GNA VARIABLE INVESTMENT ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
TABLE OF CONTENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report ................... A-3
Financial Statements:
Statements of Assets and Liabilities .......... A-4
Statements of Operations ...................... A-5
Statements of Changes in Net Assets ........... A-9
Notes to Financial Statements .................. A-16
</TABLE>
A-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Contractholders
GNA Variable Investment Account
and
The Board of Directors
Great Northern Insured Annuity Corporation:
We have audited the accompanying statements of assets and liabilities of
GNA Variable Investment Account (the Account) (comprising the GE Investments
Funds, Inc. -- Income, Premier Growth Equity, Value Equity, International
Equity, U.S. Equity, and Money Market Funds) as of December 31, 1998 and the
related statements of operations and changes in net assets for the
aforementioned funds and the GNA Variable Series Trust Portfolios -- GNA
Adjustable Rate, GNA Government, GNA Growth and GNA Value Portfolios; GE
Variable Investment Trust Portfolios -- GE U.S. Equity, GE International
Equity, GE Fixed Income and GE Money Market Portfolios; and Paragon Portfolios
- -- Paragon Power Intermediate Term Bond, Paragon Power Value Growth, Paragon
Power Value Equity Income and Paragon Power Gulf South Growth Portfolios of the
GNA Variable Investment Account for each of the years or lesser periods in the
three year period then ended. These financial statements are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998 by
correspondence with the transfer agent of the underlying mutual 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 referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting the GNA Variable Investment Account as of December 31,
1998, and the results of their operations and changes in their net assets for
each of the years or lesser periods in the three year period then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Richmond, Virginia
February 12, 1999
A-3
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
--------------------------------
PREMIER
GROWTH
INCOME EQUITY
FUND FUND
ASSETS ---------------- ---------------
<S> <C> <C>
Investments in GE Investments Funds,
Inc., at fair value:
Income Fund (1,742,489 shares,
cost $23,991,703).................... $ 21,502,313 --
Premier Growth Equity Fund
(295,715 shares, cost
$16,700,390)......................... -- 19,877,930
Value Equity Fund (1,008,136
shares, cost $13,894,420)............ -- --
International Equity Fund (812,089
shares, cost $9,330,163)............. -- --
U. S. Equity Fund (862,327 shares,
cost $25,719,437).................... -- --
Money Market Fund (4,892,093
shares, cost $4,892,093)............. -- --
------------ ----------
TOTAL ASSETS ....................... $ 21,502,313 19,877,930
============ ==========
Net assets:
Attributable to Great Northern
Insured Annuity Corporation ......... 16,726,500 9,029,804
For deferred variable annuity
contractholders ..................... 4,775,813 10,848,126
------------ ----------
$ 21,502,313 19,877,930
============ ==========
Outstanding units held by
contractholders ....................... 449,277 779,880
============ ==========
Net asset value per unit ............... $ 10.63 13.91
============ ===========
<CAPTION>
GE INVESTMENTS FUNDS, INC.
--------------------------------------------------------------
VALUE INTERNATIONAL U.S. MONEY
EQUITY EQUITY EQUITY MARKET
FUND FUND FUND FUND
ASSETS --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Investments in GE Investments Funds,
Inc., at fair value:
Income Fund (1,742,489 shares,
cost $23,991,703).................... -- -- -- --
Premier Growth Equity Fund
(295,715 shares, cost
$16,700,390)......................... -- -- -- --
Value Equity Fund (1,008,136
shares, cost $13,894,420)............ $13,680,403 -- -- --
International Equity Fund (812,089
shares, cost $9,330,163)............. -- 9,655,736 -- --
U. S. Equity Fund (862,327 shares,
cost $25,719,437).................... -- -- 28,887,939 --
Money Market Fund (4,892,093
shares, cost $4,892,093)............. -- -- -- 4,892,093
---------- --------- ---------- ---------
TOTAL ASSETS ....................... $13,680,403 9,655,736 28,887,939 4,892,093
========== ========= ========== =========
Net assets:
Attributable to Great Northern
Insured Annuity Corporation ......... 5,001,370 7,767,635 15,124,725 3,132,275
For deferred variable annuity
contractholders ..................... 8,679,033 1,888,101 13,763,214 1,759,818
---------- --------- ---------- ---------
$13,680,403 9,655,736 28,887,939 4,892,093
========== ========= ========== =========
Outstanding units held by
contractholders ....................... 806,602 159,738 1,105,479 169,213
========== ========= ========== =========
Net asset value per unit ............... $ 10.76 11.82 12.45 10.40
=========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF OPERATIONS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
----------------------------------------------------------------------------------------
INCOME FUND PREMIER GROWTH EQUITY FUND VALUE EQUITY FUND
----------------------------- ----------------------------- ----------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, DECEMBER 12, DECEMBER 12,
YEAR ENDED 1997 TO YEAR ENDED 1997 TO YEAR ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ................ $ 2,760,998 53,264 829,354 9,920 393,049 --
Expenses:
Mortality and expense risk
charges (note 3) ................ 67,377 3,285 129,274 6,135 127,916 6,415
------------ ------ ------- ----- ------- -----
Net investment income (loss) ........ 2,693,621 49,979 700,080 3,785 265,133 (6,415)
------------ ------ ------- ----- ------- ------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ........... 1,314,687 (62) 2,049,328 13,532 1,206,800 8,652
Unrealized appreciation
(depreciation) on investments..... (2,472,562) (16,828) 2,657,926 519,614 (542,115) 328,098
------------ ------- --------- ------- --------- -------
Net realized and unrealized gain
(loss) on investments .............. (1,157,875) (16,890) 4,707,254 533,146 664,685 336,750
------------ ------- --------- ------- --------- -------
Increase in net assets from
operations ......................... $ 1,535,746 33,089 5,407,334 536,931 929,818 330,335
============ ======= ========= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND U.S. EQUITY FUND MONEY MARKET FUND
----------------------------- ----------------------------- ----------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, DECEMBER 12, DECEMBER 12,
YEAR ENDED 1997 TO YEAR ENDED 1997 TO YEAR ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............. $ 492,770 -- 743,414 11,628 253,615 6,805
Expenses:
Mortality and expense risk
charges (note 3) .............. 27,791 1,349 170,197 7,503 35,594 835
---------- ----- ------- ------ ------- -----
Net investment income (loss) ...... 464,979 (1,349) 573,217 4,125 218,021 5,970
---------- ------ ------- ------ ------- -----
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ........ 867,620 4,562 2,176,519 4,856 -- --
Unrealized appreciation
(depreciation) on investments... 151,208 174,364 2,615,198 553,304 -- --
---------- ------- --------- ------- ------- -----
Net realized and unrealized gain
(loss) on investments ........... 1,018,828 178,926 4,791,717 558,160 -- --
---------- ------- --------- ------- ------- -----
Increase in net assets from
operations ...................... $1,483,807 177,577 5,364,934 562,285 218,021 5,970
========== ======= ========= ======= ======= =====
</TABLE>
A-5
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS
----------------------------------------------------------------
GNA ADJUSTABLE RATE PORTFOLIO GNA GOVERNMENT PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $ 388,100 436,519 488,825 651,585
Expenses:
Mortality and expense risk charges (note 3) ............ 5,383 4,486 23,496 26,287
---------- ------- ------- -------
Net investment income (loss) .............................. 382,717 432,033 465,329 625,298
---------- ------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................. 130,953 (1,827) 273,899 (24,629)
Unrealized appreciation (depreciation) on
investments ............................................ (188,288) (103,401) (100,222) (374,717)
---------- -------- -------- --------
Net realized and unrealized gain (loss) on investments..... (57,335) (105,228) 173,677 (399,346)
---------- -------- -------- --------
Increase in net assets from operations .................... $ 325,382 326,805 639,006 225,952
========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS
----------------------------------------------------------------
GNA GROWTH PORTFOLIO GNA VALUE PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $ -- 122,337 76,044 721,670
Expenses:
Mortality and expense risk charges (note 3) ............ 102,106 77,425 105,445 68,945
------------ ------- ------- -------
Net investment income (loss) .............................. (102,106) 44,912 (29,401) 652,725
------------ ------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................. 6,005,331 116,128 5,204,833 105,042
Unrealized appreciation (depreciation) on
investments ............................................ (2,470,123) 1,432,026 (1,474,306) 911,945
------------ --------- ---------- -------
Net realized and unrealized gain (loss) on investments..... 3,535,208 1,548,154 3,730,527 1,016,987
------------ --------- ---------- ---------
Increase in net assets from operations .................... $ 3,433,102 1,593,066 3,701,126 1,669,712
============ ========= ========== =========
</TABLE>
A-6
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS
----------------------------------------------------------------
GE INTERNATIONAL EQUITY
GE U.S. EQUITY PORTFOLIO PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $ -- 1,832,682 -- 732,236
Expenses:
Mortality and expense risk charges (note 3) ............ 127,409 82,274 25,225 20,256
---------- --------- ------ -------
Net investment income (loss) .............................. (127,409) 1,750,408 (25,225) 711,980
---------- --------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................. 6,278,595 99,571 654,601 44,447
Unrealized appreciation (depreciation) on
investments ............................................ (998,789) 971,255 (345,887) 286,920
---------- --------- -------- -------
Net realized and unrealized gain (loss) on investments..... 5,279,806 1,070,826 308,714 331,367
---------- --------- -------- -------
Increase in net assets from operations .................... $5,152,397 2,821,234 283,489 1,043,347
========== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS
----------------------------------------------------------------
GE FIXED INCOME PORTFOLIO GE MONEY MARKET PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ................................... $ 323,899 403,850 210,867 241,146
Expenses:
Mortality and expense risk charges (note 3) ......... 32,166 29,108 7,958 30,219
---------- ------- ------- -------
Net investment income (loss) ........................... 291,733 374,742 202,909 210,927
---------- ------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) .............................. (100,939) (28,384) -- --
Unrealized appreciation (depreciation) on
investments ......................................... 218,413 (207,379) -- --
---------- -------- ------- -------
Net realized and unrealized gain (loss) on investments 117,474 (235,763) -- --
---------- -------- ------- -------
Increase in net assets from operations ................. $ 409,207 138,979 202,909 210,927
========== ======== ======= =======
</TABLE>
A-7
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARAGON PORTFOLIOS
---------------------------------------------------------------------------
PARAGON POWER PARAGON POWER PARAGON POWER PARAGON POWER
INTERMEDIATE TERM VALUE VALUE EQUITY GULF SOUTH
BOND PORTFOLIO GROWTH PORTFOLIO INCOME PORTFOLIO GROWTH PORTFOLIO
------------------- ------------------ ------------------ -----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996
------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............................ $ 23,621 3,324 10,506 --
Expenses:
Mortality and expense risk charges
(note 3) .................................... 1,542 1,286 1,123 986
---------- ----- ------ ---
Net investment income (expense) ................. 22,079 2,038 9,383 (986)
---------- ----- ------ ----
Net realized and unrealized gain (loss) on
investments:
Net realized gain .............................. 74,098 337,822 414,570 327,512
Unrealized depreciation on investments ......... (144,769) (331,796) (353,580) (386,094)
---------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments .................................... (70,671) 6,026 60,990 (58,582)
---------- -------- -------- --------
Increase (decrease) in net assets from
operations ..................................... $ (48,592) 8,064 70,373 (59,568)
========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
A-8
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENT FUND, INC.
----------------------------------------------------------------------------------------
INCOME FUND PREMIER GROWTH EQUITY FUND VALUE EQUITY FUND
----------------------------- ----------------------------- ----------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, DECEMBER 12, DECEMBER 12,
YEAR ENDED 1997 TO YEAR ENDED 1997 TO YEAR ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets
From operations:
Net investment income (loss) .......... $ 2,693,621 49,979 700,080 3,785 265,133 (6,415)
Net realized gain (loss) .............. 1,314,687 (62) 2,049,328 13,532 1,206,800 8,652
Unrealized appreciation
(depreciation) on investments ....... (2,472,562) (16,828) 2,657,926 519,614 (542,115) 328,098
------------ ------- --------- ------- --------- -------
Increase in net assets from
operations ............................ 1,535,746 33,089 5,407,334 536,931 929,818 330,335
------------ ------- --------- ------- --------- -------
From capital transactions:
Net effect of transactions by Great
Northern Insured Annuity
Corporation ......................... 67,401 15,388,105 129,456 6,271,166 129,504 4,457,440
Net contract purchase payments ........ 45,225 2,780 107,326 4,382 53,453 5,063
Transfers to the general account of
Great Northern Insured Annuity
Corporation:
Surrender Benefits .................. (500,898) (5,457) (424,894) (6,778) (562,195) (6,683)
Certificate maintenance charges ..... (1,119) (394) (3,985) (736) (3,006) (770)
Transfers from (to) the Fixed
Guarantee Period Account
(note 1) ............................ (252,919) -- (229,573) -- (151,878) --
Interfund transfers ................... 105,581 5,085,173 (1,353,201) 9,440,502 (1,412,184) 9,911,506
------------ ---------- ---------- --------- ---------- ---------
Increase in net assets from capital
transactions .......................... (536,729) 20,470,207 (1,774,871) 15,708,536 (1,946,306) 14,366,556
------------ ---------- ---------- ---------- ---------- ----------
Increase in net assets ................. 999,017 20,503,296 3,632,463 16,245,467 (1,016,488) 14,696,891
Net assets at beginning of period ...... 20,503,296 -- 16,245,467 -- 14,696,891 --
------------ ---------- ---------- ---------- ---------- ----------
Net assets at end of period ............ $ 21,502,313 20,503,296 19,877,930 16,245,467 13,680,403 14,696,891
============ ========== ========== ========== ========== ==========
</TABLE>
A-9
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUND, INC. (CONTINUED)
----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND U.S. EQUITY FUND MONEY MARKET FUND
----------------------------- ----------------------------- ----------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
DECEMBER 12, DECEMBER 12, DECEMBER 12,
YEAR ENDED 1997 TO YEAR ENDED 1997 TO YEAR ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets
From operations:
Net investment income (loss) ....... $ 464,979 (1,349) 573,217 4,125 218,021 5,970
Net realized gain (loss) ........... 867,620 4,562 2,176,519 4,856 -- --
Unrealized appreciation
(depreciation) on investments .... 151,208 174,364 2,615,198 553,304 -- --
---------- ------- --------- ------- ------- -----
Increase in net assets from
operations ......................... 1,483,807 177,577 5,364,934 562,285 218,021 5,970
---------- ------- --------- ------- ------- -----
From capital transactions:
Net effect of transactions by
Great Northern Insured
Annuity Corporation .............. 27,943 6,458,980 170,255 11,801,519 41,821 2,939,080
Net contract purchase payments ..... 28,976 2,870 200,374 4,000 20,139 517
Transfers to the general account
of Great Northern Insured
Annuity Corporation:
Surrender Benefits ............... (261,740) (2,671) (613,113) (12,952) (2,370,648) (1,563)
Certificate maintenance
charges ......................... (833) (162) (3,746) (900) (1,098) (100)
Transfers from (to) the Fixed
Guarantee Period Account
(note 1) ......................... (28,938) -- (132,959) -- (230,400) --
Interfund transfers ................ (293,109) 2,063,036 (28,884) 11,577,126 2,981,797 1,288,557
---------- --------- --------- ---------- ---------- ---------
Increase in net assets from capital
transactions ....................... (527,701) 8,522,053 (408,073) 23,368,793 441,611 4,226,491
---------- --------- --------- ---------- ---------- ---------
Increase in net assets .............. 956,106 8,699,630 4,956,861 23,931,078 659,632 4,232,461
Net assets at beginning of period ... 8,699,630 -- 23,931,078 -- 4,232,461 --
---------- --------- ---------- ---------- ---------- ---------
Net assets at end of period ......... $9,655,736 8,699,630 28,887,939 23,931,078 4,892,093 4,232,461
========== ========= ========== ========== ========== =========
</TABLE>
A-10
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS
----------------------------------------------------------
GNA ADJUSTABLE
RATE PORTFOLIO GNA GOVERNMENT PORTFOLIO
----------------------------- ----------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ................................... $ 382,717 432,033 465,329 625,298
Net realized gain (loss) ....................................... 130,953 (1,827) 273,899 (24,629)
Unrealized appreciation (depreciation) on investments .......... (188,288) (103,401) (100,222) (374,717)
------------ -------- -------- --------
Increase in net assets from operations .......................... 325,382 326,805 639,006 225,952
------------ -------- -------- --------
From capital transactions:
Net effect of transactions by Great Northern Insured Annuity
Corporation .................................................. (6,158,342) 5,460 (6,488,903) 34,853
Net contract purchase payments ................................. 10,245 164,878 8,146 214,486
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders ................................................... (23,205) (28,649) (112,501) (100,387)
Certificate maintenance charges .............................. (646) (549) (2,820) (3,157)
Transfers from (to) the Fixed Guarantee Period Account
(note 1) ..................................................... -- -- 317 4,472
Interfund transfers ............................................ (500,222) 258,575 (2,106,593) 537,106
------------ -------- ---------- --------
Increase (decrease) in net assets from capital transactions ..... (6,672,170) 399,715 (8,702,354) 687,373
------------ -------- ---------- --------
Increase (decrease) in net assets ............................... (6,346,788) 726,520 (8,063,348) 913,325
Net assets at beginning of period ............................... 6,346,788 5,620,268 8,063,348 7,150,023
------------ --------- ---------- ---------
Net assets at end of period ..................................... $ -- 6,346,788 -- 8,063,348
============ ========= ========== =========
</TABLE>
A-11
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS (CONTINUED)
--------------------------------------------------------------
GNA GROWTH PORTFOLIO GNA VALUE PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
---------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ................................... $ (102,106) 44,912 (29,401) 652,725
Net realized gain (loss) ....................................... 6,005,331 116,128 5,204,833 105,042
Unrealized appreciation (depreciation) on investments .......... (2,470,123) 1,432,026 (1,474,306) 911,945
------------- --------- ---------- -------
Increase in net assets from operations .......................... 3,433,102 1,593,066 3,701,126 1,669,712
------------- --------- ---------- ---------
From capital transactions:
Net effect of transactions by Great Northern Insured
Annuity Corporation .......................................... (6,153,825) 96,161 (4,342,012) 80,960
Net contract purchase payments ................................. 184,598 1,341,984 196,401 1,051,573
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders ................................................... (541,696) (274,949) (506,461) (197,975)
Certificate maintenance charges .............................. (12,286) (9,260) (12,654) (8,080)
Transfers from (to) the Fixed Guarantee Period Account
(note 1) ..................................................... 5,292 92,804 61,352 44,494
Interfund transfers ............................................ (9,318,325) 2,670,231 (9,555,206) 3,299,972
------------- --------- ---------- ---------
Increase (decrease) in net assets from capital transactions ..... (15,836,242) 3,916,971 (14,158,580) 4,270,944
------------- --------- ----------- ---------
Increase (decrease) in net assets ............................... (12,403,140) 5,510,037 (10,457,454) 5,940,656
Net assets at beginning of period ............................... 12,403,140 6,893,103 10,457,454 4,516,798
------------- --------- ----------- ---------
Net assets at end of period ..................................... $ -- 12,403,140 -- 10,457,454
============= ========== =========== ==========
</TABLE>
A-12
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS
------------------------------------------------------------
GE INTERNATIONAL
GE U.S. EQUITY PORTFOLIO EQUITY PORTFOLIO
------------------------------- ----------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ................................... $ (127,409) 1,750,408 (25,225) 711,980
Net realized gain (loss) ....................................... 6,278,595 99,571 654,601 44,447
Unrealized appreciation (depreciation) on investments .......... (998,789) 971,255 (345,887) 286,920
------------- --------- -------- -------
Increase in net assets from operations .......................... 5,152,397 2,821,234 283,489 1,043,347
------------- --------- -------- ---------
From capital transactions:
Net effect of transactions by Great Northern Insured Annuity
Corporation .................................................. (11,661,721) 97,072 (6,429,736) 28,962
Net contract purchase payments ................................. 326,796 1,961,924 68,681 236,002
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders ................................................... (723,956) (329,497) (112,780) (160,144)
Certificate maintenance charges .............................. (15,289) (9,873) (3,051) (2,482)
Transfers from (to) the Fixed Guarantee Period Account
(note 1) ..................................................... 19,082 108,232 318 --
Interfund transfers ............................................ (11,090,320) 4,300,083 (1,984,547) 691,403
------------- --------- ---------- ---------
Increase (decrease) in net assets from capital transactions ..... (23,145,408) 6,127,941 (8,461,115) 793,741
------------- --------- ---------- ---------
Increase (decrease) in net assets ............................... (17,993,011) 8,949,175 (8,177,626) 1,837,088
Net assets at beginning of period ............................... 17,993,011 9,043,836 8,177,626 6,340,538
------------- --------- ---------- ---------
Net assets at end of period ..................................... $ -- 17,993,011 -- 8,177,626
============= ========== ========== =========
</TABLE>
A-13
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS (CONTINUED)
------------------------------------------------------------
GE FIXED INCOME PORTFOLIO GE MONEY MARKET PORTFOLIO
----------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
1997 TO YEAR ENDED 1997 TO YEAR ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ................................... $ 291,733 374,742 202,909 210,927
Net realized gain (loss) ....................................... (100,939) (28,384) -- --
Unrealized appreciation (depreciation) on investments .......... 218,413 (207,379) -- --
------------ -------- ------- -------
Increase in net assets from operations .......................... 409,207 138,979 202,909 210,927
------------ -------- ------- -------
From capital transactions:
Net effect of transactions by Great Northern Insured Annuity
Corporation .................................................. (2,619,291) 36,831 (2,907,614) 50,122
Net contract purchase payments ................................. 11,635 276,849 108,361 7,890,566
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders ................................................... (327,061) (240,069) (471,661) (411,149)
Certificate maintenance charges .............................. (3,860) (3,534) (2,151) (3,700)
Transfers from (to) the Fixed Guarantee Period Account
(note 1) ..................................................... -- 50,012 672,162 181,003
Interfund transfers ............................................ (2,838,511) 1,861,031 (1,972,176) (8,642,581)
------------ --------- ---------- ----------
Increase (decrease) in net assets from capital transactions ..... (5,777,088) 1,981,120 (4,573,079) (935,739)
------------ --------- ---------- ----------
Increase (decrease) in net assets ............................... (5,367,881) 2,120,099 (4,370,170) (724,812)
Net assets at beginning of period ............................... 5,367,881 3,247,782 4,370,170 5,094,982
------------ --------- ---------- ----------
Net assets at end of period ..................................... $ -- 5,367,881 -- 4,370,170
============ ========= ========== ==========
</TABLE>
A-14
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARAGON PORTFOLIOS
--------------------------------------------------------------
PARAGON PARAGON PARAGON PARAGON
POWER POWER POWER POWER
INTERMEDIATE VALUE VALUE EQUITY GULF SOUTH
TERM GROWTH INCOME GROWTH
BOND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- -------------- -------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) ................................... $ 22,079 2,038 9,383 (986)
Net realized gain (loss) ....................................... 74,098 337,822 414,570 327,512
Unrealized appreciation (depreciation) on investments .......... (144,769) (331,796) (353,580) (386,094)
------------ -------- -------- --------
Increase (decrease) in net assets from operations ............... (48,592) 8,064 70,373 (59,568)
------------ -------- -------- --------
From capital transactions:
Net effect of transactions by Great Northern Insured Annuity
Corporation .................................................. (1,140,084) (1,301,752) (1,436,738) (1,259,857)
Net contract purchase payments ................................. 10,561 53,436 45,278 23,920
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders ................................................... (9,249) (22,065) (10,486) (23,260)
Certificate maintenance charges .............................. (191) (189) (136) (168)
Transfers from (to) the Fixed Guarantee Period Account
(note 1) ..................................................... -- -- -- --
Interfund transfers ............................................ (1,255,350) (1,329,275) (1,149,209) (1,241,986)
------------ ---------- ---------- ----------
Increase (decrease) in net assets from capital transactions ..... (2,394,313) (2,599,845) (2,551,291) (2,501,351)
------------ ---------- ---------- ----------
Increase (decrease) in net assets ............................... (2,442,905) (2,591,781) (2,480,918) (2,560,919)
Net assets at beginning of period ............................... 2,442,905 2,591,781 2,480,918 2,560,919
------------ ---------- ---------- ----------
Net assets at end of period ..................................... $ -- -- -- --
============ ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
A-15
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) DESCRIPTION OF ENTITY
GNA Variable Investment Account (the Account) is a separate investment
account established in 1981 by Great Northern Insured Annuity Corporation (GNA)
under laws of the State of Washington. The Account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as a unit investment trust. Beginning in 1995, the Account funds
certain benefits for group deferred variable annuity policies issued by GNA.
GNA is an indirect wholly-owned subsidiary of GNA Corporation, General Electric
Capital Corporation and General Electric Company (GE Company). The GNA Variable
Series Trust Portfolios, GE Variable Investment Trust Portfolios and Paragon
Portfolios commenced operations January 3, 1995.
Effective April 1, 1996, the Securities and Exchange Commission approved
the closure of the Paragon Portfolio. Assets were transferred to the GE Money
Market Portfolio, and the statement of operations includes activity until April
1, 1996 and subsequently, GNA closed the Paragon Portfolios.
On December 11, 1997, the Account added the GE Investments Funds, Inc. --
Income, Premier Growth Equity, Value Equity, International Equity, U.S. Equity
and Money Market Funds. Effective December 11, 1997, the Securities and
Exchange Commission approved the substitution of certain investment
subdivisions. Assets were transferred as follows:
<TABLE>
<CAPTION>
BEFORE THE SUBSTITUTION AFTER THE SUBSTITUTION
<S> <C>
Shares of Adjustable Rate Portfolio -- GNA Shares of Income Fund -- GE Investments Funds, Inc.
Variable Series Trust
Shares of Government Portfolio -- GNA Variable Shares of Income Fund -- GE Investments Funds, Inc.
Series Trust
Shares of Fixed Income Portfolio -- GE Variable Shares of Income Fund -- GE Investments Funds, Inc.
Investment Trust
Shares of Growth Portfolio -- GNA Variable Shares of Premier Growth Equity Fund -- GE
Series Trust Investments Funds, Inc.
Shares of Value Portfolio -- GNA Variable Shares of Value Equity Fund -- GE Investments
Series Trust Funds, Inc.
Shares of International Equity Portfolio -- GE Shares of International Equity Fund -- GE Investments
Variable Investment Trust Funds, Inc.
Shares of U.S. Equity Portfolio -- GE Variable Shares of U.S. Equity Fund -- GE Investments
Investment Trust Funds, Inc.
Shares of Money Market Portfolio -- GE Variable Shares of Money Market Fund -- GE Investments
Investment Trust Funds, Inc.
</TABLE>
The foregoing substitutions were carried out with the approval of any
necessary department of insurance. Effective December 12, 1997, GNA closed the
Variable Series Trust and GE Variable Investment Trust Portfolios.
Participants may transfer amounts among the Account's portfolios and the
Fixed Guarantee Period Account that is part of the general account of GNA. The
net assets related to deferred variable annuity policies are the property of
GNA and cannot be used to settle liabilities arising out of any other business
of GNA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) INVESTMENTS
Investments in shares of the portfolios are recorded at their net asset
value. The net asset value is based upon the underlying assets of the mutual
funds as determined by quoted market prices. Purchases and sales of investments
are recorded on the trade date. Realized gains and losses on investments are
determined on a first-in, first-out (FIFO) basis. Dividend income is recorded
on the ex-dividend date.
A-16
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
The aggregate cost of investments acquired and the aggregate proceeds of
investments sold, for the years ended December 31, 1998, 1997 and 1996, were:
<TABLE>
<CAPTION>
1998
---------------------------
COST OF PROCEEDS
SHARES FROM SHARES
ACQUIRED SOLD
-------------- ------------
<S> <C> <C>
GE Investments Inc.:
Income ........................ $19,843,849 17,686,957
Premier Growth Equity ......... 10,340,258 11,415,049
Value Equity .................. 2,229,839 3,911,012
International Equity .......... 7,986,728 8,049,451
U.S. Equity ................... 16,136,110 15,970,966
Money Market .................. 5,511,291 4,851,659
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------
COST OF PROCEEDS
SHARES FROM SHARES
ACQUIRED SOLD
-------------- ------------
<S> <C> <C>
GE Investments Funds, Inc.:
Income ............................... $20,601,794 81,608
Premier Growth Equity ................ 16,125,593 413,272
Value Equity ......................... 14,741,094 380,953
International Equity ................. 8,762,091 241,387
U.S. Equity .......................... 23,585,408 212,490
Money Market ......................... 4,234,024 1,563
GNA Variable Series Trust Portfolios:
GNA Adjustable Rate .................. 498,347 6,787,000
GNA Government ....................... 731,177 8,964,542
GNA Growth ........................... 1,043,291 16,981,639
GNA Value ............................ 1,424,753 15,612,734
GE Variable Investment Trust Portfolios:
GE U.S. Equity ....................... 1,386,664 24,659,481
GE International Equity .............. 549,529 9,035,869
GE Fixed Income ...................... 453,831 5,935,033
GE Money Market ...................... 1,717,889 6,086,208
</TABLE>
A-17
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
1996
---------------------------
COST OF PROCEEDS
SHARES FROM SHARES
ACQUIRED SOLD
-------------- ------------
<S> <C> <C>
GNA Variable Series Trust Portfolios:
GNA Adjustable Rate .......................... $ 1,000,968 169,874
GNA Government ............................... 2,111,676 800,272
GNA Growth ................................... 4,839,974 878,091
GNA Value .................................... 5,564,306 643,392
GE Variable Investment Trust Portfolios:
GE U.S. Equity ............................... 8,535,990 657,642
GE International Equity ...................... 1,912,875 407,154
GE Fixed Income .............................. 2,794,916 443,207
GE Money Market .............................. 11,371,209 12,097,915
Paragon Portfolio:
Paragon Power Intermediate Term Bond ......... 43,434 2,415,669
Paragon Power Value Growth ................... 80,350 2,678,158
Paragon Power Value Equity Income ............ 92,424 2,634,332
Paragon Power Gulf South Growth .............. 59,196 2,561,534
</TABLE>
(B) UNIT ACTIVITY
The increase (decrease) in outstanding units from capital transactions for
the years ended December 31, 1998, 1997 and 1996 are as follows:
Year ended December 31, 1998:
<TABLE>
<CAPTION>
GE INVESTMENT FUNDS, INC.
-------------------------------------------------------------------------------------
PREMIER INTERNATIONAL MONEY
INCOME GROWTH VALUE EQUITY U.S. MARKET
FUND EQUITY EQUITY FUND EQUITY FUND
------------- ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 508,249 943,827 991,032 206,295 1,156,869 128,751
Units purchased ..................... 71,462 172,206 163,497 60,655 124,349 511,772
Units redeemed ...................... (130,434) (336,153) (347,927) (107,212) (175,739) (471,310)
-------- -------- -------- -------- --------- --------
Units outstanding, end of year ...... 449,277 779,880 806,602 159,738 1,105,479 169,213
======== ======== ======== ======== ========= ========
</TABLE>
Year ended December 31, 1997:
<TABLE>
<CAPTION>
GE INVESTMENT FUNDS, INC.
-----------------------------------------------------------------------------
PREMIER INTERNATIONAL MONEY
INCOME GROWTH VALUE EQUITY U.S. MARKET
FUND EQUITY EQUITY FUND EQUITY FUND
----------- ----------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year -- -- -- -- -- --
Units purchased ..................... 278 440 508 287 402 52
Units redeemed ...................... (546) (659) (660) (263) (1,276) (156)
Units exchanged ..................... 508,517 944,046 991,184 206,271 1,157,743 128,855
------- ------- ------- ------- --------- -------
Units outstanding, end of year ...... 508,249 943,827 991,032 206,295 1,156,869 128,751
======= ======= ======= ======= ========= =======
</TABLE>
A-18
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS
----------------------------------------------------
GNA
ADJUSTABLE GNA GNA GNA
RATE GOVERNMENT GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year ......... 43,230 177,813 501,297 479,779
Units purchased .............................. 871 763 10,439 10,707
Units redeemed ............................... (1,978) (9,454) (31,630) (28,076)
Units exchanged .............................. (42,123) (169,122) (480,106) (462,410)
------- -------- -------- --------
Units outstanding, end of year ............... -- -- -- --
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS
--------------------------------------------------------
GE GE GE
GE INTERNATIONAL FIXED MONEY
U.S. EQUITY EQUITY INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year ........ 558,978 149,105 253,249 147,357
Units purchased ............................. 17,293 4,870 1,453 9,686
Units redeemed .............................. (37,907) (8,165) (27,725) (40,900)
Units exchanged ............................. (538,364) (145,810) (226,977) (116,143)
-------- -------- -------- --------
Units outstanding, end of year .............. -- -- -- --
======== ======== ======== ========
</TABLE>
Year ended December 31, 1996:
<TABLE>
<CAPTION>
GNA VARIABLE SERIES TRUST PORTFOLIOS
--------------------------------------------------
GNA
ADJUSTABLE GNA GNA GNA
RATE GOVERNMENT GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year ......... 7,535 120,988 221,675 158,124
Units purchased .............................. 14,910 21,863 96,364 80,125
Units redeemed ............................... (2,561) (8,838) (18,964) (14,415)
Units exchanged .............................. 23,346 43,800 202,222 255,945
------ ------- ------- -------
Units outstanding, end of year ............... 43,230 177,813 501,297 479,779
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
GE VARIABLE INVESTMENT TRUST PORTFOLIOS
------------------------------------------------------
GE GE GE
GE INTERNATIONAL FIXED MONEY
U.S. EQUITY EQUITY INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year ........ 128,448 88,200 81,370 237,634
Units purchased ............................. 138,084 16,992 24,403 739,026
Units redeemed .............................. (22,369) (12,262) (21,083) (38,623)
Units exchanged ............................. 314,815 56,175 168,559 (790,680)
------- ------- ------- --------
Units outstanding, end of year .............. 558,978 149,105 253,249 147,357
======= ======= ======= ========
</TABLE>
A-19
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
PARAGON PORTFOLIOS
-------------------------------------------------------
INTERMEDIATE VALUE VALUE GULF
TERM BOND GROWTH EQUITY SOUTH
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year ......... 109,775 110,204 86,867 107,010
Units purchased .............................. 1 168 5 20
Units redeemed ............................... (803) (1,786) (741) (1,953)
Units exchanged .............................. (108,973) (108,586) (86,131) (105,077)
-------- -------- ------- --------
Units outstanding, end of year ............... -- -- -- --
======== ======== ======= ========
</TABLE>
(C) DISTRIBUTIONS
The net investment income (loss) and realized capital gains of the Account
are retained and reinvested within the Account.
(D) FEDERAL INCOME TAXES
The operations of the Account are a part of, and are taxed with, the
operations of GNA. Therefore, the Account is not separately taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code.
Under existing federal income tax laws, investment income and capital gains of
the Account are not taxed. Accordingly, the Account paid no federal income
taxes and no federal income tax provision was required. GNA is taxed as a life
insurance company under the Internal Revenue Code.
(E) USE OF ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect amounts and disclosures reported therein. Actual results could differ
from those estimates.
(3) RELATED PARTY TRANSACTIONS AND CONTRACT CHARGES
Net contract purchase payments transferred from GNA to the Account
represent gross purchase payments recorded by GNA on its group deferred
variable annuity products, less deductions for premium taxes in certain states.
A withdrawal charge (contingent deferred sales charge) may be assessed against
certain amounts withdrawn within five years of any purchase payment. Subject to
certain limitations, this charge equals 5% (or less) of the purchase payment
surrendered, depending on the time between purchase payment and surrender.
Each year GNA will deduct a certificate maintenance charge of $40 plus an
administration charge at an annual rate of .15% of average daily net assets as
partial compensation for certain administrative services. GNA will waive the
certificate maintenance charge if at the time of the assessment the account
value is $40,000 or greater. In addition, GNA charges the Account at an annual
rate of 1.25% of average daily net assets for the mortality and expense risk
that GNA assumes. Administrative expenses as well as mortality and risk charges
are deducted daily and reflect the effective annual rates.
Units are not assigned to purchases made by GNA and no contract charges
are assessed against GNA's net assets.
GE Investment Management Incorporated (Investment Advisor), a wholly-owned
subsidiary of GE Company, currently serves as investment advisor to GE
Investments Funds, Inc. As compensation for its services, the Investment
Advisor is paid an investment advisory fee by the Fund based on average daily
net assets at an effective rate of .50% for the Money Market and Income Funds,
.55% for the U.S. Equity Fund, .65% for the Value Equity and Premier Growth
Equity Funds, and 1.00% for the International Equity Fund. Prior to December
12, 1997, GNA Capital Management, Inc., a wholly-owned subsidiary of GNA
Corporation, served as investment advisor to the GNA VST portfolios and GE
Investment Management Incorporated served as investment advisor of the GE VIT
portfolios. The VST portfolios paid GNA Capital Management, Inc. a fee based
upon each portfolio's daily net assets, calculated at an effective annual rate
of .40% to .80% depending on
A-20
<PAGE>
GNA VARIABLE INVESTMENT ACCOUNT
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(3) RELATED PARTY TRANSACTIONS AND CONTRACT CHARGES -- Continued
the type of portfolio and the portfolio's combined average daily net assets.
The VIT portfolios paid GE Investment Management Incorporated a fee based upon
each portfolio's daily net assets, calculated at an effective annual rate of
.30% to .85% depending on the nature of the portfolio.
(4) SUBSEQUENT EVENT
Effective January 1, 1999, Great Northern Insured Annuity Corporation
merged with and into General Electric Capital Assurance Company, its parent
company. This event has no impact on net assets or unit values of the Account.
A-21
