation, Cova
Financial Services Life Insurance
Company, Cova Financial Life
Insurance Company, First Cova Life
Insurance Company, Cova Investment
Advisory Corporation, Cova
Investment Allocation Corporation,
Cova Life Management Company,
Paragon Life Insurance Company,
General American Holding Company,
Red Oak Realty Company,
Collaborative Strategies, Inc.,
Reinsurance Group of America,
Incorporated, and RGA Reinsurance
Company; Member of BHIF America
Seguros de Vida, S.A.
C-5
<PAGE> 95
Maurice W. Slayton President and Director of GAN National
Director Insurance Company, and
GAN North American Insurance Company,
120 Wall Street, New York, NY
10005; Director of Cox Insurance
Holdings Plc., 34 Leadenhall
Street, London, EC3A 1AT, England;
Director of MedSpan, Inc., 55
Farmington Avenue, Suite 601,
Hartford, CT 06105; President/CEO,
Director of Conning & Company,
CityPlace II, 185 Asylum Street,
Hartford, CT 06103; Director of
Tennant Risk Services, Inc.,
CityPlace II, 185 Asylum Street,
Hartford, CT 06103; Director of
PennCorp Financial, 745 Fifth
Avenue, Suite 500, New York, NY
10151; Director of Arlberg Holding
Company, Inc. 520 Pike Street, 20th
Floor, Seattle, WA 98104-4004;
Director of Robert Plan
Corporation, 8 Freer Street,
Lynbrook, NY 11563; Director and
President of Conning Corporation,
700 Market Street, St. Louis, MO
63101.
Mark E. Hansen Executive Vice Director of Western
President and Indemnity Insurance
Director Company, 820 Gessner,
Suite 1000, Houston, TX 77279;
Executive Vice President and
Director of Conning, Inc. and
Conning and Company; Executive Vice
President of Conning Corporation.
Michael D. McLellan Senior Vice President and Director of Red Oak
President and Realty Company and White Oak
Director Royalty Company, 700 Market
Street, St. Louis, MO 63101.
C-6
<PAGE> 96
Joann T. Tanaka Senior Vice
President and
Director
<CAPTION>
<S> <C>
Business Addresses:
700 Market Street Cova Corporation
- ----------------- Conning Corporation
St. Louis, MO 63101 Conning Asset Management Company
- ------------------- Red Oak Realty Company
White Oak Royalty Company
13045 Tesson Ferry Road General American Holding Company
- -----------------------
St. Louis, MO 63128
- -------------------
City Place II, 185 Asylum Street Conning and Company
- -------------------------------- Conning, Inc.
Hartford, CT 06103-4105
- -----------------------
660 Mason Ridge Center Drive Reinsurance Group of America, Incorporated
- ---------------------------- RGA Reinsurance Company
St. Louis, MO 63141
- -------------------
670 Mason Ridge Center Drive Collaborative Strategies, Inc.
- ----------------------------
St. Louis, MO 63141
- -------------------
One Tower Lane, Suite 3000 Cova Financial Services Life Insurance Company
- -------------------------- Cova Financial Life Insurance Company
Oakbrook Terrace, IL 60181-4644 Cova Investment Advisory Corporation
- ------------------------------- Cova Investment Allocation Corporation
Cova Life Management Company
95 North Research Drive General Life Insurance Company of America
- -----------------------
Edwardsville, IL 62025
- ----------------------
901 Congress Avenue General Life Insurance Company
- -------------------
Austin, TX 78714
- ----------------
100 South Brentwood Paragon Life Insurance Company
- -------------------
Clayton, MO 63105
- -----------------
84 Business Park Drive, Suite 303 Security Equity Life Insurance Company
- ---------------------------------
Armonk, NY 10504
- ----------------
C-7
<PAGE> 97
120 Broadway, 10th Floor First Cova Life Insurance Company
- ------------------------
New York, NY 10271
- ------------------
Argentina BHIF America Seguros de Vida, S.A.
- ---------
</TABLE>
C-8
<PAGE> 98
ITEM 29. PRINCIPAL UNDERWRITER
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following entities prepare, maintain, and preserve the records required
by Section 31(a) of the 1940 Act for the Registrant. These services are
provided to the Registrant through written agreements between the parties to
the effect that such services will be provided to the Registrant for such
periods prescribed under the 1940 Act and such records will be surrendered
promptly on request. General American Life Insurance Company, 700 Market
Street, St. Louis, Missouri 63101 will serve as custodian of the books and
records for the Registrant and in such capacity will keep records regarding
securities, bank statements, and canceled checks.
General American Life Insurance Company, 700 Market Street, St. Louis,
Missouri will serve as transfer agent of the Registrant and in such capacity
will keep shareholder's account records, canceled stock certificates, and all
other records required by Section 31(a) of the Act.
ITEM 31. MANAGEMENT SERVICES
General American Life Insurance Company will provide any management services
needed by the Company and will charge the Company fees based on calculations
using its cost accounting procedures.
ITEM 32. UNDERTAKINGS
Registrant's undertaking concerning indemnification for liabilities arising
under the Securities Act of 1933 is set forth in Item 27.
C-9
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485 (b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 14 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, and State of Missouri, on April 30, 1998.
GENERAL AMERICAN CAPITAL COMPANY
Attest: By: /s/ Richard A. Liddy
-----------------------------
Richard A. Liddy, President
/s/ Christopher A. Martin
- --------------------------------
Christopher A. Martin, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Richard A. Liddy President and Director 4/30/98
- ---------------------------- (Principal Executive Officer)
Richard A. Liddy
/s/ Matthew P. McCauley Director 4/30/98
- ----------------------------
Matthew P. McCauley
/s/ E. Thomas Hughes Principal Financial 4/30/98
- ---------------------------- Officer - Treasurer
E. Thomas Hughes
/s/ John W. Barber Principal Accounting 4/30/98
- ---------------------------- Officer
John W. Barber
- ----------------------------<F*>
Theodore M. Armstrong Director 4/30/98
- ----------------------------<F*>
Alan C. Henderson Director 4/30/98
- ----------------------------<F*>
Harry E. Rich Director 4/30/98
C-10
<PAGE> 100
By: /s/ Matthew P. McCauley
---------------------------
Matthew P. McCauley
<FN>
<F*> Original Powers of Attorney, authorizing Matthew P. McCauley to sign the
Registration Statement and amendments thereto on behalf of certain members of
the Board of General American Capital Company have been filed with the
Securities and Exchange Commission and are incorporated as an exhibit to this
Registration Statement by reference.
</TABLE>
C-11
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
-----------------------------
INVESTMENT ADVISORY AGREEMENT made as of the twenty-third day of July,
1997, by and between GENERAL AMERICAN CAPITAL COMPANY ("Company"), a Maryland
corporation, and CONNING ASSET MANAGEMENT COMPANY ("Adviser"), a Missouri
corporation which is registered as an investment adviser under the Investment
Advisers Act of 1940, whereby the Adviser will act as investment adviser to
the Company as follows:
ARTICLE I
Advisory Services
-----------------
The Company is an open-end, diversified management investment company,
incorporated under the laws of the State of Maryland on November 15, 1985.
The Company hereby employs the Adviser to act as the investment adviser to
and manager of the Company, and, subject to the supervision of the Board of
Directors of the Company ("Board"), to manage the investment and reinvestment
of the assets of the funds currently offered for sale by the Company
("Funds") for the period and on the terms and conditions set forth in this
Agreement. The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the
obligations herein set forth for the compensation provided for herein. The
Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized
herein, have no authority to act for or represent the Company in any way or
otherwise be deemed an agent of the Company. The Adviser shall, for purposes
of this Agreement, have and exercise full investment discretion and authority
to act as agent for the Company in buying, selling or otherwise disposing or
managing the Company's investments, subject to the supervision of the Board.
A. Duties of Adviser. In carrying out its obligations to manage the
-----------------
investment and reinvestment of the assets of the Company, the Adviser shall,
as appropriate and consistent with the limitations set forth in Section C
hereof:
(a) perform research and obtain and evaluate pertinent
economic, statistical, and financial data relevant to the investment
policies of each Fund of the Company as set forth in the prospectus
for the Company, as amended from time to time;
(b) consult with the Board and furnish to the Board
recommendations with respect to an overall investment strategy for
each Fund of the Company for approval, modification, or rejection by
the Board;
(c) seek out specific investment opportunities and take such
steps as are necessary to implement any overall investment strategies
approved by the Board, including making and carrying out day-to-day
decisions to acquire or dispose of permissible investments, management
of investments and any other property of the Company, and providing or
obtaining such services as may be necessary in managing, acquiring or
disposing of investments;
C-12
<PAGE> 2
(d) regularly report to the Board with respect to the
implementation of any approved overall investment strategy and any
other activities in connection with management of the assets of the
Company; and
(e) furnish to regulatory authorities having jurisdiction such
information as may be requested in order for such authorities to
ascertain that variable insurance operations are being conducted in
accordance with applicable laws and regulations.
B. Employment of Sub-Adviser(s). The Adviser shall have the
----------------------------
authority to employ, at its expense, one or more sub-advisers. Where
applicable, reference herein to the Adviser shall include any sub-advisers
employed by the Adviser. Any agreement between the Adviser and any
sub-adviser shall be subject to the terms for approval, renewal, termination
and amendment as provided herein with respect to the Adviser, and such
sub-adviser shall at all times be subject to the direction of the Adviser and
the Board, and any duly constituted committee thereof, or any officer of the
Company acting pursuant to like authority.
C. Limitations on Advisory Services. The Adviser shall perform the
--------------------------------
services under this Agreement subject to the supervision and review of the
Board and in a manner consistent with the investment objectives, policies,
and restrictions of each Fund of the Company as stated in its Registration
Statement, as amended from time to time, filed with the Securities and
Exchange Commission, its Articles of Incorporation and By-Laws, as amended
from time to time, the provisions of the Investment Company Act of 1940, as
amended (the "Investment Company Act") and the applicable requirements of the
Internal Revenue Code of 1986, as amended.
The Company has furnished or will furnish the Adviser with copies of
the Company's Prospectus, Articles of Incorporation, and By-Laws as currently
in effect and agrees during the continuance of the Agreement to furnish the
Adviser with copies of any amendments or supplements thereto before or at the
time the amendments or supplements become effective. The Adviser will be
entitled to rely on all documents furnished by the Company.
ARTICLE II
Compensation of the Adviser
---------------------------
A. Investment Advisory Fee. As compensation for its services to the
-----------------------
Company, the Adviser shall receive monthly compensation based on an annual
percentage of the average daily value of the net assets of the Funds of the
Company as shown below:
S&P 500 Index Fund .25 Percent
Money Market Fund .125 Percent
Bond Index Fund .25 Percent
Asset Allocation Fund .50 Percent
Small-Cap Equity Fund .25 Percent
C-13
<PAGE> 3
Managed Equity Fund Assets
--------------------------
First $10 million .40%
Next $20 million .30%
Balance over $30 million .25%
International Index Fund Assets
-------------------------------
First $10 million .50%
Next $10 million .40%
Balance over $30 million .30%
Mid-Cap Equity Fund Assets
--------------------------
First $10 million .55%
Next $10 million .45%
Balance over $30 million .40%
B. Allocation of Expenses. The Adviser shall be responsible for
----------------------
payment of all expenses it may incur in performing the services set forth in
Article I hereunder. Except for expenses specifically assumed by the Adviser
as stated above, the Company shall be responsible for all expenses associated
with the operations of the Company.
The Board shall determine the manner in which expenses are
allocated to the Funds of the Company, and the determination of the Board
shall be final and binding.
ARTICLE III
Fund Transactions and Brokerage
-------------------------------
The Adviser agrees to determine the securities to be purchased or sold
by each Fund of the Company, subject to the provisions of Article I, and to
place orders pursuant to its determinations either directly with the issuer,
with any broker-dealer or underwriter that specializes in the securities for
which the order is made, or with any other broker or dealer selected by the
Adviser, subject to the following limitations.
The Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for each Fund of the
Company and will use its best efforts to obtain the most favorable price and
efficient execution of the Company's orders, taking into account all
appropriate factors, including: price; dealer spread or commission, if any;
size and difficulty of the transaction; the nature of the market for the
security; the reliability, financial condition and general execution and
operational capabilities of the broker-dealer; and the research, statistical,
and economic data furnished by the broker-dealer to the Company.
Subject to the above requirements, nothing shall prohibit the Adviser
from selecting brokers or
C-14
<PAGE> 4
dealers with which it or the Company are affiliated and from selecting
brokers or dealers by virtue of sales of insurance policies of General
American Life Insurance Company or its affiliates by such broker-dealers or
their affiliates.
ARTICLE IV
Activities of the Adviser
-------------------------
The services of the Adviser to the Company under this Agreement are not
to be deemed exclusive and the Adviser will be free to render similar
services to others so long as its services under this Agreement are not
impaired. It is understood that directors, officers, employees and
shareholders of the Company are or may become interested in the Adviser, as
directors, officers, employees or shareholders or otherwise, and that
directors, officers, employees or shareholders of the Adviser are or may
become similarly interested in the Company.
It is agreed that the Adviser may use any supplemental investment
research obtained for the benefit of the Company in providing investment
advice to its other investment advisory accounts. The Adviser or its
subsidiaries may use such information in managing their own accounts.
Conversely, such supplemental information obtained by the placement of
business for the Adviser or other entities advised by the Adviser will be
considered by and may be useful to the Adviser in carrying out its
obligations to the Company.
Securities held by a Fund may also be held by separate investment
accounts or other investment companies for which the Adviser may act as an
adviser or by the Adviser or its affiliates. Because of different investment
objectives or other factors, a particular security may be bought by the
Adviser or its affiliates or for one or more clients when one or more clients
are selling the same security. If purchases or sales of securities for the
Company or other entities for which the Adviser or its affiliates act as
investment adviser or for their advisory clients arise for consideration at
or about the same time, the Company agrees that the Adviser may make
transactions in such securities, insofar as feasible, for the respective
entities and clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of the Adviser during the same
period may increase the demand for securities being purchased or the supply
of securities being sold, the Company recognizes that there may be an adverse
effect on price.
It is agreed that, on occasions when the Adviser deems the purchase or
sale of a security to be in the best interests of the Company as well as
other accounts or companies, it may, to the extent permitted by applicable
laws and regulations, but will not be obligated to, aggregate the securities
to be so sold or purchased for the Company with those to be sold or purchased
for other accounts or companies in order to obtain favorable execution and
lower brokerage commissions. In that event, allocation of the securities
purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Company and to such other
accounts or companies. The Company recognizes that in some cases this
procedure may adversely affect the size of the position obtainable for a Fund
of the Company.
C-15
<PAGE> 5
ARTICLE V
Effectiveness of the Agreement
------------------------------
This Agreement shall not become effective unless and until it is
approved by the Company's Board (including a majority of directors who are
not parties to this Agreement or interested persons of any such party to this
Agreement), and by the Company's shareholders, and this Agreement shall come
into full force and effect on the date on which it is so approved, provided
that it shall not become effective as to any subsequently created Fund until
it has been approved by the Board specifically for such Fund, and that
implementation of any changes from prior Agreements may be delayed until the
start of the next month after a change is approved by the shareholders.
ARTICLE VI
Term of the Agreement
---------------------
As to each Fund of the Company, this Agreement shall continue in effect
from year to year so long as its continuance is approved annually by a
majority of the votes cast by those persons having voting rights in respect
of the Fund or by a vote by a majority of the members of the Board, but in
either event by the vote of a majority of the Board who are not "interested
persons" (as defined in the Investment Company Act) of any party to this
Agreement, cast in person at a meeting called for the purpose of voting such
approval.
As to each Fund of the Company, this Agreement:
(1) may be terminated without the payment of any penalty upon 60
days' written notice to the Adviser either by the Board or by a majority vote
of those persons having voting rights in respect of the affected Fund(s) of
the Company:
(2) shall automatically terminate if it is assigned (within the
meaning of the Investment Company Act) by the Adviser;
(3) may be terminated by the Adviser without payment of any penalty
upon 60 days' written notice to the Secretary of the Board of the Company;
and
(4) may be amended, changed, waived, discharged or terminated only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. An amendment of this
Agreement shall not be effective until approved by (a) vote of the holders of
a majority of the outstanding voting securities of the Fund or Funds
affected; and (b) a majority of those directors of the Company who are not
parties to this Agreement or interested persons of such a party, cast in
person at a meeting called for the purpose of voting on such approval.
C-16
<PAGE> 6
ARTICLE VII
Recordkeeping
-------------
The Adviser agrees to preserve for the period prescribed by the rules
and regulations of the Securities and Exchange Commission all records the
Adviser maintains for the Company as are required to be maintained pursuant
to said rules. The Adviser agrees that all such records shall be the
property of the Company and shall be made available, within five (5) business
days of the request, to the Company's accountants or auditors during regular
business hours at the Adviser's offices upon such prior written notice. In
the event of termination for any reason, all such records shall be returned
promptly to the Company, free from any claim or retention of rights by the
Adviser. In addition, the Adviser will provide any materials, reasonably
related to the investment advisory services provided hereunder, as may be
reasonably requested in writing by the directors or officers of the Company
or as may be required by any governmental agency having jurisdiction.
Adviser will keep any information obtained in the course of performing under
this Agreement in confidence, and will not use such information for its own
benefit nor disclose it except as authorized by Company or as required by
regulatory authorities having jurisdiction.
ARTICLE VIII
Liability of the Adviser
------------------------
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties on the part of the Adviser (or
its officers, directors, agents, employees, controlling persons,
shareholders, and any other person or entity affiliated with the Adviser or
retained by it to perform or assist in the performance of its obligations
under this Agreement), neither the Adviser nor any of its officers,
directors, employees or agents shall be subject to liability to the Company
or to any shareholder or to any other person with a beneficial interest in
the Company for any act or omission in the course of, or connected with,
rendering advisory services hereunder, including without limitation any error
or judgment or mistake of law or for any loss suffered by the Company or any
shareholder or other person in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36(b) of the
Investment Company Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services. The
provisions of this Article VIII shall not apply to services other than those
relating solely to the provision of investment advice rendered by the Adviser
pursuant to this Agreement.
ARTICLE IX
Governing Law
-------------
While this Agreement is intended by the parties to be governed by
Missouri law as to matters of state law, this Investment Advisory Agreement
is also subject to the provisions of the Investment Company Act, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder, including such exemptions therefrom as the Securities and
Exchange Commission may grant. Words and phrases used herein shall be
interpreted in accordance with that Act and those rules and regulations. As
used with respect to the Company
C-17
<PAGE> 7
and the holders of voting shares of any class of the Company's Capital Stock,
the term "majority of the outstanding voting shares" means the lesser of (i)
67% or more of the voting shares represented at a meeting at which the
holders of more than 50% of the outstanding voting shares are represented or
(ii) more than 50% of the outstanding voting shares.
IN WITNESS WHEREOF, the parties have caused this Investment Advisory
Agreement to be signed by their respective officials duly authorized, as of
the day and year first above written.
Attest: GENERAL AMERICAN CAPITAL COMPANY
/s/ Matthew P. McCauley By: /s/ Richard A. Liddy
- ------------------------------ -------------------------------------
Matthew P. McCauley, Secretary Richard A. Liddy, President
CONNING ASSET MANAGEMENT
Attest: COMPANY
/s/ Fred M. Schpero By: /s/ Leonard M. Rubenstein
- ------------------------------ --------------------------------------
Fred M. Schpero, Secretary Leonard M. Rubenstein, Chief Executive
Officer and Chief Investment Officer
C-18
<PAGE> 1
Christopher A. Martin
Counsel
Phone: (314) 444-0499
Fax: (314) 444-0510
April 30, 1998
Board of Directors of
General American Capital Company
700 Market Street
St. Louis, Missouri 63101
Dear Directors:
This opinion is furnished in connection with Post-Effective Amendment No. 14
to the Registration Statement of General American Capital Company.
1. General American Capital Company has been duly organized, is
existing in good standing, and is authorized by its Board of
Directors to issue shares of its stock.
2. The shares of General American Capital Company to be issued in
connection with Post-Effective Amendment No. 14 to the Registration
Statement have been duly authorized and when issued and delivered as
provided in Post-Effective Amendment No. 14 will be legally issued,
fully paid, and non-assessable.
I hereby consent to the filing of this opinion with Post-Effective Amendment
No. 14 to the Registration Statement of General American Capital Company.
Sincerely,
/s/ Christopher A. Martin
Christopher A. Martin, Counsel
General American Life Insurance Company
C-19
<PAGE> 1
The Board of Directors
General American Capital Company:
We consent to the use of our reports incorporated herein by reference in the
Post-Effective Amendment No. 14 to the Registration Statement (No. 33-10145)
of General American Capital Company.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 30, 1998
C-20
<PAGE> 1
EXHIBIT 16
General American Mutual Holding Company: a mutual holding company.
- ---------------------------------------
GenAmerica Corporation: formed to hold all of the stock of General
----------------------
American Life Insurance Company.
Walnut Street Securities, Inc.: wholly-owned, third-tier
------------------------------
subsidiary engaged in the process of selling variable life
insurance and variable annuities and other securities.
Walnut Street Advisers, Inc.: wholly-owned subsidiary of
----------------------------
Walnut Street Securities engaged in the business of giving
investment advice.
WSS Insurance Agencies (Alabama, Massachusetts, Ohio,
-----------------------------------------------------
Texas), Inc.: formed to act as insurance agencies.
------------
Collaborative Strategies, Inc.: wholly-owned business management
------------------------------
consulting company.
GenAmerica Capital I: Wholly-owned Delaware trust formed for the
--------------------
purpose of issuing securities as an investment vehicle for
GenAmerica Corporation.
Missouri Reinsurance (Barbados), Inc.: wholly-owned Barbados
-------------------------------------
exempt life, accident and health reinsurance company.
General American Life Insurance Company: an insurance company
---------------------------------------
selling life and health insurance and pensions.
Cova Corporation: wholly-owned subsidiary formed to own
----------------
the former Xerox Life companies.
Cova Financial Services Life Insurance Company:
----------------------------------------------
wholly-owned by Cova Corporation, engaged in the
business of selling annuities and life insurance.
First Cova Life Insurance Company: wholly-
---------------------------------
owned by Cova Financial Services Life Insurance
Company, engaged in the sale of life insurance
in New York.
Cova Financial Life Insurance Company: wholly-
-------------------------------------
owned by Cova Financial Services Life Insurance
Company, engaged in the sale of life insurance
and annuities in California.
Cova Life Management Company: wholly-owned by Cova
----------------------------
Corporation. Employer of the individuals operating
the Cova companies.
C-21
<PAGE> 2
Cova Investment Advisory Corporation: wholly-
------------------------------------
owned by Cova Life Management Company.
Intended to provide investment advice to Cova
Life insureds and annuity owners.
Cova Investment Allocation Corporation:
--------------------------------------
wholly-owned by Cova Life Management Company.
Intended to provide advice on allocation of
premiums to Cova Life insureds and annuity
owners.
Cova Life Sales Company: wholly-owned by Cova
-----------------------
Life Management Company. Broker-dealer
established to supervise sales of Cova Life
contracts.
Cova Life Administration Services Company: 49%
-----------------------------------------
owned by Cova Life Management Company.
Provides administrative services for Cova
annuities. (51% owned by Genelco
Incorporated.)
General Life Insurance Company: wholly-owned subsidiary,
------------------------------
domiciled in Texas, engaged in the business of selling life
insurance and annuities.
General Life Insurance Company of America: wholly-
-----------------------------------------
owned subsidiary, domiciled in Illinois, engaged in
the business of selling life insurance and annuities.
Paragon Life Insurance Company: wholly-owned subsidiary
------------------------------
engaged in employer sponsored sales of life insurance.
Equity Intermediary Company: wholly-owned subsidiary
---------------------------
holding company formed to own stock in subsidiaries.
Reinsurance Group of America, Incorporated:
------------------------------------------
subsidiary, of which approximately 64% is owned by
Equity Intermediary and the balance by the public.
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,
existing to hold Chilean reinsurance
operations.
BHIF America Sequros 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.
C-22
<PAGE> 3
RGA Reinsurance Company Chile S.A.: 100%
----------------------------------
owned by RGA, engaged in business of
reinsuring life and annuity business of
BHIF America.
Manantial Sequros de Vida S.A.: Argentinean
------------------------------
subsidiary 100% owned by RGA, engaged in
business as a life, annuity, disability and
survivorship insurer.
RGA Reinsurance Company: subsidiary of
-----------------------
Reinsurance Group of America engaged in the
reinsurance business.
Fairfield Management Group, Inc. (fka
-------------------------------------
Great Rivers Holding Company): 100%
-----------------------------
owned subsidiary.
Reinsurance Partners, Inc. (fka
-------------------------------
Adrian Baker Reinsurance
------------------------
Intermediaries, Inc.):
---------------------
wholly-owned subsidiary of
Fairfield Management Group, Inc.,
engaged in business as a reinsurance
brokerage company.
Great Rivers Reinsurance Management,
------------------------------------
Inc.: wholly-owned subsidiary of
----
Fairfield Management Group, Inc.,
acting as a reinsurance manager.
RGA (U.K.) Underwriting Agency
------------------------------
Limited: 80% owned by Fairfield
-------
Management Group, Inc.
RGA Reinsurance Company (Barbados) Ltd.:
---------------------------------------
subsidiary of Reinsurance Group of America,
Incorporated formed to engage in the exempt
insurance business.
RGA/Swiss Financial Group, L.L.C.: 40%
---------------------------------
owned subsidiary formed to market and
manage financial reinsurance business to
be assumed by RGA Reinsurance Company.
RGA International Ltd.: a New Brunswick
----------------------
corporation wholly-owned by Reinsurance Group
of America, existing to hold Canadian
reinsurance operations.
RGA Canada Management Company, Ltd.: a
-----------------------------------
New Brunswick corporation wholly-owned by
G.A. Canadian Holdings, existing to
accommodate Canadian investors.
C-23
<PAGE> 4
RGA Life Reinsurance Company of
-------------------------------
Canada: wholly-owned by RGA
------
Canada Management Company, Ltd.
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 for admission as the sole
corporate member of a new Lloyd's syndicate
which will underwrite accident and health
business.
RGA Insurance Company (Bermuda) Limited: subsidiary
---------------------------------------
formed to engage in insurance business.
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.
General American Holding Company: wholly-owned subsidiary
--------------------------------
owning non-insurance subsidiaries.
Conning Corporation: 63% owned, second-tier
-------------------
subsidiary formed to own the Conning companies (with
the remainder owned by the public).
Conning, Inc.: a holding company organized
-------------
under Delaware law.
Conning & Company: a Connecticut
-----------------
corporation engaged in providing asset
management and investment advisory
services as well as insurance research
services.
Conning Asset Management Company:
--------------------------------
a Missouri corporation engaged in
providing investment advice.
C-24
<PAGE> 5
Consultec, Inc.: wholly-owned, second-tier
---------------
subsidiary engaged in providing data processing
services for government entities.
Genelco Incorporated: wholly-owned, second-tier
--------------------
subsidiary engaged in the sale of computer software
and in providing third party administrative services.
International Underwriting Services,
------------------------------------
Incorporated: 88.3% owned by Genelco.
------------
Provides third party underwriting services to
insurance companies.
Genelco de Mexico: 99% owned by Genelco
-----------------
Incorporated, engaged in licensing of Genelco
software products in Latin America.
Genelco Software, S.A.: 99% owned by Genelco
----------------------
Incorporated, engaged in licensing of Genelco
software products in Spain.
Cova Life Administration Services Company: 51%
-----------------------------------------
owned. Provides administrative services for
Cova annuities. (49% owned by Cova Life
Management Company.)
Red Oak Realty Company: wholly-owned, second-tier
----------------------
subsidiary formed for the purpose of investing in and
operating real estate.
GenMark Incorporated: wholly-owned, second-tier
--------------------
subsidiary company acting as distribution company.
Stan Mintz Associates, Inc.: wholly-owned
---------------------------
subsidiary purchased to maintain a significant
marketing presence in the Madison, Wisconsin
area upon the retirement of General Agent Stan
Mintz.
White Oak Royalty Company: wholly-owned, second-tier
-------------------------
subsidiary formed to own mineral interests.
Symbience, L.L.C.: 60% owned by General American;
-----------------
administers notification, billing, and collection of
insurance premiums for group employee welfare benefit
plans.
Mutual funds associated with General American Life Insurance Company:
General American Capital Company
The Walnut Street Funds, Inc.
C-25
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<ARTICLE> 6
<SERIES>
<NAME> GACC - S & P 500 Index Fund
<NUMBER> 1
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1997
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1997
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<NUMBER-OF-SHARES-REDEEMED> (1,025)
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<NAME> GACC - Money Market Fund
<NUMBER> 2
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1997
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 174,433
<INVESTMENTS-AT-VALUE> 174,446
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<TOTAL-LIABILITIES> 346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9,578
<SHARES-COMMON-PRIOR> 0
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<NET-ASSETS> 174,571
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,109
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<EXPENSES-NET> (216)
<NET-INVESTMENT-INCOME> 5,893
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,893
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 18,831
<NUMBER-OF-SHARES-REDEEMED> (15,136)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 73,145
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216
<AVERAGE-NET-ASSETS> 105,199
<PER-SHARE-NAV-BEGIN> 17.240
<PER-SHARE-NII> 0.990
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.230
<EXPENSE-RATIO> 0.210
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NAME> GACC - Bond Index Fund
<NUMBER> 3
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1997
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 46,322
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> GACC - Managed Equity Fund
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> GACC - Asset Allocation Fund
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> GACC - International Index Fund
<NUMBER> 6
<MULTIPLIER> 1,000
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> GACC - Mid-Cap Equity Fund
<NUMBER> 7
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 6,852
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<EXPENSES-NET> (33)
<NET-INVESTMENT-INCOME> 42
<REALIZED-GAINS-CURRENT> 267
<APPREC-INCREASE-CURRENT> 1,114
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> GACC - Small-Cap Equity Fund
<NUMBER> 8
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 8-MOS
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</TABLE>
