STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL VARIABLE ANNUITY CONTRACT
ISSUED BY
GENERAL AMERICAN SEPARATE ACCOUNT
TWENTY-EIGHT
AND
GENERAL AMERICAN LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 3, 1999, FOR THE INDIVIDUAL
VARIABLE ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: GENERAL AMERICAN LIFE INSURANCE COMPANY, GTG/VA DEPARTMENT, P.O. BOX
66821, ST. LOUIS, MISSOURI, 63166-6821, (800) 237-6580.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 3, 1999.
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TABLE OF CONTENTS
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COMPANY .........................................................................................................4
EXPERTS .........................................................................................................4
LEGAL OPINIONS....................................................................................................4
DISTRIBUTION......................................................................................................4
Reduction of the Surrender Charge........................................................................4
PERFORMANCE INFORMATION...........................................................................................5
Total Return.............................................................................................5
Money Market Yield Calculation...........................................................................6
Yields of Other Investment Funds.........................................................................8
Historical Unit Values...................................................................................9
Effect of the Annual Contract Fee.......................................................................10
FEDERAL TAX STATUS...............................................................................................10
General ...............................................................................................10
Diversification.........................................................................................11
Multiple Contracts......................................................................................12
Contracts Owned by Other than Natural Persons...........................................................13
Tax Treatment of Assignments............................................................................13
Income Tax Withholding..................................................................................13
Tax Treatment of Withdrawals - Non-Qualified Contracts..................................................13
Qualified Plans.........................................................................................14
Tax Treatment of Withdrawals - Qualified Contracts......................................................17
Tax-Sheltered Annuities - Withdrawal Limitations........................................................18
ANNUITY PROVISIONS...............................................................................................18
Computation of the Value of an Annuity Unit.............................................................18
Determination of the Amount of the First Annuity Installment............................................19
Determination of the Fluctuating Values of the Annuity Installments.....................................20
GENERAL MATTERS..................................................................................................20
Participating...........................................................................................20
Incorrect Age or Sex....................................................................................20
Annuity Data............................................................................................21
Quarterly Reports.......................................................................................21
Incontestability........................................................................................21
Ownership...............................................................................................21
Reinstatement...........................................................................................21
SAFEKEEPING OF ACCOUNT ASSETS....................................................................................21
STATE REGULATION.................................................................................................22
RECORDS AND REPORTS..............................................................................................22
LEGAL PROCEEDINGS................................................................................................22
OTHER INFORMATION................................................................................................22
FINANCIAL STATEMENTS.............................................................................................23
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COMPANY
General American Life Insurance Company ("General American") is a stock
insurance company wholly-owned by GenAmerica Corporation. GenAmerica Corporation
is wholly-owned by General American Mutual Holding Company, a mutual holding
company organized under Missouri law. General American was chartered in 1933 and
since then has continuously engaged in the business of life insurance,
annuities, and accident and health insurance. General American's National
Headquarters (Home Office) is located at 700 Market Street, St. Louis, Missouri
63101. The telephone number is 314-231-1700. It is licensed to do business in 49
states of the U.S., the District of Columbia, Puerto Rico, and is registered in
Canada and licensed in the Provinces of Alberta, British Columbia, Manitoba, New
Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec, and
Saskatchewan.
EXPERTS
Audited financial statements of General American Life Insurance Company and the
Separate Account have been included in reliance upon the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
Cova Life Sales Company ("Life Sales"), the principal underwriter of the
Contracts, is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.
REDUCTION OF THE SURRENDER CHARGE
The amount of the surrender charge on the Contracts may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in a manner that results in savings of sales expenses. The entitlement to
reduction of the surrender charge will be determined by the Company after
examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made. Generally, the
sales expenses for a larger group are less than for a smaller group because
of the ability to implement large numbers of Contracts with fewer sales
contacts.
2. The total amount of purchase payments to be received. Per Contract sales
expenses are likely to be less on larger purchase payments than on smaller
ones.
3. Any prior or existing relationship with the Company. Per Contract sales
expenses are likely to be less when there is a prior existing relationship
because of the likelihood of implementing the Contract with fewer sales
contacts.
4. Other circumstances, of which the Company is not presently aware, which
could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction of the surrender charge.
The surrender charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction of the surrender charge be permitted where the
reduction or elimination will be unfairly discriminatory to any person.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Investment Fund over a period of time, usually a calendar year,
determined by dividing the increase (decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of the expenses for the underlying Investment Fund being advertised
and any applicable surrender charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual accumulation unit
values for an initial $1,000 purchase payment, and deducting any applicable
surrender charge to arrive at the ending hypothetical value. The average annual
total return is then determined by computing the fixed interest rate that a
$1,000 purchase payment would have to earn annually, compounded annually, to
grow to the hypothetical value at the end of the time periods described. The
formula used in these calculations is:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the time periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
surrender charge. The deduction of any surrender charge would reduce any
percentage increase or make greater any percentage decrease.
Owners should note that the investment results of each Investment Fund will
fluctuate over time, and any presentation of the Investment Fund's total return
for any period should not be considered as a representation of what an
investment may earn or what an owner's total return may be in any future period.
MONEY MARKET YIELD CALCULATION
Advertisements and sales literature concerning the Contracts may report the
"current annualized yield" for the Investment Funds of the Separate Accounts
that invests in the GT Global: Money Market Fund, without taking into account
any realized or unrealized gains or losses on shares in the Fund. The annualized
yield is computed by:
(a) determining the net change after 7 days (exclusive of realized gains and
losses on shares of the underlying Investment Fund or on its respective
portfolio securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of 1 unit at the beginning
of the period;
(b) dividing such net change in account value by the value of the account at
the beginning of the 7-day period to determine the base period return; and
(c) annualizing the result of this division on a 365-day basis.
The net change in account value reflects (1) net income from the Investment Fund
attributable to the hypothetical account; and (2) charges and deductions imposed
under the contract upon the hypothetical account. The charges and deductions
include the per unit charges for mortality and expense risk, the administrative
charge for the Investment Fund, and the annual contract fee. For the purpose of
calculating current yields for a Contract, an average per unit contract fee is
used, as described below. Current yield will be calculated according to the
following formula:
Current Yields = (NCF - ES/UV) X (365/7)
Where:
NCF = the net change in the value of one unit in the Division
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day period
specified.
ES = per unit expenses for a hypothetical account having one unit over
the 7-day period.
UV = the unit value for the first day of the 7-day period.
General American advertisement and sales literature may also quote the
"effective yield" of the Investment Fund investing in the GT Global: Money
Market Fund for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period return
according to the following formula:
365/7
Effective Yield = (1+((NCF-ES)/UV)) - 1,
Where:
NCF = the net change in the value of one unit in the Investment Fund
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day period
specified.
ES = per unit expenses for a hypothetical account having one unit over
the 7-day period.
UV = the unit value for the first day of the 7-day period.
Because of the charges and deductions imposed on units according to the terms of
the Contract, the yield for the Money Market Fund will be lower than the yield
for the Investment Fund or the corresponding Trust which underlie the Investment
Fund.
Yields on amounts in the Money Market Fund will normally fluctuate on a daily
basis. For that reason the yield for any past period is not an indication nor a
representation of future yields. The actual yield for the Investment Fund is
affected by changes in interest rates on money market securities, the average
portfolio maturity of the underlying Fund, the types and qualities of portfolio
securities held by the Investment Fund, and the operating expenses of the Fund.
Yields on amounts held in the Money Market Fund may also be presented for
periods other than seven days.
YIELDS OF OTHER INVESTMENT FUNDS
Advertisements and sales literature for the Contract may report the current
annualized yield of one or more of the Investment Funds (other than the Money
Market Fund) for a 30-day or one-month period. The annualized yield of an
Investment Fund refers to income generated by the Investment Fund during a
specified 30-day or one-month period. Because the yield is annualized, the yield
generated by the Investment Fund during the specified period is assumed to be
generated every 30-day or one-month period over a year. The yield is computed
by:
(1) dividing the net investment income of the fund corresponding to the
Investment Fund less expenses for the Investment Fund for the period; by
(2) the maximum offering price per unit of the Investment Fund on the last day
of the period times the daily average number of units outstanding for the
period; then
(3) compounding that yield for a 6-month period; and then
(4) multiplying that result by 2.
Expenses attributable to the Investment Fund include the mortality and expense
risk charge, the administrative charge for the Investment Fund, and the annual
contract fee. A contract fee of $2.50 is used to calculate the 30-day or
one-month yield as in the following equation:
6
Yield = 2x((((N1-ES)/(UxUV))+1) - 1)
Where:
NI = net investment income of the Fund for the 30-day or one-month
period in question
ES = expenses of the Investment Fund for the 30-day or one-month
period
U = the average number of units outstanding
UV = the unit value at the close of the last day in the 30-day or one-
month period
Because of the charges and deductions imposed under the Contracts (ES in the
equation) the yield for an Investment Fund will be lower than the yield for the
corresponding Fund.
The yield on amounts in any Investment Fund will normally fluctuate. For that
reason yields for any past periods are not indications nor representations of
future yields. The actual yield for an Investment Fund is affected by the type
and the quality of the portfolio securities held in the underlying Fund, and the
operating expenses of the Fund.
Yield calculations do not take surrender charges into account, but such charges
are deducted from amounts greater than ten percent of the Accumulated Value
under a Contract if such amounts are withdrawn within the first six contract
years after they were deposited.
HISTORICAL UNIT VALUES
The Company may also show historical accumulation unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual accumulation unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in accumulation unit values for any of the Investment Funds
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the Investment
Fund being compared. The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged, unweighted average of 500 stocks, the majority of which are listed on
the New York Stock Exchange. The Dow Jones Industrial Average is an unmanaged,
weighted average of thirty blue chip industrial corporations listed on the New
York Stock Exchange. Both the Standard & Poor's 500 Composite Stock Price Index
and the Dow Jones Industrial Average assume quarterly reinvestment of dividends.
EFFECT OF THE ANNUAL CONTRACT FEE
The Contract provides for the deduction each year of the lesser of $30 or 2% of
an account's value provided the account value is less than $20,000. If the
account value exceeds $20,000, or if the entire account value is in the Fixed
Account, then no contract fee is charged. So that this charge can be reflected
in yield and total return calculations it is assumed that the annual charge will
be $30 and this charge is converted into a per-dollar, per-day charge based on
the average Accumulated Value in the Separate Accounts of all the Contracts as
of the last day of the period for which quotations are provided. The average
value of Contracts in the Separate Accounts is assumed to be $20,000. The
per-dollar, per-day average charge will be adjusted to reflect the assumptions
underlying a particular performance quotation.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Accounts are not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity Contracts. The Code provides that a
variable annuity Contract will not be treated as an annuity Contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity Contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity Contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the Investment
Funds underlying variable Contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an Investment Fund will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of the option is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the option is represented by any two investments; (3) no more
than 80% of the value of the total assets of the option is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the option is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable Contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Investment Funds underlying the Contracts will be
managed in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Accounts will cause the Owner to be treated as the
owner of the assets of the Separate Accounts, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the Separate Accounts. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Accounts resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate
Accounts.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity Contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity Contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of Contracts. For purposes of this rule, Contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity Contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
Contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, Annuitants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
Contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with Pension or Profit Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b)(Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Owner or Annuitant (as applicable) reaches age 59 1/2; (b) distributions
following the death or disability of the Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m) (7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (h) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8)of
the Code.) The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years on which the exception was used.
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect transfers between Tax-Sheltered Annuity Plans. Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
COMPUTATION OF THE VALUE OF AN ANNUITY UNIT
The table of contractual guaranteed annuity rates is based on an assumed
interest rate. The assumed interest rate is 4% for all contracts.
As a starting point, the value of a Separate Account Twenty-Eight and
Twenty-Nine annuity unit was established at $12.00. The value of the annuity
unit at the end of any subsequent business day is determined by multiplying such
value for the preceding business day by the product of (a) the daily reduction
factor (.99989256) once for each calendar day expiring between the end of the
sixth preceding business day and the end of the fifth preceding business day and
(b) the net investment factor for the fifth business day preceding such business
day.
These daily reduction factors are necessary to neutralize the assumed net
investment rate built into the annuity tables. Calculations are performed as of
the fifth preceding business day to permit calculation of amounts and the
mailing of checks in advance of their due date.
This may be illustrated by the following hypothetical example. Assuming that the
net investment factor for the fifth preceding business day was 1.00176027, and
assuming that the annuity unit value for the preceding business day was $12.20,
then the annuity unit for the current business day is $12.22, determined as
follows:
1.00176027 $12.200000
X .99989256 X 1.00165264
-------------- ---------------
1.00165264 $12.220162208
DETERMINATION OF THE AMOUNT OF THE FIRST ANNUITY INSTALLMENT
When annuity installments begin, the accumulated value of the Contract is
established. This is the sum of the products of the values of an accumulation
unit in each Investment Fund on the fifth business day preceding the annuity
commencement date and the number of accumulation units credited to the Contract
as of the annuity commencement date.
The Contract contains tables indicating the dollar amount of the first annuity
installment under each form of variable annuity for each $1,000 of value of the
Contract. The amount of the first annuity installment depends on the option
chosen and the sex (if applicable) and age of the annuitant.
The first annuity installment is determined by multiplying the benefit per
$1,000 of value shown in the tables in the Contract by the number of thousands
of dollars of accumulated value of the Contract allocated to the Investment
Fund.
If a greater first installment would result, General American will compute the
first installment on the same mortality basis as is used in determining such
installments under individual variable annuity Contracts then being issued for a
similar class of annuitants.
DETERMINATION OF THE FLUCTUATING VALUES OF THE ANNUITY INSTALLMENTS
The dollar amount of the first annuity installment, determined as described
above, is translated into annuity units by dividing that dollar amount by the
value of an annuity unit on the due date of the first annuity installment. The
number of annuity units remains fixed and the amount of each subsequent annuity
installment is determined by multiplying this fixed number of annuity units by
the value of an annuity unit on the date the installment is due.
If in any month after the first the application of the above net investment
factors produces a net investment increment exactly equivalent to the assumed
annualized rate of 4%, then the payment in that month will not change. Since it
is unlikely that it will be exactly equivalent, installments will vary up or
down depending upon whether such investment increment is greater or less than
the assumed annualized rate of 4%. A higher assumption would mean a higher
initial annuity payment but a more slowly rising series of subsequent annuity
payments (or a more rapidly falling series of subsequent annuity payments if the
value of an annuity unit is decreasing). A lower assumption would have the
opposite effect.
GENERAL MATTERS
PARTICIPATING
The Contracts share in General American's divisible surplus while they are in
force prior to the annuity commencement date. Each year General American will
determine the share of divisible surplus, if any, accruing to the Contracts.
Investment results are credited directly through the changes in the value of the
accumulation units and annuity units. Also, most mortality and expense savings
are credited directly through decreases in the appropriate charges. Therefore,
the Company expects little or no divisible surplus to be credited to a Contract.
If any divisible surplus is credited to a Contract, the Contract Owner may
choose to take the distribution in cash, reduce the stipulated payment, or leave
the distribution with General American to accumulate with interest.
INCORRECT AGE OR SEX
If the age at issue or sex of the annuitant as shown in the Contract is
incorrect, any benefit payable under a supplemental agreement will be such as
the premiums paid would have purchased at the correct age at issue and sex.
After General American begins paying monthly income installments, appropriate
adjustment will be made in any remaining installments.
ANNUITY DATA
General American will not be liable for obligations which depend on receiving
information from a payee until such information is received in a form
satisfactory to General American.
QUARTERLY REPORTS
Quarterly, General American will give the contract owner a report of the current
accumulated value allocated to each Investment Fund; the current accumulated
value allocated to the General Account; and any purchase payments, charges,
transfers, or surrenders during that period. This report will also give the
contract owner any other information required by law or regulation. The contract
owner may ask for a report like this at any time. The quarterly reports will be
distributed without charge. General American reserves the right to charge a fee
for additional reports.
INCONTESTABILITY
General American cannot contest this Contract.
OWNERSHIP
The owner of the Contract on the contract date is the annuitant, unless
otherwise specified in the application. The owner may specify a new owner by
written notice at any time thereafter. During the annuitant's lifetime all
rights and privileges under this Contract may be exercised solely by the owner.
REINSTATEMENT
A Contract may be reinstated if a stipulated payment is in default and if the
accumulated value has not been applied under the surrender provision.
Reinstatement may be made during the lifetime of the annuitant but before the
annuity date by the payment of one stipulated payment. Benefits provided by any
supplemental agreement attached to this Contract may be reinstated by providing
evidence of insurability satisfactory to General American. The reinstatement
provisions incorporated in such supplemental agreement must be complied with.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Accounts is held by General American. The assets
are kept physically segregated and held separate and apart from General
American's general account assets. Records are maintained of all purchases and
redemptions of eligible shares held by each of the Investment Funds of the
separate account.
STATE REGULATION
General American is a life insurance company organized under the laws of
Missouri, and is subject to regulation by the Missouri Division of Insurance. An
annual statement is filed with the Missouri Commissioner of Insurance on or
before March 1 of each year covering the operations and reporting on the
financial condition of General American as of December 31 of the preceding
calendar year. Periodically, the Missouri Commissioner of Insurance examines the
financial condition of General American, including the liabilities and reserves
of the Separate Accounts.
In addition, General American is subject to the insurance laws and regulations
of all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and filing and review
processes. Where required by state law or regulation, the Contracts will be
modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Accounts will be maintained by
General American. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, General American will mail to all
contract owners at their last known address of record, at least semi-annually,
reports containing such information as may be required under that Act or by any
other applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Accounts are a party or to
which the assets of the Separate Accounts are subject. General American is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Accounts.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments, and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
INDEPENDENT AUDITORS' REPORT
- - ------------------------------------------------------------------------------
The Board of Directors
General American Life Insurance Company
and Contractholders of General American Life
Insurance Company Separate Account Twenty-eight
and Separate Account Twenty-nine:
We have audited the statements of assets and liabilities, including the schedule
of investments of the Money Market, Variable Strategic Income, Variable Global
Government Income, and Variable U.S. Government Income Divisions of General
American Separate Account Twenty-eight and of the Variable New Pacific, Variable
Europe, Variable America, Variable Growth & Income, Variable Latin America,
Variable Telecommunications, Variable International, Variable Emerging Markets,
Variable Natural Resources, and Variable Infrastructure Divisions of General
American Separate Account Twenty-nine as of December 31, 1998, and the related
statements of operations for the year then ended, changes in net assets for each
of the years in the two-year period then ended, and the condensed financial
information for the periods presented. These financial statements and condensed
financial information are the responsibility of the management of General
American Separate Accounts Twenty-eight and Twenty-nine. Our responsibility is
to express an opinion on these financial statements and condensed financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1998, by correspondence with GT Global Variable
Investment Funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Money Market, Variable Strategic Income, Variable Global
Government Income, and Variable U.S. Government Income Divisions of General
American Separate Account Twenty-eight and of the Variable New Pacific, Variable
Europe, Variable America, Variable Growth & Income, Variable Latin America,
Variable Telecommunications, Variable International, Variable Emerging Markets,
Variable Natural Resources and Variable Infrastructure Divisions of General
American Separate Account Twenty-nine as of December 31, 1998, the results of
their operations for the year then ended, the changes in their net assets for
each of the years in the two-year period then ended, and the condensed financial
information for all periods presented, in conformity with generally accepted
accounting principles.
KPMG LLP
ST. LOUIS, MISSOURI
FEBRUARY 12, 1999
D1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
D2
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE GLOBAL VARIABLE U.S.
MONEY STRATEGIC GOVERNMENT GOVERNMENT
MARKET INCOME INCOME INCOME
DIVISION DIVISION DIVISION DIVISION
----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments):....... $34,254,658 $21,352,753 $8,896,473 $7,434,652
Receivable from GT Global Financial
Services, Inc........................ 130,265 0 0 0
----------- ----------- --------------- -------------
Total assets........................ 34,384,923 21,352,753 8,896,473 7,434,652
----------- ----------- --------------- -------------
Liability:
Payable to General American Life
Insurance Company.................... 3,055,592 28,623 92,130 68,231
----------- ----------- --------------- -------------
Total net assets.................... $31,329,331 $21,324,130 $8,804,343 $7,366,421
----------- ----------- --------------- -------------
----------- ----------- --------------- -------------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in
Separate Account..................... $31,329,331 $21,230,067 $8,766,456 $7,350,944
Individual variable annuity contracts
cash value in payment period......... 0 94,063 37,887 15,477
----------- ----------- --------------- -------------
Total net assets.................... $31,329,331 $21,324,130 $8,804,343 $7,366,421
----------- ----------- --------------- -------------
----------- ----------- --------------- -------------
Total individual units held............. 2,203,682 1,179,085 551,577 482,545
Individual unit value................... $ 14.22 $ 18.09 $ 15.96 $ 15.27
Cost of investments..................... $34,254,658 $22,746,695 $8,914,837 $7,428,628
</TABLE>
See accompanying notes to the financial statements.
D3
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE GLOBAL VARIABLE U.S.
MONEY STRATEGIC GOVERNMENT GOVERNMENT
MARKET INCOME INCOME INCOME
DIVISION DIVISION DIVISION DIVISION
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Dividend income....................... $1,489,559 $ 1,724,505 $ 474,106 $ 367,257
Expenses:
Mortality, expense and administrative
charges.............................. (443,328) (338,014) (121,937) (101,078)
---------- ----------- --------------- -------------
Net investment income................. 1,046,231 1,386,491 352,169 266,179
---------- ----------- --------------- -------------
Net realized gain (loss) on investments:
Realized gain from distributions...... 0 0 0 0
Realized gain (loss) on sales......... 0 (688,015) 591,887 418,601
---------- ----------- --------------- -------------
Net realized gain (loss) on
investments.......................... 0 (688,015) 591,887 418,601
---------- ----------- --------------- -------------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 0 (197,919) 26,963 146,515
Unrealized gain (loss) on investments,
end of period........................ 0 (1,393,942) (18,364) 6,024
---------- ----------- --------------- -------------
Net unrealized (loss) on
investments.......................... 0 (1,196,023) (45,327) (140,491)
---------- ----------- --------------- -------------
Net gain (loss) on investments........ 0 (1,884,038) 546,560 278,110
---------- ----------- --------------- -------------
Net increase (decrease) in net assets
resulting from operations............ $1,046,231 $ (497,547) $ 898,729 $ 544,289
---------- ----------- --------------- -------------
---------- ----------- --------------- -------------
</TABLE>
See accompanying notes to the financial statements.
D4
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
STRATEGIC INCOME
MONEY MARKET DIVISION DIVISION
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income................. $ 1,046,231 $ 725,948 $ 1,386,491 $ 1,595,442
Net realized gain (loss) on
investments.......................... 0 0 (688,015) 2,366,466
Net unrealized gain (loss) on
investments.......................... 0 0 (1,196,023) (2,341,472)
----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations.................... 1,046,231 725,948 (497,547) 1,620,436
----------- ----------- ----------- -----------
Deposits into Separate Account........ 4,126,570 11,693,462 589,616 2,322,838
Transfers to (from) Separate
Account.............................. 10,874,210 3,257,598 (1,661,337) (4,271,620)
Withdrawals from Separate Account..... (11,447,788) (8,768,848) (4,875,464) (3,453,930)
----------- ----------- ----------- -----------
Net deposits into (withdrawals from)
Separate Account................... 3,552,992 6,182,212 (5,947,185) (5,402,712)
----------- ----------- ----------- -----------
Increase (decrease) in net assets..... 4,599,223 6,908,160 (6,444,732) (3,782,276)
Net assets, beginning of period....... 26,730,108 19,821,948 27,768,862 31,551,138
----------- ----------- ----------- -----------
Net assets, end of period............. $31,329,331 $26,730,108 $21,324,130 $27,768,862
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE
GLOBAL GOVERNMENT U.S. GOVERNMENT
INCOME DIVISION INCOME DIVISION
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income................. $ 352,169 $ 485,143 $ 266,179 $ 224,099
Net realized gain (loss) on
investments.......................... 591,887 (55,446) 418,601 (21,381)
Net unrealized gain (loss) on
investments.......................... (45,327) (201,827) (140,491) 173,803
----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations.................... 898,729 227,870 544,289 376,521
----------- ----------- ----------- -----------
Deposits into Separate Account........ 232,266 859,739 274,206 1,727,218
Transfers to (from) Separate
Account.............................. 867,608 (1,767,441) 448,034 818,277
Withdrawals from Separate Account..... (1,401,213) (1,479,355) (1,203,725) (1,071,382)
----------- ----------- ----------- -----------
Net deposits into (withdrawals from)
Separate Account................... (301,339) (2,387,057) (481,485) 1,474,113
----------- ----------- ----------- -----------
Increase (decrease) in net assets..... 597,390 (2,159,187) 62,804 1,850,634
Net assets, beginning of period....... 8,206,953 10,366,140 7,303,617 5,452,983
----------- ----------- ----------- -----------
Net assets, end of period............. $ 8,804,343 $ 8,206,953 $ 7,366,421 $ 7,303,617
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
D5
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC EUROPE AMERICA
DIVISION DIVISION DIVISION
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments):....... $ 9,795,249 $ 31,555,510 $ 38,365,879
Receivable from General American Life
Insurance Company.................... -- 834,732 2,178,157
------------ ------------ ------------
Total assets........................ 9,795,249 32,390,242 40,544,036
------------ ------------ ------------
Liability:
Payable to General American Life
Insurance Company.................... 28,762 -- --
------------ ------------ ------------
Total net assets.................... $ 9,766,487 $ 32,390,242 $ 40,544,036
------------ ------------ ------------
------------ ------------ ------------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 9,753,047 $ 32,356,720 $ 40,454,813
Individual variable annuity contracts
cash value in payment period......... 13,440 33,522 89,223
------------ ------------ ------------
Total net assets.................... $ 9,766,487 $ 32,390,242 $ 40,544,036
------------ ------------ ------------
------------ ------------ ------------
Total individual units held............. 1,146,208 1,209,667 1,458,252
Individual unit value................... $ 8.52 $ 26.78 $ 27.80
Cost of investments..................... $ 9,564,303 $ 30,086,433 $ 38,776,103
</TABLE>
See accompanying notes to the financial statements.
D6
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF ASSETS
AND LIABILITIES (cont'd)
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
GROWTH & VARIABLE TELECOM- VARIABLE EMERGING NATURAL VARIABLE
INCOME LATIN AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES INFRASTRUCTURE
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ------------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in GT
Global Variable
Investment Funds,
at market value
(see Schedule of
Investments):.... $ 55,232,648 $ 8,919,049 $69,169,968 $ 7,078,025 $ 5,517,251 $ 6,224,119 $ 6,173,230
Receivable from
General American
Life Insurance
Company.......... 59,389 -- -- -- -- -- --
------------ ------------- ------------ ------------- ------------ ------------ --------------
Total assets.... 55,292,037 8,919,049 69,169,968 7,078,025 5,517,251 6,224,119 6,173,230
------------ ------------- ------------ ------------- ------------ ------------ --------------
Liability:
Payable to General
American Life
Insurance
Company.......... -- 33,697 389,723 43,272 20,248 15,205 22,323
------------ ------------- ------------ ------------- ------------ ------------ --------------
Total net
assets......... $ 55,292,037 $ 8,885,352 $68,780,245 $ 7,034,753 $ 5,497,003 $ 6,208,914 $ 6,150,907
------------ ------------- ------------ ------------- ------------ ------------ --------------
------------ ------------- ------------ ------------- ------------ ------------ --------------
Total net assets
represented by:
Individual
variable annuity
contracts cash
value invested in
Separate
Account.......... $ 55,089,022 $ 8,882,812 $68,678,341 $ 7,021,056 $ 5,489,777 $ 6,187,367 $ 6,140,510
Individual
variable annuity
contracts cash
value in payment
period........... 203,015 2,540 101,904 13,697 7,226 21,547 10,397
------------ ------------- ------------ ------------- ------------ ------------ --------------
Total net
assets......... $ 55,292,037 $ 8,885,352 $68,780,245 $ 7,034,753 $ 5,497,003 $ 6,208,914 $ 6,150,907
------------ ------------- ------------ ------------- ------------ ------------ --------------
------------ ------------- ------------ ------------- ------------ ------------ --------------
Total individual
units held......... 2,341,622 805,893 2,557,657 580,885 738,674 436,185 351,122
Individual unit
value.............. $ 23.61 $ 11.03 $ 26.89 $ 12.11 $ 7.44 $ 14.23 $ 17.52
Cost of
investments........ $ 52,978,416 $ 9,793,550 $64,258,399 $ 6,839,183 $ 5,610,801 $ 9,300,842 $ 6,086,697
</TABLE>
See accompanying notes to the financial statements.
D7
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC EUROPE AMERICA
DIVISION DIVISION DIVISION
----------- ---------- -----------
<S> <C> <C> <C>
Investment income:
Dividend income....................... $ 323,237 $ 60,495 $ 0
Expenses:
Mortality, expense and administrative
charges.............................. (163,324 ) (500,692) (559,355)
----------- ---------- -----------
Net investment income (loss)............ 159,913 (440,197) (559,355)
----------- ---------- -----------
Net realized gain (loss) on investments:
Realized gain from distributions...... 0 3,888,940 6,014,808
Realized gain (loss) on sales......... (1,303,057 ) 3,298,537 658,943
----------- ---------- -----------
Net realized gain (loss) on
investments........................ (1,303,057 ) 7,187,477 6,673,751
----------- ---------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. (355,703 ) 760,316 3,499,457
Unrealized gain (loss) on investments,
end of period........................ 230,946 1,469,077 (410,224)
----------- ---------- -----------
Net unrealized gain (loss) on
investments........................ 586,649 708,761 (3,909,681)
----------- ---------- -----------
Net gain (loss) on investments...... (716,408 ) 7,896,238 2,764,070
----------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations.............. $ (556,495 ) $7,456,041 $ 2,204,715
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See accompanying notes to the financial statements.
D8
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF OPERATIONS (cont'd)
For the year ended December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
GROWTH & VARIABLE TELECOM- VARIABLE EMERGING NATURAL
INCOME LATIN AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income....................... $ 1,161,313 $ 280,405 $ 0 $ 54,600 $ 4,537 $ 0
Expenses:
Mortality, expense and administrative
charges.............................. (765,215) (203,424) (952,157 ) (89,263) (126,637) (141,096)
------------ ------------- ----------- ------------- ----------- -----------
Net investment income (loss)............ 396,098 76,981 (952,157 ) (34,663) (122,100) (141,096)
------------ ------------- ----------- ------------- ----------- -----------
Net realized gain (loss) on investments:
Realized gain from distributions...... 688,656 135,341 5,707,799 451,796 816,584 1,957,466
Realized gain (loss) on sales......... 7,133,317 (8,063,814) 2,427,177 (63,604) (7,502,716) (5,049,897)
------------ ------------- ----------- ------------- ----------- -----------
Net realized gain (loss) on
investments........................ 7,821,973 (7,928,473) 8,134,976 388,192 (6,686,132) (3,092,431)
------------ ------------- ----------- ------------- ----------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 1,607,745 (443,493) (248,171 ) 118,551 (2,835,733) (1,687,220)
Unrealized gain (loss) on investments,
end of period........................ 2,254,232 (874,501) 4,911,569 238,842 (93,550) (3,076,723)
------------ ------------- ----------- ------------- ----------- -----------
Net unrealized gain (loss) on
investments........................ 646,487 (431,008) 5,159,740 120,291 2,742,183 (1,389,503)
------------ ------------- ----------- ------------- ----------- -----------
Net gain (loss) on investments...... 8,468,460 (8,359,481) 13,294,716 508,483 (3,943,949) (4,481,934)
------------ ------------- ----------- ------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. $ 8,864,558 $(8,282,500) $12,342,559 $473,820 $(4,066,049) $(4,623,030)
------------ ------------- ----------- ------------- ----------- -----------
------------ ------------- ----------- ------------- ----------- -----------
<CAPTION>
VARIABLE
INFRASTRUCTURE
DIVISION
--------------
<S> <C>
Investment income:
Dividend income....................... $ 74,835
Expenses:
Mortality, expense and administrative
charges.............................. (103,177)
--------------
Net investment income (loss)............ (28,342)
--------------
Net realized gain (loss) on investments:
Realized gain from distributions...... 0
Realized gain (loss) on sales......... 280,277
--------------
Net realized gain (loss) on
investments........................ 280,277
--------------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. (22,448)
Unrealized gain (loss) on investments,
end of period........................ 86,533
--------------
Net unrealized gain (loss) on
investments........................ 108,981
--------------
Net gain (loss) on investments...... 389,258
--------------
Net increase (decrease) in net assets
resulting from operations.............. $ 360,916
--------------
--------------
</TABLE>
See accompanying notes to the financial statements.
D9
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC DIVISION EUROPE DIVISION AMERICA DIVISION
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ 159,913 $ (182,681) $ (440,197) $ (319,019) $ (559,355) $ (357,782)
Net realized gain (loss) on
investments.......................... (1,303,057) (8,240,926) 7,187,477 4,699,239 6,673,751 3,281,908
Net unrealized gain (loss) on
investments.......................... 586,649 (1,413,022) 708,761 (249,802) (3,909,681) 2,257,731
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations... (556,495) (9,836,629) 7,456,041 4,130,418 2,204,715 5,181,857
Deposits into Separate Account........ 437,207 2,938,675 1,221,006 2,784,903 1,322,117 2,899,511
Transfers to (from) Separate
Account.............................. (3,613,152) (5,841,440) 3,539,888 (1,364,288) 2,386,380 (7,332)
Withdrawals from Separate Account..... (1,845,816) (2,847,511) (7,120,193) (2,631,950) (9,151,241) (5,773,807)
---------- ---------- ---------- ---------- ---------- ----------
Net deposits into (withdrawals from)
Separate Account................... (5,021,761) (5,750,276) (2,359,299) (1,211,335) (5,442,744) (2,881,628)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets..... (5,578,256) (15,586,905) 5,096,742 2,919,083 (3,238,029) 2,300,229
Net assets, beginning of period....... 15,344,743 30,931,648 27,293,500 24,374,417 43,782,065 41,481,836
---------- ---------- ---------- ---------- ---------- ----------
Net assets, end of period............. $9,766,487 $15,344,743 $32,390,242 $27,293,500 $40,544,036 $43,782,065
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
EMERGING MARKETS NATURAL RESOURCES INFRASTRUCTURE
DIVISION DIVISION DIVISION
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (122,100) $ (200,012) $ (141,096) $ (246,069) $ (28,342) $ (68,225)
Net realized gain (loss) on
investments.......................... (6,686,132) 1,728,201 (3,092,431) 2,832,149 280,277 713,970
Net unrealized gain (loss) on
investments.......................... 2,742,183 (3,766,102) (1,389,503) (2,761,942) 108,981 (447,579)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations... (4,066,049) (2,237,913) (4,623,030) (175,862) 360,916 198,166
Deposits into Separate Account........ 384,193 2,609,384 785,669 4,014,997 314,984 2,336,821
Transfers to (from) Separate
Account.............................. (5,088,834) 523,758 (4,279,195) (2,016,970) (1,757,657) 822,498
Withdrawals from Separate Account..... (2,005,301) (1,972,242) (2,120,793) (1,475,571) (1,413,107) (619,227)
---------- ---------- ---------- ---------- ---------- ----------
Net deposits into (withdrawals from)
Separate Account................... (6,709,942) 1,160,900 (5,614,319) 522,456 (2,855,780) 2,540,092
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets..... (10,775,991) (1,077,013) (10,237,349) 346,594 (2,494,864) 2,738,258
Net assets, beginning of period....... 16,272,994 17,350,007 16,446,263 16,099,669 8,645,771 5,907,513
---------- ---------- ---------- ---------- ---------- ----------
Net assets, end of period............. $5,497,003 $16,272,994 $6,208,914 $16,446,263 $6,150,907 $8,645,771
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to the financial statements.
D10
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
STATEMENTS OF CHANGES IN NET ASSETS (cont'd)
For the years ended December 31, 1998 and 1997
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
GROWTH & INCOME VARIABLE TELECOMMUNICATIONS INTERNATIONAL
DIVISION LATIN AMERICA DIVISION DIVISION DIVISION
---------------------- ---------------------- ---------------------- ---------
1998 1997 1998 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ 396,098 $ 705,425 $ 76,981 $ (392,175) $ (952,157) $ (948,489) $ (34,663)
Net realized gain (loss) on
investments.......................... 7,821,973 7,956,869 (7,928,473) 5,652,203 8,134,976 16,144,141 388,192
Net unrealized gain (loss) on
investments.......................... 646,487 (2,609,309) (431,008) (2,046,668) 5,159,740 (7,331,066) 120,291
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations... 8,864,558 6,052,985 (8,282,500) 3,213,360 12,342,559 7,864,586 473,820
Deposits into Separate Account........ 1,394,718 4,320,103 566,968 2,589,354 1,541,601 4,817,136 192,290
Transfers to (from) Separate
Account.............................. 4,831,962 8,674,747 (7,364,854) 2,508,321 (349,612) (919,250) 1,676,410
Withdrawals from Separate Account..... (9,978,026) (5,205,730) (3,434,437) (2,847,642) (12,413,145) (6,885,267) (915,108)
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net deposits into (withdrawals from)
Separate Account................... (3,751,346) 7,789,120 (10,232,323) 2,250,033 (11,221,156) (2,987,381) 953,592
---------- ---------- ---------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets..... 5,113,212 13,842,105 (18,514,823) 5,463,393 1,121,403 4,877,205 1,427,412
Net assets, beginning of period....... 50,178,825 36,336,720 27,400,175 21,936,782 67,658,842 62,781,637 5,607,341
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net assets, end of period............. $55,292,037 $50,178,825 $8,885,352 $27,400,175 $68,780,245 $67,658,842 $7,034,753
---------- ---------- ---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
1997
---------
<S> <C>
Operations:
Net investment income (loss).......... $ (67,241)
Net realized gain (loss) on
investments.......................... 569,720
Net unrealized gain (loss) on
investments.......................... (59,770)
---------
Net increase (decrease) in net
assets resulting from operations... 442,709
Deposits into Separate Account........ 930,625
Transfers to (from) Separate
Account.............................. 322,481
Withdrawals from Separate Account..... (578,830)
---------
Net deposits into (withdrawals from)
Separate Account................... 674,276
---------
Increase (decrease) in net assets..... 1,116,985
Net assets, beginning of period....... 4,490,356
---------
Net assets, end of period............. $5,607,341
---------
---------
</TABLE>
See accompanying notes to the financial statements.
D11
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- - ------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
General American Separate Account Twenty-eight and General American Separate
Account Twenty-nine (the Separate Accounts) commenced operations on February 10,
1993, and are registered under the Investment Company Act of 1940 (1940 Act) as
unit investment trusts. The Separate Accounts receive purchase payments from
individual variable annuity contracts issued by General American Life Insurance
Company (General American) which may be qualified or non- qualified.
Separate Account Twenty-eight is divided into four divisions and Separate
Account Twenty-nine is divided into ten divisions. Each division invests
exclusively in shares of a single fund of GT Global Variable Investment Funds
(the Funds), an open-end diversified management investment company. Separate
Account Twenty-eight invests in the Money Market, Variable Strategic Income,
Variable Global Government Income, and Variable U.S. Government Income Funds.
Separate Account Twenty-nine invests in the Variable New Pacific, Variable
Europe, Variable America, Variable Growth & Income, Variable Latin America,
Variable Telecommunications, Variable International, Variable Emerging Markets,
Variable Natural Resources and Variable Infrastructure Funds.
Contractholders have the option of directing their deposits into one or all of
the Divisions as well as a fixed account of General American, which is not
generally subject to regulation under the Securities Act of 1933 or the 1940
Act. The unit values for the Separate Accounts for all divisions began at $12.00
on February 10, 1993, except the following Divisions of Separate Account
Twenty-nine which began at $12.00: the Variable Telecommunications Division on
October 18, 1993, the Variable International Division on July 12, 1994, the
Variable Emerging Markets Division on July 6, 1994, and the Variable Natural
Resources and Variable Infrastructure Divisions on January 31, 1995.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Accounts in the preparation of financial statements. The policies
followed are in conformity with generally accepted accounting principles.
(A) INVESTMENTS
The Separate Accounts' investments in the GT Global Variable Funds are valued
daily on the respective shares held and based on the net asset values as
reported to General American by the Funds at the close of each business day. The
specific identification method is used in determining the cost of shares sold on
withdrawals by the Separate Accounts. Share transactions are recorded on the
trade date, which is the same as the settlement date.
(B) FEDERAL INCOME TAXES
Under current Federal income tax law, the investment income and capital gains
from sales of investments of the Separate Accounts are not taxable. Therefore,
no Federal income tax expense has been provided.
(C) DIVIDEND REIMBURSEMENT
Dividends received from the underlying mutual funds are recorded on the
ex-dividend date and immediately reinvested on the pay date.
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
NOTE 3 -- CONTRACT CHARGES
MORTALITY AND EXPENSE RISK CHARGE: General American assumes the mortality and
expense risks and provides certain administrative services related to operating
the Separate Accounts, for which the Separate Accounts are charged an annual fee
of 1.25% based on the values at the end of each valuation period. Mortality and
expense charges for Separate Account Twenty-eight totaled $896,747 for the
period ended December 31, 1998. Mortality and expense charges for Separate
Account Twenty-nine totaled $3,218,161 for the period ended December 31, 1998.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE): Under Separate Account
contractual arrangements, General American is entitled to collect payment for
sales charges. Contracts are subject to a deferred sales charge contingent upon
full surrender of the contract or partial withdrawal of accumulated value. The
sales charge is 6% the first contract year, decreasing by 1% each subsequent
year. The contingent deferred sales charge will be waived in the event of
annuitization after the third year or on death if the date of issue is prior to
the annuitant's 80th birthday. Sales charges as a result of surrenders are
disclosed in Note 6.
ACCOUNT FEE AND ADMINISTRATIVE CHARGES: General American has the responsibility
for the administration of the contract. As reimbursement for account
administrative expenses, on the last day of the contract year, General American
deducts an account fee. For contracts with accumulated values less than $20,000,
the fee is the lesser of $30 or 2% of the accumulated value for contract years
ending prior to December 31, 1999. Thereafter, the account fee may be adjusted
annually. The account fee is waived for contracts with accumulated values of
$20,000 or more. General American charges an amount equal to the lesser of $25
or 2% of the amount transferred, for each transfer in excess of twelve (12)
during the contract year, excluding transfers made under the dollar cost
averaging program, personal portfolio rebalancing, or interest sweep program and
reserves the right to charge a fee to cover the expenses for special handling.
Account fees are disclosed in Note 6. General
12
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
American also provides certain administrative services for which it charges an
administrative charge to the Separate Accounts at an annual rate of 0.15%.
Administrative charges for Separate Account Twenty-eight totaled $107,610 for
the period ended December 31, 1998. Administrative charges for Separate Account
Twenty-nine totaled $386,179 for the period ended December 31, 1998.
PREMIUM TAXES: In states which charge premium taxes, the taxes are withdrawn
from the purchase payment or the accumulated value of the contract. Premium
taxes are disclosed in Note 6.
NOTE 4 -- PURCHASES AND SALES OF GT GLOBAL VARIABLE INVESTMENT FUND SHARES
During the year ended December 31, 1998, cost of purchases and proceeds from
sales of GT Global Variable Investment Fund shares were as follows:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT TWENTY-EIGHT PURCHASES SALES
- - -------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Money Market Fund............................................................... $577,065,768 $559,927,800
Variable Strategic Income Fund.................................................. 19,470,553 23,990,461
Variable Global Government Income Fund.......................................... 15,006,630 14,864,251
Variable U.S. Government Income Fund............................................ 11,639,871 11,765,510
<CAPTION>
SEPARATE ACCOUNT TWENTY-NINE
- - --------------------------------------------------------------------------------
<S> <C> <C>
Variable New Pacific Fund....................................................... $144,069,403 $151,475,672
Variable Europe Fund............................................................ 291,796,474 294,935,365
Variable America Fund........................................................... 45,431,229 48,421,304
Variable Growth & Income Fund................................................... 59,952,417 64,413,881
Variable Latin America Fund..................................................... 13,111,967 23,194,978
Variable Telecommunications Fund................................................ 34,660,959 40,781,480
Variable International Fund..................................................... 59,613,552 58,364,220
Variable Emerging Markets Fund.................................................. 28,336,567 35,046,721
Variable Natural Resources Fund................................................. 12,598,807 16,507,022
Variable Infrastructure Fund.................................................... 919,762 3,749,492
</TABLE>
NOTE 5 -- ACCUMULATION UNIT ACTIVITY
The following is a summary of the accumulation unit activity for the years ended
December 31, 1998 and 1997 for Separate Account Twenty-eight (in thousands):
<TABLE>
<CAPTION>
VARIABLE
STRATEGIC
MONEY MARKET INCOME
DIVISION DIVISION
------------- ------------
1998 1997 1998 1997
----- ------ ----- -----
<S> <C> <C> <C> <C>
Individual units held:
Deposits............................................................ 297 866 32 132
Transfers........................................................... 781 236 (93) (241)
Withdrawals......................................................... (817) (649) (265) (193)
Outstanding units, beginning of period.............................. 1,943 1,490 1,505 1,807
----- ------ ----- -----
Outstanding units, end of period.................................... 2,204 1,943 1,179 1,505
----- ------ ----- -----
----- ------ ----- -----
General American Life Insurance Company seed money:
Deposits............................................................ 0 0 0 0
Transfers........................................................... 0 0 0 0
Withdrawals......................................................... 0 0 0 0
Outstanding units, beginning of period.............................. 0 0 0 0
----- ------ ----- -----
Outstanding units, end of period.................................... 0 0 0 0
----- ------ ----- -----
----- ------ ----- -----
<CAPTION>
VARIABLE VARIABLE
GLOBAL U.S.
GOVERNMENT GOVERNMENT
INCOME INCOME
DIVISION DIVISION
------------ ------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Individual units held:
Deposits............................................................ 16 62 19 130
Transfers........................................................... 58 (127) 30 54
Withdrawals......................................................... (93) (107) (81) (62)
Outstanding units, beginning of period.............................. 571 743 515 393
----- ----- ----- -----
Outstanding units, end of period.................................... 552 571 483 515
----- ----- ----- -----
----- ----- ----- -----
General American Life Insurance Company seed money:
Deposits............................................................ 0 0 0 0
Transfers........................................................... 0 0 0 0
Withdrawals......................................................... 0 0 0 (17)
Outstanding units, beginning of period.............................. 0 0 0 17
----- ----- ----- -----
Outstanding units, end of period.................................... 0 0 0 0
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
13
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
NOTE 5 -- ACCUMULATION UNIT ACTIVITY (CONT'D)
The following is a summary of the accumulation unit activity for the years ended
December 31, 1998 and 1997 for Separate Account Twenty-nine (in thousands).
There was no activity in Separate Account Twenty-nine relating to General
American Life Insurance Company seed money.
<TABLE>
<CAPTION>
VARIABLE NEW VARIABLE VARIABLE
PACIFIC EUROPE AMERICA
DIVISION DIVISION DIVISION
------------- ------------ ------------
1998 1997 1998 1997 1998 1997
----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 43 181 43 129 50 130
Transfers....................................... (203) (253) 265 (26) 82 (5)
Withdrawals..................................... (212) (186) (264) (119) (353) (248)
Outstanding units, beginning of period.......... 1,518 1,776 1,166 1,182 1,679 1,802
----- ------ ----- ----- ----- -----
Outstanding units, end of period................ 1,146 1,518 1,210 1,166 1,458 1,679
----- ------ ----- ----- ----- -----
----- ------ ----- ----- ----- -----
<CAPTION>
VARIABLE VARIABLE
GROWTH & LATIN
INCOME AMERICA
DIVISION DIVISION
------------ ------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 65 238 35 135
Transfers....................................... 226 469 (434) 149
Withdrawals..................................... (455) (281) (224) (147)
Outstanding units, beginning of period.......... 2,506 2,080 1,429 1,292
----- ----- ----- -----
Outstanding units, end of period................ 2,342 2,506 806 1,429
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE
TELECOMMUNICA- VARIABLE EMERGING
TIONS INTERNATIONAL MARKETS
DIVISION DIVISION DIVISION
------------- ------------ ------------
1998 1997 1998 1997 1998 1997
----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 63 235 16 73 36 175
Transfers....................................... (37) (65) 184 45 (456) 86
Withdrawals..................................... (498) (317) (73) (48) (202) (134)
Outstanding units, beginning of period.......... 3,030 3,177 454 384 1,361 1,234
----- ------ ----- ----- ----- -----
Outstanding units, end of period................ 2,558 3,030 581 454 739 1,361
----- ------ ----- ----- ----- -----
----- ------ ----- ----- ----- -----
<CAPTION>
VARIABLE
NATURAL VARIABLE
RESOURCES INFRASTRUCTURE
DIVISION DIVISION
------------ ------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 41 197 17 140
Transfers....................................... (244) (109) (103) 48
Withdrawals..................................... (124) (71) (81) (36)
Outstanding units, beginning of period.......... 763 746 518 366
----- ----- ----- -----
Outstanding units, end of period................ 436 763 351 518
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NOTE 6 -- SUMMARY OF GROSS AND NET DEPOSITS INTO SEPARATE ACCOUNT
Deposits into the Separate Account are used to purchase shares in GT Global
Variable Investment Funds. Net deposits represent the amounts available for
investment in such shares after deduction of premium taxes, administrative
costs, and surrender charges. Activity for Separate Account Twenty-eight
follows.
<TABLE>
<CAPTION>
VARIABLE STRATEGIC
MONEY MARKET DIVISION INCOME DIVISION
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 4,216,030 $ 11,762,049 $ 596,851 $ 2,330,258
Transfers between fund divisions and General
American......................................... 10,874,210 3,257,598 (1,661,337) (4,271,620)
Surrenders and withdrawals........................ (11,222,268) (8,576,294) (4,797,048) (3,390,198)
--------------- --------------- --------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ 3,867,972 6,443,353 (5,861,534) (5,331,560)
--------------- --------------- --------------- ---------------
Deductions:
Premium taxes................................... (3,705) (3,730) (1,688) (51)
Account Fees.................................... (85,755) (64,857) (5,548) (7,370)
Surrender charges............................... (225,520) (192,554) (78,415) (63,731)
--------------- --------------- --------------- ---------------
Total deductions.............................. (314,980) (261,141) (85,651) (71,152)
--------------- --------------- --------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ 3,552,992 $ 6,182,212 $ (5,947,185) $ (5,402,712)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
14
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
<TABLE>
<CAPTION>
VARIABLE GLOBAL GOVERNMENT VARIABLE U.S. GOVERNMENT INCOME
INCOME DIVISION DIVISION
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 236,964 $ 861,470 $ 278,136 $ 1,728,413
Transfers between fund divisions and General
American......................................... 867,608 (1,767,441) 448,034 818,277
Surrenders and withdrawals........................ (1,384,864) (1,451,204) (1,183,992) (1,059,973)
--------------- --------------- --------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (280,292) (2,357,175) (457,822) 1,486,717
--------------- --------------- --------------- ---------------
Deductions:
Premium taxes................................... (1,093) (81) (1,530) (40)
Account Fees.................................... (3,605) (1,650) (2,400) (1,155)
Surrender charges............................... (16,349) (28,151) (19,733) (11,409)
--------------- --------------- --------------- ---------------
Total deductions.............................. (21,047) (29,882) (23,663) (12,604)
--------------- --------------- --------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ (301,339) $ (2,387,057) $ (481,485) $ 1,474,113
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
Deposits into the Separate Account are used to purchase shares in GT Global
Variable Investment Funds. Net deposits represent the amounts available for
investment in such shares after deduction of premium taxes, administrative
costs, and surrender charges. Activity for Separate Account Twenty-nine follows.
<TABLE>
<CAPTION>
VARIABLE NEW PACIFIC DIVISION VARIABLE EUROPE DIVISION
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 467,192 $ 2,973,353 $ 1,263,348 $ 2,802,922
Transfers between fund divisions and General
American......................................... (3,613,152) (5,841,440) 3,539,888 (1,364,288)
Surrenders and withdrawals........................ (1,811,064) (2,789,649) (6,981,674) (2,584,983)
--------------- --------------- --------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (4,957,024) (5,657,736) (2,178,438) (1,146,349)
--------------- --------------- --------------- ---------------
Deductions:
Premium taxes................................... (669) (510) (264) (627)
Account Fees.................................... (29,317) (34,169) (42,079) (17,392)
Surrender charges............................... (34,751) (57,861) (138,518) (46,967)
--------------- --------------- --------------- ---------------
Total deductions.............................. (64,737) (92,540) (180,861) (64,986)
Net deposits into (deductions from) Separate
Account.......................................... $ (5,021,761) $ (5,750,276) $ (2,359,299) $ (1,211,335)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
VARIABLE AMERICA DIVISION
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Total gross deposits.............................. $ 1,342,670 $ 2,915,843
Transfers between fund divisions and General
American......................................... 2,386,380 (7,332)
Surrenders and withdrawals........................ (8,968,710) (5,643,007)
--------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (5,239,660) (2,734,496)
--------------- ---------------
Deductions:
Premium taxes................................... (2,032) (649)
Account Fees.................................... (18,522) (15,683)
Surrender charges............................... (182,530) (130,800)
--------------- ---------------
Total deductions.............................. (203,084) (147,132)
Net deposits into (deductions from) Separate
Account.......................................... $ (5,442,744) $ (2,881,628)
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE EMERGING MARKETS VARIABLE NATURAL RESOURCES
DIVISION DIVISION
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 388,910 $ 2,618,157 $ 791,216 $ 4,026,534
Transfers between fund divisions and General
American......................................... (5,088,834) 523,758 (4,279,195) (2,016,970)
Surrenders and withdrawals........................ (1,955,068) (1,930,698) (2,064,704) (1,444,994)
--------------- --------------- --------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (6,654,992) 1,211,217 (5,552,683) 564,570
--------------- --------------- --------------- ---------------
Deductions:
Premium taxes................................... (1,079) (415) 0 (562)
Account Fees.................................... (3,638) (8,358) (5,547) (10,975)
Surrender charges............................... (50,233) (41,544) (56,089) (30,577)
--------------- --------------- --------------- ---------------
Total deductions.............................. (54,950) (50,317) (61,636) (42,114)
--------------- --------------- --------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ (6,709,942) $ 1,160,900 $ (5,614,319) $ 522,456
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
VARIABLE INFRASTRUCTURE DIVISION
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Total gross deposits.............................. $ 316,330 $ 2,337,828
Transfers between fund divisions and General
American......................................... (1,757,657) 822,498
Surrenders and withdrawals........................ (1,371,569) (607,136)
--------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (2,812,896) 2,553,190
--------------- ---------------
Deductions:
Premium taxes................................... 0 0
Account Fees.................................... (1,346) (1,007)
Surrender charges............................... (41,538) (12,091)
--------------- ---------------
Total deductions.............................. (42,884) (13,098)
--------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ (2,855,780) $ 2,540,092
--------------- ---------------
--------------- ---------------
</TABLE>
15
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
<TABLE>
<CAPTION>
VARIABLE VARIABLE
GROWTH & INCOME DIVISION LATIN AMERICA DIVISION
--------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 1,415,739 $ 4,331,413 $ 574,021 $ 2,602,831
Transfers between fund divisions and General
American......................................... 4,831,962 8,674,747 (7,364,854) 2,508,321
Surrenders and withdrawals........................ (9,801,457) (5,112,202) (3,366,528) (2,791,244)
---------------- --------------- ---------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (3,553,756) 7,893,958 (10,157,361) 2,319,908
---------------- --------------- ---------------- ---------------
Deductions:
Premium taxes................................... (2,685) (479) (1,300) (555)
Account Fees.................................... (18,337) (10,830) (5,753) (12,923)
Surrender charges............................... (176,568) (93,529) (67,909) (56,397)
---------------- --------------- ---------------- ---------------
Total deductions.............................. (197,590) (104,838) (74,962) (69,875)
---------------- --------------- ---------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ (3,751,346) $ 7,789,120 $ (10,232,323) $ 2,250,033
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE
TELECOMMUNICATIONS DIVISION INTERNATIONAL DIVISION
--------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Total gross deposits.............................. $ 1,581,728 $ 4,855,387 $ 202,306 $ 936,339
Transfers between fund divisions and General
American......................................... (349,612) (919,250) 1,676,410 322,481
Surrenders and withdrawals........................ (12,173,840) (6,748,959) (899,949) (565,656)
---------------- --------------- ---------------- ---------------
Total of gross deposits, transfers, and
surrenders between fund divisions............ (10,941,724) (2,812,822) 978,767 693,164
---------------- --------------- ---------------- ---------------
Deductions:
Premium taxes................................... (3,520) (1,705) 0 0
Account Fees.................................... (36,607) (36,546) (10,016) (5,715)
Surrender charges............................... (239,305) (136,308) (15,159) (13,173)
---------------- --------------- ---------------- ---------------
Total deductions.............................. (279,432) (174,559) (25,175) (18,888)
---------------- --------------- ---------------- ---------------
Net deposits into (deductions from) Separate
Account.......................................... $ (11,221,156) $ (2,987,381) $ 953,592 $ 674,276
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
</TABLE>
16
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT AND
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
SCHEDULE OF INVESTMENTS
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPARATE ACCOUNT TWENTY-EIGHT: NO. OF SHARES MARKET VALUE
- - -------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
GT Global: Money Market Fund.................................................. 34,254,658 $ 34,254,658
GT Global: Variable Strategic Income Fund..................................... 1,723,386 21,352,753
GT Global: Variable Global Government Income Fund............................. 746,975 8,896,473
GT Global: Variable U.S. Government Income Fund............................... 613,927 7,434,652
<CAPTION>
SEPARATE ACCOUNT TWENTY-NINE:
- - --------------------------------------------------------------------------------
<S> <C> <C>
GT Global: Variable New Pacific Fund.......................................... 1,123,308 9,795,249
GT Global: Variable Europe Fund............................................... 1,353,152 31,555,510
GT Global: Variable America Fund.............................................. 1,904,014 38,365,879
GT Global: Variable Growth & Income Fund...................................... 2,567,766 55,232,648
GT Global: Variable Latin America Fund........................................ 928,101 8,919,049
GT Global: Variable Telecommunications Fund................................... 3,348,014 69,169,968
GT Global: Variable International Fund........................................ 596,295 7,078,025
GT Global: Variable Emerging Markets Fund..................................... 824,701 5,517,251
GT Global: Variable Natural Resources Fund.................................... 571,020 6,224,119
GT Global: Variable Infrastructure Fund....................................... 358,492 6,173,230
</TABLE>
See accompanying independent auditors' report.
17
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-EIGHT
CONDENSED FINANCIAL INFORMATION
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION TOTAL UNITS
ACCUMULATION UNIT VALUE: OUTSTANDING,
UNIT VALUE: END OF END OF PERIOD
BEGINNING OF PERIOD* PERIOD (IN THOUSANDS)
-------------------- ------------ --------------
<S> <C> <C> <C> <C>
Money Market Division................................................. 1998 13.75 14.22 2,204
1997 13.30 13.75 1,943
1996 12.87 13.30 1,490
1995 12.40 12.87 1,158
1994 12.15 12.40 1,572
1993 12.00 12.15 303
Variable Strategic Income Division.................................... 1998 18.45 18.09 1,179
1997 17.46 18.45 1,505
1996 14.56 17.46 1,807
1995 12.36 14.56 1,737
1994 15.11 12.36 1,886
1993 12.00 15.11 1,187
Variable Global Government Income Division............................ 1998 14.36 15.96 552
1997 13.95 14.36 571
1996 13.33 13.95 743
1995 11.66 13.33 893
1994 12.95 11.66 825
1993 12.00 12.95 464
Variable U.S. Government Income Division.............................. 1998 14.19 15.27 483
1997 13.29 14.19 515
1996 13.18 13.29 410
1995 11.65 13.18 452
1994 12.61 11.65 205
1993 12.00 12.61 69
</TABLE>
- - --------------
* At inception of Separate Account on February 10, 1993.
See accompanying independent auditors' report.
18
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
CONDENSED FINANCIAL INFORMATION
December 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION TOTAL UNITS
ACCUMULATION UNIT VALUE: OUTSTANDING,
UNIT VALUE: END OF END OF PERIOD
BEGINNING OF PERIOD* PERIOD (IN THOUSANDS)
-------------------- ------------ --------------
<S> <C> <C> <C> <C>
Variable New Pacific Division......................................... 1998 10.11 8.52 1,146
1997 17.41 10.11 1,518
1996 13.48 17.41 1,776
1995 13.70 13.48 1,687
1994 15.87 13.70 1,410
1993 12.00 15.87 492
Variable Europe Division.............................................. 1998 23.41 26.78 1,210
1997 20.62 23.41 1,166
1996 16.05 20.62 1,182
1995 14.84 16.05 970
1994 15.14 14.84 1,007
1993 12.00 15.14 349
Variable America Division............................................. 1998 26.08 27.80 1,458
1997 23.02 26.08 1,679
1996 19.69 23.02 1,802
1995 15.93 19.69 1,906
1994 13.59 15.93 953
1993 12.00 13.59 117
Variable Growth & Income Division..................................... 1998 20.02 23.61 2,342
1997 17.47 20.02 2,506
1996 15.23 17.47 2,080
1995 13.37 15.23 2,002
1994 13.96 13.37 1,908
1993 12.00 13.96 827
Variable Latin America Division....................................... 1998 19.18 11.03 806
1997 16.98 19.18 1,429
1996 14.06 16.98 1,292
1995 18.79 14.06 1,380
1994 17.46 18.79 1,412
1993 12.00 17.46 463
Variable Telecommunications Division.................................. 1998 22.33 26.89 2,558
1997 19.76 22.33 3,030
1996 16.79 19.76 3,177
1995 13.77 16.79 3,019
1994 13.03 13.77 2,612
1993 12.00 13.03 605
Variable International Division....................................... 1998 12.34 12.11 581
1997 11.70 12.34 454
1996 10.94 11.70 384
1995 11.22 10.94 314
1994 12.00 11.22 172
Variable Emerging Markets Division.................................... 1998 11.96 7.44 739
1997 14.06 11.96 1,361
1996 10.88 14.06 1,234
1995 11.93 10.88 809
1994 12.00 11.93 574
</TABLE>
19
<PAGE>
GENERAL AMERICAN SEPARATE ACCOUNT TWENTY-NINE
<TABLE>
<CAPTION>
ACCUMULATION TOTAL UNITS
ACCUMULATION UNIT VALUE: OUTSTANDING,
UNIT VALUE: END OF END OF PERIOD
BEGINNING OF PERIOD* PERIOD (IN THOUSANDS)
-------------------- ------------ --------------
<S> <C> <C> <C> <C>
Variable Natural Resources Division................................... 1998 21.54 14.23 436
1997 21.57 21.54 763
1996 14.47 21.57 746
1995 12.00 14.47 86
Variable Infrastructure Division...................................... 1998 16.71 17.52 351
1997 16.13 16.71 518
1996 13.10 16.13 366
1995 12.00 13.10 113
</TABLE>
- - --------------
* At inception of Separate Account on February 10, 1993, except for the Variable
Telecommunications Division, which commenced operations on October 18, 1993;
the Variable International Growth Division, which commenced operations on July
12, 1994; the Variable Emerging Markets Division, which commenced operations
on July 6, 1994; and the Variable Natural Resources Division and Variable
Infrastructure Division which commenced operations on January 31, 1995.
See accompanying independent auditors' report.
20
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Members of
General American Life Insurance Company:
We have audited the accompanying consolidated balance sheets of General
American Life Insurance Company and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations,
comprehensive income, stockholder equity, and cash flows for each of the
years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
General American Life Insurance Company and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
March 4, 1999
<PAGE>
<PAGE>
<TABLE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(dollars in thousands)
<CAPTION>
ASSETS 1998 1997
----------- ----------
<S> <C> <C>
Fixed maturities:
Available for sale, at fair value $11,068,283 9,115,519
Mortgage loans, net 2,337,542 2,140,262
Real estate, net 129,851 140,145
Equity securities, at fair value 48,550 24,211
Policy loans 2,151,028 2,073,152
Short-term investments 195,346 190,374
Other invested assets 457,645 243,921
----------- ----------
Total investments 16,388,245 13,927,584
Cash and cash equivalents 591,107 358,879
Accrued investment income 205,645 168,592
Reinsurance recoverables 904,998 718,717
Other contract deposits 4,094,777 3,336,328
Deferred policy acquisition costs 773,762 695,253
Other assets 602,965 488,582
Separate account assets 5,287,456 4,118,860
----------- ----------
Total assets $28,848,955 23,812,795
=========== ==========
LIABILITIES AND STOCKHOLDER EQUITY
Policy and contract liabilities:
Future policy benefits $5,516,869 4,933,787
Policyholder account balances:
Universal life 2,960,940 2,534,744
Annuities 3,714,526 4,161,946
Pension funds and interest sensitive
contract liabilities 7,581,276 4,732,400
Policy and contract claims 591,088 458,606
Dividends payable to policyholders 121,740 113,525
----------- ----------
Total policy and contract liabilities 20,486,439 16,935,008
Amounts payable to reinsurers 201,395 247,679
Long-term debt and notes payable 221,850 214,477
Other liabilities and accrued expenses 912,291 826,868
Deferred tax liability, net 75,429 89,046
Separate account liabilities 5,267,553 4,112,666
----------- ----------
Total liabilities 27,164,957 22,425,744
----------- ----------
Minority interests 383,085 216,555
Stockholder equity:
Common stock, $1 par value, 5,000,000 shares
authorized, 3,000,000 shares issued and
outstanding 3,000 3,000
Additional paid-in capital 3,000 3,000
Retained earnings 1,242,004 1,057,613
Accumulated other comprehensive income 52,909 106,883
----------- ----------
Total stockholder equity 1,300,913 1,170,496
----------- ----------
Total liabilities and stockholder equity $28,848,955 23,812,795
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1997, and 1996
(dollars in thousands)
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations $2,244,156 1,768,169 1,623,228
Net investment income 1,135,838 945,542 806,883
Ceded commissions 39,921 44,902 27,538
Other income 330,731 362,160 280,803
Net realized investment gains 13,646 28,538 24,531
---------- --------- ---------
Total revenues 3,764,292 3,149,311 2,762,983
Benefits and expenses:
Policy benefits 1,992,997 1,528,333 1,379,803
Interest credited to policyholder account balances 426,806 345,937 262,532
---------- --------- ---------
Total policyholder benefits 2,419,803 1,874,270 1,642,335
Dividends to policyholders 192,085 182,146 171,904
Policy acquisition costs 240,640 168,045 143,094
Other insurance and operating expenses 711,901 739,814 642,636
---------- --------- ---------
Total benefits and expenses 3,564,429 2,964,275 2,599,969
---------- --------- ---------
Income before provision for income taxes
and minority interest 199,863 185,036 163,014
---------- --------- ---------
Income tax provision (benefit):
Current 35,226 65,778 45,902
Deferred 18,351 (113) 13,992
---------- --------- ---------
Total provision for income taxes 53,577 65,665 59,894
---------- --------- ---------
Income before minority interest 146,286 119,371 103,120
Minority interest in earnings of consolidated
subsidiaries (29,220) (22,134) (19,888)
---------- --------- ---------
Net income $117,066 97,237 83,232
========== ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
(dollars in thousands)
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net income $117,066 97,237 83,232
Other comprehensive (loss) income (53,974) 75,583 (49,705)
-------- ------- -------
Comprehensive income $63,092 172,820 33,527
======== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholder Equity
Years ended December 31, 1998, 1997, and 1996
(dollars in thousands)
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDER
STOCK CAPITAL EARNINGS INCOME EQUITY
------ ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- -- 876,078 81,005 957,083
Net income -- -- 83,232 -- 83,232
Other comprehensive (loss) income -- -- -- (49,705) (49,705)
Other, net -- -- 7,177 -- 7,177
------ ----- --------- ------- ---------
Balance at December 31, 1996 -- -- 966,487 31,300 997,787
Net income -- -- 97,237 -- 97,237
Other comprehensive income -- -- -- 75,583 75,583
Issuance of common stock 3,000 3,000 (6,000) -- --
Dividend to parent -- -- (4,480) -- (4,480)
Other, net -- -- 4,369 -- 4,369
------ ----- --------- ------- ---------
Balance at December 31, 1997 3,000 3,000 1,057,613 106,883 1,170,496
Net income -- -- 117,066 -- 117,066
Other comprehensive (loss) income -- -- -- (53,974) (53,974)
Parent's share of subsidiary's
issuance of nonvoting stock -- -- 68,609 -- 68,609
Other, net -- -- (1,284) -- (1,284)
------ ----- --------- ------- ---------
Balance at December 31, 1998 $3,000 3,000 1,242,004 52,909 1,300,913
====== ===== ========= ======= =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
(dollars in thousands)
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 117,066 97,237 83,232
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in:
Accrued investment income (37,424) (20,568) (16,275)
Reinsurance recoverables and other contract deposits (942,384) (838,390) (159,713)
Deferred policy acquisition costs (102,050) (113,040) (87,249)
Other assets (99,506) (61,796) (51,444)
Future policy benefits 582,899 693,052 330,511
Policy and contract claims 132,481 105,503 14,652
Other liabilities and accrued expenses 48,220 319,787 65,184
Deferred income tax provision 18,351 (113) 13,992
Policyholder considerations (219,295) (137,163) (144,748)
Interest credited to policyholder account balances 426,806 345,937 262,532
Amortization and depreciation 34,578 32,744 28,375
Net realized investment gains (13,646) (28,538) (24,531)
Other, net 7,380 372 (14,554)
----------- ---------- ----------
Net cash (used in) provided by operating
activities (46,524) 395,024 299,964
----------- ---------- ----------
Cash flows from investing activities:
Proceeds from investments sold or redeemed:
Fixed maturities available for sale 2,027,415 2,070,743 1,822,169
Mortgage loans 370,418 594,151 182,650
Equity securities 2,065 31,602 13,427
Cost of investments purchased:
Fixed maturities available for sale (4,251,065) (4,463,100) (3,428,943)
Mortgage loan originations (594,480) (438,959) (593,438)
Equity securities (17,396) (47,283) (39,553)
Maturity of fixed maturities available for sale 145,247 281,736 225,087
Increase in policy loans, net (77,876) (153,399) (210,624)
Increase in short-term and other invested assets, net (215,142) (130,464) (12,678)
Investments in subsidiaries (24,531) (6,032) (4,807)
----------- ---------- ----------
Net cash used in investing activities (2,635,345) (2,261,005) (2,046,710)
----------- ---------- ----------
Cash flows from financing activities:
Net policyholder account and contract deposits 2,682,959 2,121,488 1,632,495
Proceeds from subsidiary stock offering 221,837 -- --
Issuance of debt 2,281 1,857 106,903
Repayment of debt (411) (80,606) (19,497)
Dividends (3,839) (2,112) (1,832)
Other, net 27,577 46,829 26,770
----------- ---------- ----------
Net cash provided by financing activities 2,930,404 2,087,456 1,744,839
----------- ---------- ----------
Effect of exchange rate changes (16,307) (5,320) (266)
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 232,228 216,155 (2,173)
Cash and cash equivalents at beginning of year 358,879 142,724 144,897
----------- ---------- ----------
Cash and cash equivalents at end of year $ 591,107 358,879 142,724
=========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
In September 1996, the Board of Directors of General American
Life Insurance Company (General American) adopted the
Reorganization Plan (Plan) which authorized the reorganization
(Reorganization) of General American into a mutual insurance
holding company structure. The Missouri Department of Insurance
held a public hearing on the Reorganization on December 19, 1996
and approved the Plan on January 24, 1997. The policyholders of
General American approved the Plan on January 28, 1997 and the
Reorganization became effective on April 24, 1997 (effective
date). General American was the first company to obtain approval
and to form a mutual insurance holding company under the Missouri
Mutual Holding Company Statute.
Pursuant to the Reorganization, General American (the Company)
(i) formed General American Mutual Holding Company (GAMHC) as a
mutual insurance holding company under the insurance laws of the
State of Missouri, (ii) formed GenAmerica Corporation
(GenAmerica) as an intermediate stock holding company under the
general laws of the State of Missouri, and (iii) amended and
restated its Charter and Articles of Incorporation to authorize
the issuance of capital stock and the continuance of its
existence as a stock life insurance company under the same name.
GAMHC may, among other things, elect all of the directors of
GenAmerica and approve matters submitted for shareholder
approval. As of the effective date of the Reorganization, the
membership interests and the contractual rights of the
policyholders of the Company were separated - the membership
interests automatically became, by operation of law, membership
interests in GAMHC and the contractual rights remained with the
Company. Each person who becomes the owner of a designated policy
or contract of insurance or annuity issued by the Company after
the effective date of the Reorganization (subject to certain
exceptions and conditions set forth in the Articles of
Incorporation of GAMHC) will become a member of GAMHC and have a
membership interest in GAMHC by operation of law so long as such
policy or contract remains in force. The membership interests in
GAMHC follow, and are not severable, from the insurance policy or
annuity contract from which the membership interest in GAMHC is
derived.
On the effective date, the Company issued three million shares of
its authorized shares of capital stock to GAMHC. GAMHC then
contributed all of these to GenAmerica in exchange for one
thousand shares of its common stock. As a result, GenAmerica
directly owns the Company, and GAMHC indirectly owns the Company,
through GenAmerica. The Reorganization was accounted for at
historical cost in a manner similar to a pooling of interests.
The consolidated financial statements include the assets,
liabilities, and results of operations of the Company and its
wholly owned subsidiaries, General American Holding Company, a
noninsurance holding company; Cova Corporation, an insurance
holding company; Paragon Life Insurance Company; Security Equity
Life Insurance Company; General Life Insurance Company of
America; General Life Insurance Company, its 53.3 percent owned
subsidiary, Reinsurance Group of America, Incorporated (RGA), an
insurance holding company, and its 62.7 percent owned subsidiary,
Conning Corporation.
(Continued)
7
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The Company's principal lines of business, conducted through
itself or one of its subsidiaries, are Individual Life Insurance,
Annuities, Group Life and Health Insurance, Asset Management, and
Reinsurance. The Company distributes its products and services
primarily through a nationwide network of general agencies,
independent brokers, and group sales and claims offices. The
Company and its subsidiaries are licensed to do business in all
fifty states, ten Canadian provinces, Puerto Rico, and the
District of Columbia. Through its subsidiaries, the Company has
operations in Europe, Pacific Rim countries, Latin America, and
Africa.
INITIAL PUBLIC OFFERING
In December 1997, the Company's subsidiary, Conning Corporation
(Conning), successfully completed an initial public offering
(IPO) of 2.875 million shares of its common stock. Conning
received net proceeds of approximately $34.5 million from the
offering. The Company owned 62.7 percent of the total shares
outstanding of Conning's common stock at December 31, 1998 and
1997. The publicly held stock of Conning is listed on the NASDAQ
National Market System.
SUBSEQUENT OFFERINGS
At the Company's subsidiary, RGA's annual stockholders' meeting
on May 27, 1998, a new class of non-voting common stock was
authorized. In June 1998, RGA completed a secondary public
offering in which it sold 4.945 million shares of non-voting
common stock traded on the New York Stock Exchange under the
symbol RGA.A. The offering provided net proceeds of
approximately $221.8 million which have been utilized to finance
the continued growth of RGA's operations domestically and
internationally. After the subsequent offering, the Company's
ownership percentage decreased from 63.8 percent to 53.3 percent.
SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared
on the basis of generally accepted accounting principles (GAAP)
and include the accounts of the Company and its majority owned
subsidiaries. Less than majority-owned entities in which the
Company has at least a 20 percent interest are reported on the
equity basis. All significant intercompany accounts and
transactions have been eliminated in consolidation. The
preparation of financial statements requires the use of estimates
by management which affect the amounts reflected in the financial
statements. Actual results could differ from those estimates.
Accounts that the Company deems to be sensitive to changes in
estimates include future policy benefits and policy and contract
claims, deferred acquisition costs, and investment and deferred
tax valuation allowances.
The significant accounting policies of the Company are as
follows:
RECOGNITION OF REVENUE
For traditional life policies, including participating
businesses, premiums are recognized when due, less allowances for
estimated uncollectible balances. For limited payment contracts,
net premiums are recorded as revenue, and the difference between
the gross premium and the net premium is deferred and recognized
in income in a constant relationship to insurance in force over
the estimated policy life.
(Continued)
8
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
For universal life and annuity products, contract charges for
mortality, surrender, and expense, other than front-end expense
charges, are reported as income when charged to policyholders'
accounts.
Other income represents the fees generated from the Company's
noninsurance operations, primarily service and contract fees
relating to concessions, asset management, system development,
and third-party administration. Amounts are recognized when
earned.
INVESTED ASSETS
FIXED MATURITIES AND EQUITY SECURITIES: All of the
Company's securities are classified as available for sale.
Fixed maturities available for sale are reported at fair
value and are so classified based on the possibility that
such securities could be sold prior to maturity if that
action enables the Company to execute its investment
philosophy and appropriately match investment results to
operating and liquidity needs. Equity securities are
carried at fair value.
Realized gains or losses on the sale of securities are
determined on the basis of specific identification.
Unrealized gains and losses are recorded, net of related
income tax effects, in accumulated other comprehensive
income, a separate component of stockholders' equity.
MORTGAGE LOANS: Mortgage loans on real estate are stated
at an unpaid principal balance, net of unamortized
discounts and valuation allowances for possible impairment
in value. The Company discontinues the accrual of interest
on mortgage loans which are more than 90 days delinquent.
Interest received on nonaccrual mortgage loans is generally
reported as interest income.
POLICY LOANS, REAL ESTATE, AND OTHER INVESTED ASSETS:
Policy loans are carried at an unpaid principal balance and
are generally secured by the cash surrender value.
Investment real estate which the Company has the intent to
hold for the production of income is carried at depreciated
cost, net of writedowns for other than temporary declines
in fair value and encumbrances. Properties held for sale
(primarily acquired through foreclosure) are carried at the
lower of depreciated cost (fair value at foreclosure plus
capital additions less accumulated depreciation and
encumbrances) or fair value. Adjustments to carrying value
of properties held for sale are recorded in a valuation
reserve when the fair value is below depreciated cost. The
accumulated depreciation and encumbrances on real estate
amounted to $52.4 million and $47.0 million at December 31,
1998 and 1997, respectively. Direct valuation allowances
amounted to $7.3 million and $6.7 million at December 31,
1998 and 1997, respectively. Other invested assets are
principally recorded at fair value.
SHORT-TERM INVESTMENTS: Short-term investments, consisting
primarily of money market instruments and other debt issues
purchased with an original maturity of less than a year,
are carried at amortized cost, which approximates fair
value.
INVESTED ASSET IMPAIRMENT AND VALUATION ALLOWANCES:
Invested assets are considered impaired when the Company
determines that collection of all amounts due under the
contractual terms is doubtful. The Company adjusts invested
assets to their estimated net realizable value at the point
at which it determines an impairment is other than
temporary. In addition, the Company has established
valuation allowances for mortgage loans and other invested
assets. Valuation
(Continued)
9
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
allowances for other than temporary impairments in value
are netted against the asset categories to which they
apply. Additions to valuation allowances are included in
realized gains and losses.
The Company recognizes its proportionate share of the
resultant gains or losses on the issuance or repurchase of
its subsidiaries' stock as a direct credit or charge to
unassigned funds.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash
flows, cash and cash equivalents represent cash, demand
deposits, and highly liquid short-term investments, which
include U.S. Treasury bills, commercial paper, and
repurchase agreements with original or remaining maturities
of 90 days or less when purchased.
INVESTMENT INCOME
Fixed maturity premium and discounts are amortized into income
using the scientific yield method over the term of the security.
Amortization of the premium or discount on mortgage-backed
securities is recognized using a scientific yield method which
considers the estimated timing and amount of prepayments of
underlying mortgage loans. Actual prepayment experience is
periodically reviewed and effective yields are adjusted when
differences arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated.
When such differences occur, the net investment in the
mortgage-backed security is adjusted to the amount that would
have existed had the new effective yield been applied since the
acquisition of the security with a corresponding charge or credit
to interest income (the "retrospective method").
POLICY AND CONTRACT LIABILITIES
For traditional life insurance policies, future policy benefits
are computed using a net level premium method with actuarial
assumptions as to mortality, persistency, and interest
established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on industry
standards and the Company's historical experience which, together
with interest and expense assumptions, provide a margin for
adverse deviation. Interest rate assumptions generally range from
2.5 percent to 11.0 percent. When the liabilities for future
policy benefits plus the present value of expected future gross
premiums are insufficient to provide for expected policy benefits
and expenses, unrecoverable deferred policy acquisition costs are
written off and thereafter a premium deficiency reserve is
established through a charge to earnings.
For participating policies, future policy benefits are computed
using a net level premium method based on the guaranteed cash
value basis for mortality and interest. Mortality rates are
similar to those used for statutory valuation purposes. Interest
rates generally range from 2.5 percent to 6.0 percent. Dividend
liabilities are established when earned.
Policyholder account balances for universal life and annuity
policies are equal to the policyholder account value before
deduction of any surrender charges. The policyholder account
value represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges, and
withdrawals. These expense charges are recognized in income as
earned.
(Continued)
10
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The range of weighted average interest crediting rates used by
the Company's life insurance subsidiaries were as follows:
1998 1997 1996
---------- ---------- -----------
Universal life 5.25-7.10% 6.00-7.10% 6.00-7.56%
Annuities 4.00-9.20% 5.70-9.30% 5.70-13.00%
========== ========== ===========
Accident and health benefits for active lives are calculated
using the net level premium method and assumptions as to future
morbidity, withdrawals, and interest, which provide a margin for
adverse deviation. Benefit liabilities for disabled lives are
calculated using the present value of future benefits and
experience assumptions for claim termination, expense, and
interest which also provide a margin for adverse deviation.
POLICY AND CONTRACT CLAIMS
The Company establishes a liability for unpaid claims based on
estimates of the ultimate cost of claims incurred, which is
comprised of aggregate case basis estimates, average claim costs
for reported claims, and estimates of incurred but not reported
losses based on past experience. Policy and contract claims
include a provision for both life and accident and health claims.
Management believes the liabilities for unpaid claims are
adequate to cover the ultimate liability; however, due to the
underlying risks and the high degree of uncertainty associated
with the determination of the liability for unpaid claims, the
amounts which will ultimately be paid to settle these liabilities
cannot be precisely determined and may vary from the estimated
amount included in the consolidated balance sheets.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are
primarily related to the production of new and renewal business,
have been deferred to the extent that such costs are deemed
recoverable from future profitability of the underlying business.
Such costs include commissions, premium taxes, as well as certain
other costs of policy issuance and underwriting.
For limited payment and other nonparticipating traditional life
insurance policies, the deferred policy acquisition costs are
amortized, with interest, in proportion to the ratio of the
expected annual premium revenue to the expected total premium
revenue. Expected future premium revenue is estimated utilizing
the same assumptions used for computing liabilities for future
policy benefits for these policies.
For participating life insurance, universal life, and annuity
type contracts, the deferred policy acquisition costs are
amortized over a period of not more than thirty years in relation
to the present value of estimated gross profits arising from
interest margin, cost of insurance, policy administration, and
surrender charges.
(Continued)
11
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The range of average rates of assumed interest used by the
Company's life insurance subsidiaries in estimated gross margins
were as follows:
1998 1997 1996
---------- ---------- ----------
Participating life 8.25% 8.17% 8.70%
Universal life 6.25-7.50% 6.25-7.79% 6.00-8.20%
Annuities 7.00-7.83% 7.00-7.84% 7.83%
========== ========== ==========
The estimates of expected gross margins are evaluated regularly
and are revised if actual experience or other evidence indicates
that revision is appropriate. Upon revision, total amortization
recorded to date is adjusted by a charge or credit to current
earnings. Deferred policy acquisition costs are adjusted for the
impact on estimated gross margins as if the net unrealized gains
and losses on securities had actually been realized.
REINSURANCE AND OTHER CONTRACT DEPOSITS
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured by ceding risks to other
insurance enterprises or reinsurers under various types of
contracts including coinsurance and excess coverage. The
Company's retention level per individual life ranges between $50
thousand and $2.5 million depending on the entity writing the
policy.
The Company assumes and retrocedes financial reinsurance
contracts which represent low mortality risk reinsurance
treaties. These contracts are reported as deposits and are
included in other contract deposits in the consolidated balance
sheets. The amount of revenue reported on these contracts
represents fees and the cost of insurance under the terms of the
reinsurance agreement.
Reinsurance activities are accounted for consistent with terms of
the underlying contracts. Premiums ceded to other companies have
been reported as a reduction of premiums. Amounts applicable to
reinsurance ceded for future policy benefits and claim
liabilities have been reported as assets for these items, and
commissions and expense allowances received in connection with
reinsurance ceded have been accounted for in income as earned.
Reinsurance does not relieve the Company from its primary
responsibility to meet claim obligations. The Company evaluates
the financial conditions of its reinsurers annually.
FEDERAL INCOME TAXES
The Company and certain of its U.S. subsidiaries file
consolidated federal income tax returns. Any acquired life
insurance company is not included in the consolidated return
until the acquired company has been a member of the group for
five years. Prior to satisfying the five-year requirement, the
subsidiary files a separate federal return. RGA Barbados, a
subsidiary of RGA, also files a U.S. tax return. The Company's
foreign subsidiaries are taxed under applicable local statutes.
No deferred tax liabilities have been recognized for the foreign
subsidiaries per Accounting Principles Board (APB) Opinion 23,
Accounting for Income Taxes - Special Areas. The Company uses
the asset and liability method to record deferred income taxes.
(Continued)
12
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, using
enacted tax rates, expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled.
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance and annuity contracts
for the exclusive benefit of the contractholders. The Company
charges the separate account for cost of insurance and
administrative expense associated with a contract and charges
related to early withdrawals by contractholders. The assets and
liabilities of the separate account are carried at fair value.
The Company's participation in the separate account (seed money)
is carried at fair value in the separate account, and amounted to
$19.9 million and $6.2 million at December 31, 1998 and 1997,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial
instrument. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in
assumptions could significantly affect the estimates and such
estimates should be used with care. The following assumptions
were used to estimate the fair value of each class of financial
instrument for which it was practicable to estimate fair value:
INVESTMENT SECURITIES: Fixed maturities are valued using
quoted market prices, if available. For securities not
actively traded, fair values are estimated using values
obtained from independent pricing services or in the case
of private placements are estimated by discounting expected
future cash flows using a current market rate applicable to
the yield, credit quality, and maturity of investments. The
fair values of equity securities are based on quoted market
prices.
MORTGAGE LOANS: The fair values of mortgage loans are
estimated using discounted cash flow analyses and interest
rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the
calculations.
POLICY LOANS: The fair value of policy loans approximates
the carrying value. The majority of these loans are
indexed, with a yield tied to a stated return.
POLICYHOLDER ACCOUNT BALANCES ON INVESTMENT TYPE CONTRACTS:
Fair values for the Company's liabilities under investment-
type contracts are estimated using discounted cash flow
calculations based on interest rates currently being
offered for similar contracts with maturities consistent
with those remaining for the contracts being valued. For
contracts with no defined maturity date, the carrying value
approximates fair value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The separate
account assets and liabilities are carried at fair value as
determined by the market value of the underlying segregated
investments.
(Continued)
13
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: The
carrying amount approximates fair value.
LONG-TERM DEBT AND NOTES PAYABLE: The fair value of long-
term debt and notes payable is estimated using discounted
cash flow calculations based on interest rates currently
being offered for similar instruments.
Refer to note 3 for additional information on fair value of
financial instruments.
RECLASSIFICATION
The Company has reclassified the presentation of certain prior
period information to conform to the 1998 presentation.
(2) INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost and estimated fair value of fixed maturities
and equity securities at December 31, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 20,708 424 -- 21,132
Government agency
obligations 1,151,467 122,506 (11,176) 1,262,797
Corporate securities 6,889,983 380,072 (164,130) 7,105,925
Mortgage-backed securities 1,812,376 34,027 (38,553) 1,807,850
Asset-backed securities 861,736 13,027 (4,184) 870,579
----------- ------- -------- ----------
Total fixed maturities
available for sale $10,736,270 550,056 (218,043) 11,068,283
=========== ======= ======== ==========
Equity securities $ 39,041 9,509 -- 48,550
=========== ======= ======== ==========
</TABLE>
(Continued)
14
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 48,074 1,125 (27) 49,172
Government agency
obligations 378,002 84,425 (1,281) 461,146
Corporate securities 5,491,210 319,682 (45,790) 5,765,102
Mortgage-backed securities 2,544,241 45,211 (17,832) 2,571,620
Asset-backed securities 265,725 3,380 (626) 268,479
---------- ------- ------- ---------
Total fixed maturities
available for sale $8,727,252 453,823 (65,556) 9,115,519
========== ======= ======= =========
Equity securities $ 23,558 653 -- 24,211
========== ======= ======= =========
</TABLE>
The Company manages its credit risk associated with fixed
maturities by diversifying its portfolio. At December 31, 1998,
the Company held no corporate debt securities or foreign
government debt securities of a single issuer which had a
carrying value in excess of ten percent of stockholders' equity.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1998 are shown by contractual
maturity for all securities except, U.S. Government agencies
mortgage-backed securities which are distributed by maturity year
based on the Company's estimate of the rate of future prepayments
of principal over the remaining lives of the securities (in
thousands). These estimates are developed using prepayment
speeds provided in broker consensus data. Such estimates are
derived from prepayment speed experience at the interest rate
levels projected for the applicable underlying collateral and can
be expected to vary from actual experience. Expected maturities
may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less $ 201,267 201,307
Due after one year through five years 1,794,887 1,821,575
Due after five years through ten years 2,479,699 2,528,321
Due after ten years through twenty years 4,448,041 4,709,231
Mortgage-backed securities 1,812,376 1,807,849
----------- ----------
Total $10,736,270 11,068,283
=========== ==========
</TABLE>
(Continued)
15
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The sources of net investment income follow (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Fixed maturities $ 744,347 561,709 464,512
Mortgage loans 188,775 194,504 171,781
Real estate 25,682 34,164 39,062
Equity securities 1,195 1,317 755
Policy loans 152,247 148,316 133,511
Short-term investments 22,380 16,600 13,979
Other 18,938 13,943 9,705
---------- ------- -------
Investment revenue 1,153,564 970,553 833,305
Investment expenses (17,726) (25,011) (26,422)
---------- ------- -------
Net investment income $1,135,838 945,542 806,883
========== ======= =======
</TABLE>
Net realized gains (losses) from sales of investments consist of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities:
Realized gains $19,027 23,969 27,928
Realized losses (13,978) (16,796) (10,398)
Equity securities:
Realized gains 1,985 1,835 6,146
Realized losses (164) (1,457) (288)
Other investments, net 6,776 20,987 1,143
------- ------- -------
Net realized investment gains $13,646 28,538 24,531
======= ======= =======
</TABLE>
Included in the net realized losses are permanent write-downs of
approximately $5.5 million and $4.8 million during 1998 and 1997,
respectively.
(Continued)
16
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturities available for sale $ 332,015 388,267
Equity securities and short-term investments 9,561 658
Derivatives (5,261) 888
Effect of unrealized appreciation (depreciation) on:
Deferred policy acquisition costs (155,713) (142,187)
Present value of future profits (473) (2,901)
Deferred income taxes (69,135) (91,779)
Other (2,931) 139
Minority interest, net of taxes (19,561) (24,341)
--------- --------
Net unrealized appreciation $ 88,502 128,744
========= ========
</TABLE>
The Company has securities on deposit with various state
insurance departments and regulatory authorities with an
amortized cost of approximately $545.7 million and $346.6 million
at December 31, 1998 and 1997, respectively.
MORTGAGE LOANS
The Company originates mortgage loans on income-producing
properties, such as apartments, retail and office buildings,
light warehouses, and light industrial facilities. Loan to value
ratios at the time of loan approval are 75 percent or less. The
Company minimizes risk through a thorough credit approval process
and through geographic and property type diversification.
The Company's mortgage loans were distributed as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
CARRYING PERCENT CARRYING PERCENT
VALUE OF TOTAL VALUE OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Arizona $ 167,628 7.1% $ 156,453 7.2%
California 395,329 16.6 358,443 16.5
Colorado 228,096 9.6 228,797 10.5
Florida 171,608 7.2 153,174 7.0
Georgia 176,090 7.4 131,861 6.1
Illinois 162,168 6.8 155,184 7.1
Maryland 102,915 4.3 104,567 4.8
Missouri 93,528 3.9 100,815 4.6
Texas 197,375 8.3 191,619 8.8
Washington 99,615 4.2 84,140 3.9
Other 581,717 24.6 513,213 23.5
---------- ----- ---------- -----
Subtotal 2,376,069 100.0% 2,178,266 100.0%
===== =====
Valuation reserve (38,527) (38,004)
---------- ----------
Total $2,337,542 $2,140,262
========== ==========
</TABLE>
(Continued)
17
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
CARRYING PERCENT CARRYING PERCENT
VALUE OF TOTAL VALUE OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Property type:
Apartment $ 77,069 3.2% $ 101,038 4.6%
Retail 872,205 36.7 903,438 41.5
Office building 747,824 31.5 622,185 28.6
Industrial 422,553 17.8 445,253 20.4
Other commercial 256,418 10.8 106,352 4.9
---------- ----- ---------- -----
Subtotal 2,376,069 100.0% 2,178,266 100.0%
===== =====
Valuation reserve (38,527) (38,004)
---------- ----------
Total $2,337,542 $2,140,262
========== ==========
</TABLE>
An impaired loan is measured at the present value of expected
future cash flows or, alternatively, the observable market price
or the fair value of the collateral.
Mortgage loans which have been non-income producing for the
preceding twelve months were $20.1 million and $8.7 million at
December 31, 1998 and 1997, respectively. At December 31, 1998
and 1997, the recorded investment in mortgage loans that were
considered impaired was $100.7 million and $119.7 million,
respectively, with related allowances for credit losses of
$12.6 million and $12.7 million, respectively. The average
recorded investment in impaired loans during 1998 and 1997 was
$110.2 million and $103.1 million, respectively.
For the years ended December 31, 1998, 1997, and 1996, the
Company recognized $6.8 million, $9.7 million, and $6.6 million,
respectively, of interest income on those impaired loans, which
included $7.0 million, $9.9 million, and $6.7 million,
respectively, of interest income recognized using the cash basis
method of income recognition.
The Company has outstanding mortgage loan commitments as of
December 31, 1998 totaling $429.5 million.
SECURITIES LENDING
The Company participates in a securities lending program. The
amount on loan at December 31, 1998 was $122.5 million and was
appropriately collateralized.
(Continued)
18
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
DERIVATIVES
The Company has a variety of reasons to use derivative
instruments, such as to attempt to protect the Company against
possible changes in the market value of its portfolio as a result
of interest rate changes and to manage the portfolio's effective
yield, maturity, and duration. The Company does not invest in
derivatives for speculative purposes. Upon disposition, a
realized gain or loss is recognized accordingly, except when
exercising an option contract or taking delivery of a security
underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of
the security underlying the option of futures contract.
Summarized below are the specific types of derivative instruments
used by the Company.
INTEREST RATE SWAPS: The Company manages interest rate
risk on certain contracts, primarily through the
utilization of interest rate swaps. Under interest rate
swaps, the Company agrees with counterparties to exchange,
at specified intervals, the payments between floating and
fixed-rate interest amounts calculated by reference to
notional amounts. Net interest payments are recognized
within net investment income in the consolidated statements
of operations.
At December 31, 1998, the Company had 35 outstanding
interest rate swap agreements which expire at various dates
through 2025. Under 15 of the agreements, the Company
receives a fixed rate ranging from 5.79 percent to 7.57
percent on a notional amount of $80.5 million and pays a
floating rate based on London Interbank Offered Rate
(LIBOR). Under 19 outstanding interest rate swap
agreements, the Company receives a floating rate based on
LIBOR on a notional amount of $116.0 million and pays a
fixed rate ranging from 3.13 percent to 8.56 percent. On
the remaining swap agreement, the Company receives a
floating rate based on LIBOR on a notional amount of $5
million and pays a floating rate based on LIBOR. The
estimated fair value of the agreements at December 31, 1998
was a net loss of approximately $4.7 million, which is
recognized in accumulated other comprehensive income.
At December 31, 1997, the Company had 30 outstanding
interest rate swap agreements which expire at various dates
through 2025. Under 13 of the agreements, the Company
receives a fixed rate ranging from 5.98 percent to 7.51
percent on a notional amount of $68.6 million and pays a
floating rate based on LIBOR. Under the remaining 17
outstanding interest rate swap agreements, the Company
receives a floating rate based on LIBOR on a notional
amount of $93 million and pays a fixed rate ranging from
6.50 percent to 8.56 percent. The estimated fair value of
the agreements was a net loss of approximately $2.5
million, which is not recognized in accumulated other
comprehensive income.
CURRENCY SWAPS AND CROSS CURRENCY SWAPS: Under foreign
currency swaps, the Company agrees with other parties to
exchange at specified intervals, the difference between two
currencies on an exchange rate basis the interest amounts
calculated by reference to an agreed notional principal
amount. Under cross currency swaps, the Company swaps the
difference between two currencies and between floating and
fixed-rate interest amounts calculated by reference to
notional amounts. The Company uses this technique for
foreign denominated assets to match dollar denominated
liabilities of various fixed income products. Net interest
payments are recognized within net investment income in the
consolidated statements of operations.
(Continued)
19
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The Company had one outstanding currency swap agreement and
five outstanding cross currency swaps at December 31, 1998
and 1997, respectively, which expire at various dates
through 2016. The notional amount was $34.2 million and
$34.3 million, respectively. The 1998 estimated fair value
of the agreements was a net loss of $5.5 million and is
recognized in accumulated other comprehensive income and
the 1997 net loss of $1.3 million is not recognized in
accumulated other comprehensive income.
TOTAL RETURN SWAP: The Company uses the total return swap
to construct a structured product that resembles an equity
linked note. The total return swap is used to obtain the
equity participation. The Company agrees with other
parties to pay at specified intervals, floating-rate
interest amounts calculated by reference to an agreed
notional principal amount. In return the Company receives
equity participation, which is calculated by reference to
an agreed equity market index and a notional principal
amount. If the amount is positive at the termination date,
the Company receives such amount. If the amount is
negative at the termination date, the Company pays out such
amount to the counterparty.
At December 31, 1998, the Company had one outstanding total
return swap which expires in 2028. The notional amount was
$14.0 million and the estimated fair value of the agreement
was a net profit of $1.9 million, which is recognized in
accumulated other comprehensive income. At December 31,
1997, the Company held no return swap agreements.
FUTURES: A futures contract is an agreement involving the
delivery of a particular asset on a specified future date
at an agreed upon price. The Company generally invests in
futures on U.S. Treasury Bonds, U.S. Treasury Notes, and
the S&P 500 Index and typically closes the contract prior
to the delivery date. These contracts are generally used
to manage the portfolio's effective maturity and duration.
The 1998 unrealized gain was recognized in accumulated
other comprehensive income and the 1997 unrealized loss was
not recognized in accumulated other comprehensive income.
Futures contracts outstanding as of December 31, 1998 and
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Net sold Notional Fair Unrealized
position amount value gain (loss)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998 (259) $33,117 $32,923 $194
December 31, 1997 (510) $51,000 $60,940 ($907)
</TABLE>
CALL OPTIONS: Currently, the Company buys both exchange-
traded and over-the-counter options based on the S&P 500
Index to support equity indexed annuity contracts. An
equity indexed annuity is a product under which
contractholders receive a minimum guaranteed value and also
participate in stock market appreciation. Options are
marked to market value quarterly. The change in value is
reflected in investment income to assure proper matching of
the hedge to changes in the liability. At December 31,
1998 and 1997, the amounts involved were not material.
(Continued)
20
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
PUT OPTION: The Company uses a put option to construct a
structured product that resembles an equity linked note. A
put option is used to hedge equity exposure that is
associated with the total return swap. The put option
helps protect the downside exposure. A lump sum payment is
made at the outset. The notional amount of the put is
based on the notional amount associated with the total
return swap. The termination date for the put option is
set to match the termination date of the total return swap.
At December 31, 1998 and 1997, the amounts involved were
not material.
The Company is exposed to credit related risk in the event
of nonperformance by counterparties to financial
instruments but does not expect any counterparties to fail
to meet their obligations. Where appropriate, master
netting agreements are arranged and collateral is obtained
in the form of rights to securities to lower the Company's
exposure to credit risk. It is the Company's policy to
deal only with highly rated companies. At December 31,
1998 and 1997, there were not any significant
concentrations with counterparties.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at
December 31, 1998 and 1997. SFAS 107, Disclosures about the Fair
Value of Financial Instruments, defines fair value of a financial
instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities $11,068,283 11,068,283 9,115,519 9,115,519
Mortgage loans 2,337,542 2,472,485 2,140,262 2,333,895
Policy loans 2,151,028 2,151,028 2,073,152 2,073,152
Short-term investments 195,346 195,346 190,374 190,374
Other invested assets 457,645 457,645 243,921 243,921
Separate account assets 5,287,456 5,287,456 4,118,860 4,118,860
Liabilities:
Policyholder account
balances related to
investment contracts $ 6,675,466 6,781,053 6,696,690 6,608,068
Long-term debt and
notes payable 221,850 235,367 214,477 222,419
Separate account liabilities 5,267,553 5,267,553 4,112,666 4,112,666
</TABLE>
(Continued)
21
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(4) REINSURANCE
The Company is a reinsurer to the life and health industry. The
effect of reinsurance on premiums and other considerations is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Direct $1,253,409 1,120,169 1,097,340
Assumed 1,422,262 996,861 827,171
Ceded (431,515) (348,861) (301,283)
---------- --------- ---------
Net insurance premiums and
other considerations $2,244,156 1,768,169 1,623,228
========== ========= =========
</TABLE>
Reinsurance assumed represents approximately $313.7 billion,
$212.5 billion, and $160.0 billion of insurance in force at
December 31, 1998, 1997, and 1996, respectively. The amount of
ceded insurance in force, including retrocession, was
$31.4 billion, $50.4 billion, and $53.2 billion, for 1998, 1997,
and 1996, respectively.
(5) FEDERAL INCOME TAXES
Income tax expense (benefit) attributable to income from
operations consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Current income tax expense $35,226 65,778 45,902
Deferred income tax expense (benefit) 18,351 (113) 13,992
------- ------ ------
Provision for income taxes $53,577 65,665 59,894
======= ====== ======
</TABLE>
(Continued)
22
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Income tax expense attributable to income from operations
differed from the amounts computed by applying the U.S. federal
income tax rate of 35 percent to pre-tax income as a result of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense $ 69,952 64,763 57,055
Increase (decrease) in income tax resulting from:
Surplus tax on mutual life insurance companies (7,505) 5,325 4,777
Foreign tax rate in excess of U.S. tax rate 752 556 941
Tax preferred investment income (10,949) (6,583) (7,318)
State tax net of federal benefit 1,660 830 971
Corporate owned life insurance (3,575) -- --
Foreign tax credit (1,261) (594) --
Goodwill amortization 1,471 956 895
Difference in book vs. tax basis in
domestic subsidiaries 2,751 2,166 2,230
Other, net 281 (1,754) 343
-------- ------ ------
Provision for income taxes $ 53,577 65,665 59,894
======== ====== ======
</TABLE>
Total income taxes were allocated as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Provision for income taxes $ 53,577 65,665 59,894
Income tax from stockholder equity:
Unrealized investment gain (loss) recognized
for financial reporting purposes (22,619) 55,923 (24,612)
Foreign currency translation (9,370) (12,122) --
Other (1,357) (437) (1,023)
-------- ------- -------
Total income tax $ 20,231 109,029 34,259
======== ======= =======
</TABLE>
(Continued)
23
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at
December 31, 1998 and 1997 are presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Reserve for future policy benefits $151,132 149,496
Deferred acquisition costs capitalized for tax 128,830 110,418
Difference in basis of post retirement benefits 7,747 6,846
Net operating loss 46,609 40,915
Other, net 127,891 132,354
-------- -------
Gross deferred tax assets 462,209 440,029
Less valuation allowance 1,338 1,150
-------- -------
Total deferred tax asset after valuation allowance $460,871 438,879
======== =======
Deferred tax liabilities:
Unrealized gain on investments $ 96,554 123,971
Deferred acquisition costs capitalized for financial reporting 274,483 282,714
Other, net 165,263 121,240
-------- -------
Total deferred tax liabilities 536,300 527,925
-------- -------
Net deferred tax liability $ 75,429 89,046
======== =======
</TABLE>
The Company has not recognized a deferred tax liability for the
undistributed earnings of its wholly owned domestic and foreign
subsidiaries because the Company currently does not expect those
unremitted earnings to become taxable to the Company in the
foreseeable future. This is because the unremitted earnings will not
be repatriated in the foreseeable future, or because those
unremitted earnings that may be repatriated will not be taxable
through the application of tax planning strategies that management
would utilize.
As of December 31, 1998, the Company has provided for a 100 percent
valuation allowance against the deferred tax asset related to the
net operating losses of RGA's Australian, Argentine, and UK
subsidiaries and NaviSys Insurance Solution's Mexican subsidiary.
The Company has provided for a 50 percent valuation allowance
against the deferred tax asset related to International Underwriting
Services' net operating losses which were incurred in separate
return limitation years. Based on income projections for future
years, a 50 percent valuation allowance is appropriate. Management
believes that it is more likely than not that results of future
operations will generate sufficient taxable income to realize the
remaining deferred tax assets.
(Continued)
24
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
At December 31, 1998, the Company had capital loss carryforwards of
$0.2 million. During 1998, 1997, and 1996 the Company paid income
taxes totaling approximately $59.6 million, $70.8 million, and $20.7
million, respectively. At December 31, 1998, the Company's
subsidiaries had recognized deferred tax assets associated with net
operating loss carryforwards of approximately $131.8 million. The
net operating loss and capital losses are expected to be utilized
during the period allowed for carryforwards.
(6) DEFERRED POLICY ACQUISITION COSTS
A summary of the policy acquisition costs deferred and amortized is
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 695,253 652,251 526,939
Transfer of present value of future profits -- 19,279 --
Prior year adjustment due to change in
reserving method (225) -- --
Policy acquisition costs deferred 332,899 267,008 206,790
Policy acquisition costs amortized (280,061) (211,979) (182,038)
Interest credited 39,421 40,843 38,944
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on
investments available for sale (13,525) (72,149) 61,616
--------- -------- --------
Balance at end of year $ 773,762 695,253 652,251
========= ======== ========
</TABLE>
(7) ASSOCIATE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
The Company has a defined benefit plan covering substantially all
associates. The benefits are based on years of service and each
associate's compensation level. The Company's funding policy is
to contribute annually the maximum amount deductible for federal
income tax purposes. Contributions provide for benefits
attributed to service to date and for those expected to be earned
in the future.
The Company also has several non-qualified, defined benefit, and
defined contribution plans for directors and management
associates. The plans are unfunded and are deductible for federal
income tax purposes when the benefits are paid.
In addition to pension benefits, the Company provides certain
health care and life insurance benefits for retired employees.
Substantially all employees may become eligible for these
benefits if they reach retirement age while working for the
Company. Alternatively, retirees may elect certain prepaid health
care benefit plans.
The Company uses the accrual method to account for the costs of
its retiree plans and amortizes its transition obligation for
retirees and fully eligible or vested employees over 20 years.
The unamortized transition obligation was $14.4 million and $16.8
million at December 31, 1998 and 1997, respectively.
(Continued)
25
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The Board of Directors has adopted an associate incentive plan
applicable to full-time salaried associates with at least one
year of service. Contributions to the plan are determined
annually by the Board of Directors and are based upon salaries of
eligible associates. Full vesting occurs after five years of
continuous service. The Company's contribution to the plan was
$10.4 million, $10.4 million, and $8.8 million for 1998, 1997,
and 1996 respectively.
The following tables summarize the Company's associate benefit
plans and postretirement benefits (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------------- ---------------------
1998 1997 1998 1997
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $129,831 122,551 37,678 41,518
Service cost 5,775 5,915 1,705 1,665
Interest cost 9,269 8,597 2,898 2,488
Participant contributions -- -- 216 207
Plan amendments (423) (547) (1,317) --
Curtailments -- (1,046) -- --
Benefits paid (6,640) (5,903) (1,438) (1,577)
Actuarial (gain) or loss 11,281 264 5,962 (6,623)
-------- ------- ------ ------
Benefit obligation at end of year $149,093 129,831 45,704 37,678
======== ======= ====== ======
Change in plan assets:
Fair value of plan assets at beginning
of year 150,498 125,742 -- --
Actual return on plan assets 29,183 29,043 -- --
Employer contributions 1,703 1,616 -- --
Benefits paid (6,640) (5,903) -- --
-------- ------- ------ ------
Fair value of plan assets at
end of year $174,744 150,498 -- --
======== ======= ====== ======
</TABLE>
(Continued)
26
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of funded status:
Funded status $ 25,652 20,668 3,192 (45,704) (37,678) (41,518)
Unrecognized actuarial
(gain) or loss (14,455) (8,237) 9,826 (1,862) (7,824) (1,361)
Unrecognized transition
obligation 298 1,098 1,396 14,404 16,766 17,884
Unrecognized prior
service cost (780) (2,184) (580) -- -- --
-------- ------- ------- ------- ------- -------
Net amount recognized
at end of year 10,715 11,345 13,834 (33,162) (28,736) (24,995)
-------- ------- ------- ------- ------- -------
Amounts recognized in the
statement of financial
position consist of:
Prepaid benefit cost 37,921 35,850 35,335 -- -- --
Accrued benefit liability (32,208) (28,183) (26,377) (33,162) (28,736) (24,995)
Intangible asset 869 868 1,608 -- -- --
Accumulated other
comprehensive loss 4,133 2,810 3,268 -- -- --
-------- ------- ------- ------- ------- -------
Net amount recognized
at end of year 10,715 11,345 13,834 (33,162) (28,736) (24,995)
-------- ------- ------- ------- ------- -------
Other comprehensive loss
(income) attributable to
change in additional
minimum liability recognition $ 1,324 (458) (84) -- -- --
======== ======= ======= ======= ======= =======
</TABLE>
(Continued)
27
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- --------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Additional year-end information
for plans with benefit obliga-
tions in excess of plan assets:
Benefit obligation $ 36,587 32,239 29,077 45,704 37,378 41,518
Fair value of plan assets 81 41 -- -- -- --
Additional year-end information
for pension plans with accumu-
lated benefit obligations in
excess of plan assets:
Projected benefit obligation 36,587 32,239 29,077 -- -- --
Accumulated benefit
obligation 32,078 28,019 26,241 -- -- --
Fair value of plan assets 81 41 -- -- -- --
Components of net periodic
benefit cost:
Service cost 5,775 5,915 5,421 1,705 1,665 1,921
Interest cost 9,269 8,597 8,047 2,898 2,488 2,729
Expected return on plan
assets (13,261) (11,108) (10,447) -- -- --
Amortization of prior
service cost (71) (51) 58 -- -- --
Amortization of transitional
obligation 98 298 338 1,045 1,118 1,118
Recognized actuarial (gain)
or loss 432 455 491 -- (160) --
-------- ------- ------- ------ ------ ------
Net periodic benefit cost $ 2,242 4,106 3,908 5,648 5,111 5,768
======== ======= ======= ====== ====== ======
Additional loss recognized due to:
Curtailment 91 -- -- -- -- --
Settlement -- -- 192 -- -- --
Weighted average assumptions
as of December 31:
Discount rate 6.75% 7.25% 7.25% 6.75% 7.25% 7.25%
Expected long-term rate of
return on plan assets 9.00% 9.00% 9.25% -- -- --
Rate of compensation
increase (qualified plan) 4.20% 4.20% 4.50% -- -- --
======== ======= ======= ====== ====== ======
</TABLE>
(Continued)
28
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
ASSUMED HEALTH CARE COST TREND: For measurement purposes, a 7.5
percent annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1998. The rate assumed to
decrease gradually to 5 percent for 2000 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one percentage
point change in assumed health care cost trend rates would have
the following effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total service and interest cost
components for 1998 $ 834 (643)
Effect on end of year 1998 postretirement
benefit obligation $6,608 (5,272)
</TABLE>
(8) DEBT
The Company's long-term debt and notes payable consist of the
following (in millions):
<TABLE>
<CAPTION>
FACE VALUE AT
DECEMBER 31,
----------------
DESCRIPTION RATE MATURITY 1998 1997
----------- ---- -------- ---- ----
<S> <C> <C> <C> <C>
Long-term debt:
General American surplus note 7.625% January 2024 $107.0 107.0
RGA senior note 7.250% April 2006 100.0 100.0
Notes payable:
RGA Australia Hldgs. 5.180% April 1999 8.9 7.8
===== ============ ------ -----
Total long-term debt and
notes payable $215.9 214.8
====== =====
</TABLE>
The difference between the face value of debt and the carrying
value per the consolidated balance sheets is unamortized
discount.
The Company's surplus note pays interest on January 15 and
July 15 of each year. The note is not subject to redemption
prior to maturity. Payment of principal and interest on the note
may be made only with the approval of the Missouri Director of
Insurance.
(Continued)
29
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The RGA senior note pays interest semiannually on April 1 and
October 1. The ability of RGA to make debt principal and
interest payments as well as make dividend payments to
shareholders is ultimately dependent on the earnings and surplus
of its subsidiaries and the investment earnings on the
undeployed debt proceeds. The transfer of funds from the
insurance subsidiaries to RGA is subject to applicable insurance
laws and regulations.
Principal repayments are due in April 1999 and are expected to
be renewed under the terms of the line of credit. This agreement
contains various restrictive covenants which primarily pertain
to limitations on the quality and types of investments, minimum
requirements of net worth, and minimum rating requirements.
Interest paid on debt during 1998, 1997, and 1996 amounted to
$17.0 million, $20.0 million, and $19.9 million, respectively.
As of December 31, 1998, the Company was in compliance with all
covenants under its debt agreements.
(9) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income, effective for
years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and display of comprehensive income but
does not affect results of operations. Effective January 1,
1998, the Company adopted SFAS 130. The components of
comprehensive income, other than net income, are as follows (in
thousands):
<TABLE>
<CAPTION>
1998
-------------------------------------
BEFORE- TAX NET-OF-
TAX (EXPENSE) TAX
AMOUNT BENEFIT AMOUNT
-------- ------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $(20,597) 7,200 (13,397)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (56,603) 19,327 (37,276)
Less reclassification adjustment
for gains (losses) realized in
net income 4,654 (1,688) 2,966
-------- ------ -------
Net unrealized gains (losses)
on securities (61,257) 21,015 (40,242)
Minimum benefit liability (335) -- (335)
-------- ------ -------
Total other comprehensive
(loss) income $(82,189) 28,215 (53,974)
======== ====== =======
</TABLE>
(Continued)
30
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1997
-------------------------------------
BEFORE- TAX NET-OF-
TAX (EXPENSE) TAX
AMOUNT BENEFIT AMOUNT
-------- ------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $(14,254) 10,583 (3,671)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period 132,329 (49,140) 83,189
Less reclassification adjustment for gains
(losses) realized in net income 7,432 (2,620) 4,812
-------- ------- ------
Net unrealized gains (losses)
on securities 124,897 (46,520) 78,377
Minimum benefit liability 877 -- 877
-------- ------- ------
Total other comprehensive
(loss) income $111,520 (35,937) 75,583
======== ======= ======
<CAPTION>
1996
-------------------------------------
BEFORE- TAX NET-OF-
TAX (EXPENSE) TAX
AMOUNT BENEFIT AMOUNT
-------- ------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $ (1,543) -- (1,543)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (48,303) 16,081 (32,222)
Less reclassification adjustment for gains
(losses) realized in net income 23,033 (8,167) 14,866
-------- ------ -------
Net unrealized gains (losses)
on securities (71,336) 24,248 (47,088)
Minimum benefit liability (1,074) -- (1,074)
-------- ------ -------
Total other comprehensive
(loss) income $(73,953) 24,248 (49,705)
======== ====== =======
</TABLE>
The following schedule reflects the change in net accumulated
other comprehensive (loss) income for the periods ending
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
BALANCE CURRENT BALANCE
AS OF PERIOD AS OF
12/31/97 CHANGE 12/31/98
-------- ------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $(19,481) (13,397) (32,878)
Unrealized gains (losses) on securities 128,744 (40,242) 88,502
Minimum benefit liability (2,380) (335) (2,715)
-------- ------- -------
Total accumulated other comprehensive
(loss) income $106,883 (53,974) 52,909
======== ======= ======
</TABLE>
(Continued)
31
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
BALANCE CURRENT BALANCE
AS OF PERIOD AS OF
12/31/96 CHANGE 12/31/97
-------- ------ --------
<S> <C> <C> <C>
Foreign currency translation adjustments $(15,810) (3,671) (19,481)
Unrealized gains on securities 50,367 78,377 128,744
Minimum benefit liability (3,257) 877 (2,380)
-------- ------ -------
Total accumulated other comprehensive
income $ 31,300 75,583 106,883
======== ====== =======
</TABLE>
(10) REGULATORY MATTERS
The Company, as well as its insurance subsidiaries, are subject
to financial statement filing requirements in their respective
states of domicile, as well as the states in which they transact
business. Such financial statements, generally referred to as
statutory financial statements, are prepared on a basis of
accounting which varies in some respects from GAAP. Statutory
accounting practices include: (1) charging of policy acquisition
costs to income as incurred; (2) establishment of a liability
for future policy benefits computed using required valuation
standards; (3) nonprovision of deferred federal income taxes
resulting from temporary differences between financial reporting
and tax bases of assets and liabilities; (4) recognition of
statutory liabilities for asset impairments and yield
stabilization on fixed maturity dispositions prior to maturity
with asset valuation reserves based on statutorily determined
formulas; and (5) valuation of investments in bonds at amortized
cost.
Combined net income and policyholders' surplus of the Company
and its insurance subsidiaries, for the years ended and at
December 31, 1998, 1997, and 1996, as determined in accordance
with statutory accounting practices, are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Net income $ 60,793 39,737 18,464
Policyholders' surplus 1,147,411 844,110 636,260
========== ======= =======
</TABLE>
Under Risk-Based Capital (RBC) requirements, the Company and its
insurance subsidiaries are required to measure their solvency
against certain parameters. As of December 31, 1998, the Company
and its insurance subsidiaries exceeded the established RBC
minimums. In addition, the Company and its insurance
subsidiaries exceeded the minimum statutory capital and surplus
requirements of their respective states of domicile.
The Company's life insurance subsidiaries are subject to
limitations on the payment of dividends to the Company.
Generally, dividends during any year may not be paid without
prior regulatory approval, in excess of the lessor of (and with
respect to life and health subsidiaries in Missouri, in excess
of the greater of): (a) ten percent of the insurance
subsidiaries' statutory surplus as of the preceding December 31
or (b) the insurance subsidiaries' statutory gain from
operations for the preceding year.
(Continued)
32
<PAGE>
<PAGE>
GENERAL AMERICAN LIFE INSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(11) PARTICIPATING POLICIES AND DIVIDENDS TO POLICYHOLDERS
Over 22.8 percent and 27.5 percent of the Company's business in
force relates to participating policies as of December 31, 1998
and 1997, respectively. These participating policies allow the
policyholders to receive dividends based on actual interest,
mortality, and expense experience for the related policies.
These dividends are distributed to the policyholders through an
annual dividend, using current dividend scales which are
approved by the Board of Directors.
(12) CONTINGENT LIABILITIES
The Company was named as a defendant in a lawsuit that was filed
in 1996 in Arizona State Court. The lawsuit claimed benefits
under a disability policy and damages for bad faith termination
of such benefits. In November 1998, the jury entered a verdict
against the Company, awarding the plaintiff approximately $59
million in damages, including $58 million in punitive damages.
In January 1999, the Company filed a motion for judgment
notwithstanding the verdict, a motion for a new trial, and a
request for reduction of the punitive damages awarded. The
Company intends to press vigorously for the Court to eliminate
the bad faith claim, reduce the punitive damage award, grant a
new trial, and vigorously appeal the verdict if it is allowed to
stand.
The Company was named as defendant in the following purported
class action lawsuits: Chain v. General American Life Insurance
Company (filed in the U.S. District Court for the Northern
District of Mississippi in 1996); Newburg Trust v. General
American Life Insurance Company (filed in the U.S. District
Court for the District of Massachusetts in 1996); and Ludwig,
Sippil, D'Allesandro and Cunningham v. General American Life
Insurance Company (filed in the U.S. District Court for the
Southern District of Illinois in 1997). These lawsuits allege
that the Company engaged in deceptive sales practices in
connection with the sale of certain life insurance policies.
None of these lawsuits has been certified as a class action.
Although the claims asserted in each lawsuit are not identical,
the plaintiffs seek unspecified actual and punitive damages
under similar claims, including breach of contract, fraud,
intentional or negligent misrepresentation, breach of fiduciary
duty, and unjust enrichment. The Company filed a motion to
dismiss all of the claims in each of the lawsuits.
The Court in each of these lawsuits has dismissed certain of the
plaintiffs' claims while allowing others to proceed. These
three cases have been consolidated with one individual case in
the U.S. District Court for the Eastern District of Missouri.
The Company intends to oppose these lawsuits vigorously.
In addition to the matters discussed above, the Company is
involved in pending and threatened litigation in the normal
course of its business. While the outcome of these matters
cannot be predicted with certainty, at the present time and
based on information currently available, management does not
believe that the Company's liability arising from pending or
threatened litigation will have a material adverse affect on the
Company's financial condition or results of operations.
(13) SUBSEQUENT EVENTS
On January 28, 1999, the Board of Directors of GenAmerica
Corporation authorized the development of a demutualization plan
for GAMHC to convert from a mutual holding company to a publicly
traded stock company. The demutualization plan will be subject
to approval by the Board of Directors, regulators, and
policyholders.
