Registration No. 333- ________
811- 8506
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INITIAL FILING
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
GNA VARIABLE INVESTMENT ACCOUNT
(Exact name of Registrant)
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
(Name of Depositor)
6604 West Broad Street
Richmond, VA 23230
(804) 281-6000
(Address and telephone number of Principal Executive Offices)
-------------------------------------------------------
Scott A. Curtis, Vice President
General Electric Capital Assurance Company
6604 West Broad Street
Richmond, VA 23230
(804) 281-6000
(Name, address, and telephone number of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement
Title of Securities Being Registered: Interests in a Separate Account under
flexible premium variable deferred annuity policies.
Filing Fee: None.
-------------------------------------------------------
The Registrant hereby amends this Registration Statement on such dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commissioner, acting under Section 8(a), may
determine.
<PAGE>
General Electric Capital Assurance Company
Group and Individual Deferred Variable Annuity and
Modified Guaranteed Annuity Contracts
Issued by: Variable Annuity Service Center:
GNA Variable Investment Account of 300 Berwyn Park
General Electric Capital Assurance Company Berwyn, PA 19312-0031
6604 West Broad Street (800) 455-0870
Richmond, VA 23230
(804) 281-6000
This prospectus offers deferred variable and modified guarantee annuity
Contracts for groups and individuals and for some qualified and nonqualified
retirement plans. You may allocate your purchase payments to the GNA Variable
Investment Account ("Separate Account") that invests in Portfolios of the
following Fund:
GE Investment Funds, Inc.
o Income Fund o Premier Growth Equity Fund
o Value Equity Fund o International Equity Fund
o U.S. Equity Fund o Money Market Fund
You bear the risk of investing in the Separate Account.
You may also allocate your purchase payments to our Fixed MGA Account.
Fixed MGA Account Values accumulate under Fixed Guarantee Periods for a
specified number of years ranging from one to ten. We guarantee a minimum rate
of interest on amounts you allocate to the Fixed MGA Account. However, amounts
you withdraw, transfer, or apply to an annuity from the Fixed MGA Account
generally will be subject to a market value adjustment, the operation of which
may increase or decrease such amounts.
This prospectus details information that you should know before
investing. You should also review the Fund prospectus and keep both prospectuses
for future reference.
The Contracts have risks including the possible loss of principal. The
Contracts are not deposits or obligations of, or guaranteed by, any financial
institution and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
The Statement of Additional Information ("SAI"), dated the same date as
this prospectus, contains additional information about the Contracts. We filed
the SAI with the Securities and Exchange Commission and its terms are made a
part of this prospectus. The table of contents for the SAI is on page __ of the
prospectus. You may obtain a free copy of the SAI by writing or calling our
Variable Annuity Service Center at the address and phone number listed above, or
by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
The Securities and Exchange Commission has not approved the securities
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
January __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Definitions ......................................... Notices and Elections .............................
Amendment of Contract and Certificates ............
Summary .............................................. Free Look Right ...................................
Fee Table and Example ................................ Company Approval ..................................
Accumulation Unit Values .............................
General Information................................... Charges and Deductions
General Electric Capital Assurance Company.......... Withdrawal Charges ................................
GECA Variable Investment Account ................... Administration Charges ............................
The Funds .......................................... Mortality and Expense Risk Charge .................
Taxes .............................................
Federal Tax Matters .................................
Description of the Contracts ......................... Introduction ......................................
Accumulation Provisions .............................. GECA's Tax Status .................................
Purchase Payments .................................. Tax Status of the Certificate .....................
Variable Accumulation .............................. Federal Tax Considerations ........................
Fixed Accumulation ................................. Qualified Plans ...................................
Transfers Among Investment Options .................
Special Transfer Services...........................
Withdrawals ........................................
Special Withdrawal Services ........................ General Matters .....................................
Telephone Transactions ............................. Performance Data ..................................
Market Value Adjustment............................. Financial Statements ..............................
Death Benefit ...................................... Year 2000 .........................................
Restrictions Under the Texas Optional
Retirement Program ..............................
Annuity Provisions................................... Distribution of Contracts .........................
General ........................................... Legal Proceedings .................................
Annuity Date ....................................... Legal Matters .....................................
Annuity Options..................................... Experts ...........................................
Amount of Fixed Annuity Payments.................... Registration Statements ...........................
Amount of Variable Annuity Payments ................
Transfers After Annuity Date ....................... Statement of Additional
Death Benefit on or After Annuity Date Information--Table of Contents ....................
Other Contract Provisions ............................ Appendix A: State Premium Taxes .....................
Proof of Age, Sex and Survival .....................
Misstatement of Age or Sex.......................... Appendix B: Examples of Market Value
Ownership .......................................... Adjustments .......................................
Beneficiary ........................................
</TABLE>
This prospectus does not constitute an offering in any jurisdiction in which an
offering may not be lawfully made.
<PAGE>
Definitions
We have tried to make this prospectus as understandable for you as
possible. However, in explaining how the Contract works, we have had to use
certain terms that have special meanings. We define these terms below.
Accumulation Unit. An unit of measure that we use to calculate the Accumulation
Value for each Variable Sub-account before the Annuity Date.
Accumulation Value. The number of Accumulation Units of a Variable Sub-account
we credit to a Certificate multiplied by the Accumulation Unit value for that
Sub-account.
Annuitant. The person on whose life we issue the Contract. The Participant is
the Annuitant unless you designate another person.
Annuity Date. The date on which annuity payments begin.
Beneficiary. The person who receives payment from us on the death of the
Participant if the Participant (or other appropriate individual) dies before the
Annuity Date. After the Annuity Date, if the Annuitant dies before we will pay
the guaranteed amounts, we will pay these guaranteed amounts to the Beneficiary.
Certificate Anniversary. Each anniversary of the Certificate Date. For an
individual Contract, we refer to this as the Contract Anniversary.
Certificate Date. The date on which we credit a premium for a Participant as
shown on the Certificate Schedule.
Certificate Year. The year starting on the Certificate Date or the Certificate
Anniversary and ending on the day just prior to the next Certificate
Anniversary. For an individual Contract, we refer to this as the Contract Year.
Certificate Value. The sum of the Accumulation Values for all Variable
Sub-accounts and Fixed MGA Account Value. For an individual Contract, we refer
to this as the Contract Value.
Fixed MGA Account Value. The sum of the values in Fixed Guarantee Periods.
Fixed Guarantee Period. We establish a Fixed Guarantee Period when you invest a
purchase payment or transfer an amount to the Fixed MGA Account. We credit each
Fixed Guarantee Period with a specified interest rate for a specified Guarantee
Period.
Fixed Annuity. An annuity payment option with payments that we predetermine and
guarantee as to dollar amount.
Guarantee Period. The period of years for which we guarantee a rate of interest
credited to a Fixed Guarantee Period.
Notice. A notice or request authorized by you, in a written, signed, and dated
form satisfactory to us, received at our Variable Annuity Service Center.
Participant. The person, persons, or entity participating under the Contract to
whom we issue a Certificate and who is entitled to the rights stated in the
Certificate. For an individual Contract, we refer to the Participant as the
Owner. "You" or "Your" refers to the Participant or Owner.
Separate Account. A separate investment account of General Electric Capital
Assurance Company ("GECA," "we," "us," "our," or the "Company"), the GNA
Variable Investment Account. The Separate Account is divided into Variable
Sub-accounts, each of which invests in a Portfolio of a Fund.
Variable Sub-account(s). One or more of the Variable Sub-Accounts of the
Separate Account.
Valuation Date. Any date on which the New York Stock Exchange is open for
trading and the net asset value of a Portfolio is determined.
<PAGE>
Valuation Period. Any period from one Valuation to the next, measured from the
time on each such date that the net asset value of a Portfolio is determined.
Summary
The Contract - The Contract provides for Fixed Annuity payments that begin at
the Annuity Date.
Purchase Payments - Currently, the minimum initial purchase payment for a
Certificate is $2,000. Subsequent purchase payments that you allocate to the
Separate Account must be at least $500 ($100 for automatic payment plans).
Subsequent purchase payments that you allocate to the Fixed MGA Account must be
at least $2,000. You may make additional purchase payments anytime before the
Annuity Date.
Ownership - A purchaser may be an individual, employer, trust, corporation,
partnership, custodian, or any entity specified in an eligible employee benefit
plan. Retirement plans qualified or non-qualified under the Internal Revenue
Code (the "Code") may purchase the Contract.
Investment Options - You currently may allocate purchase payments to six
Variable Sub-accounts and to 10 Fixed Guarantee Periods. You can change your
purchase payment allocation. We currently do not limit transfers from or between
the Variable Accounts, but reserve the right to do so. A transfer from or
between Fixed Guarantee Periods may be made only once in a Certificate Year.
(See "Transfers Among Investment Options"). The minimum transfer amount is
$1,000 or the entire value of your interest in that Variable Sub-account or
Fixed Guarantee Period if such interest is less than $1,500. Transfers from a
Fixed Guarantee Period may be subject to a market value adjustment.
Charges - We apply the following charges to your Contract:
o a deferred sales load equal to a maximum of 5% of each
purchase payment made, on certain full and partial surrenders;
o a Certificate Maintenance Charge of $40 which we waive if your
Certificate Value at the time of assessment is $40,000 or
more;
o a mortality and expense fee and an administration charge equal
to a combined annual rate of 1.40% of the Separate Account's
daily net assets; and
o a Market Value Adjustment to certain withdrawals or transfers
from the Fixed MGA Account made before the end of a Guarantee
Period.
The Portfolios deduct from .50% to 1.20% annually from their average
net assets to cover their management and operating expenses.
Certain waivers or reductions may apply. (See "Withdrawals" and
"Charges and Deductions").
Free-Look Right - After you receive the Certificate, you have the number of days
shown on your Certificate Schedule (usually ten days) to return it to us. We
will return your Certificate Value (or, in some states, your purchase payments).
Withdrawals - Before the earlier of the Annuity Date or the death of any person
whose death caused the payment of a death benefit, you may withdraw all or part
of your Certificate's Withdrawal Value. The Withdrawal Value is the Certificate
Value less any withdrawal charge, plus or minus any market value adjustment,
less any applicable taxes or certificate maintenance charge. Each withdrawal
must be at least $1,000. For any partial withdrawal, the remaining Accumulation
Value for each Variable Sub-Account and the remaining value of each Fixed
Guarantee Period must be at least $500, and the remaining Certificate Value must
be at least $2,000. Please be aware that federal tax laws penalize and may
prohibit certain premature distributions from the Certificate.
You may withdraw a purchase payment free of the withdrawal charge after
five years. You also may make a withdrawal free of the withdrawal charge each
Certificate Year. We limit this free withdrawal privilege to the first
withdrawal made in a Certificate Year, and to 10% of Certificate Value at the
time of the withdrawal.
<PAGE>
However, whenever you make a withdrawal from a Fixed Guarantee Period
or apply an amount from a Fixed Guarantee Period to an annuity before the end of
that Fixed Guarantee Period, we will apply a market value adjustment. This
market value adjustment will depend on (i) the amount you withdraw, transfer, or
apply to an annuity, (ii) the remaining time in the Guarantee Period of the
Fixed Guarantee Period from which you take the amount, and (iii) the change in
guaranteed interest rates offered by us that has occurred since we established
the Fixed Guarantee Period. (See - "Accumulation Provisions - Market Value
Adjustment").
Death Benefit - If the Participant or a non-spouse Participant (or Annuitant if
the Participant is not a person) dies before the Annuity Date, the Beneficiary
receives the greater of Certificate Value or the minimum death benefit. On the
effective date of the Certificate, the minimum death benefit equals the initial
purchase payment. Additional purchase payments immediately increase and partial
surrenders (net of withdrawal charges) immediately decrease the minimum death
benefit. However, on the fifth Certificate Anniversary and each Certificate
Anniversary which is a five-year interval of the fifth Certificate Anniversary,
we will increase the minimum death benefit to equal the Certificate Value if the
Certificate Value on that Anniversary is greater than the minimum death benefit.
Fee Table and Example
We designed the following table and Example to assist you in understanding the
various costs and expenses that you bear directly and indirectly. The table
reflects expenses of the Separate Account and the underlying Portfolios. It does
not reflect any market value adjustment. In addition to the items listed below,
premium taxes may be applicable to certain Certificates. We more completely
describe the items listed under "Participant Transaction Expenses" and "Separate
Account Annual Expenses" in this Prospectus (see "CHARGES AND DEDUCTIONS"). The
items listed under "Portfolio Annual Expenses" are described in detail in the
accompanying Fund Prospectus.
Participant Transaction Expenses
Deferred sales load (as percentage of purchase payments)
Number of Complete Years Withdrawal Charge
Since Purchase Payment Made Percentage
0 5%
1 5%
2 4%
3 3%
4 2%
5+ 0%
Annual Contract Fee $40(1)
(1) We waive the certificate maintenance charge if, at the time of assessment,
the Certificate Value is $40,000 or more.
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and expense risk fees........................... 1.25%
Administration fee--asset based........................... 0.15%
Total Separate Account Annual Expenses ............... 1.40%
Portfolio Annual Expenses
(as a percentage of Portfolio average net assets)
<TABLE>
<CAPTION>
Management Fees Other Expenses
(after fee waiver, (after reimbursement,
Portfolio as applicable) as applicable) Total Annual Expenses
- --------- -------------- -------------- ---------------------
<S> <C> <C> <C>
Income Fund .42% .17% .59%
Premier Growth Equity Fund .03% .01% .04%
Value Equity Fund .37% .09% .46%
International Equity Fund .98% .36% 1.34%
U.S. Equity Fund .55% .25% .80%
Money Market Fund .20% .12% .32%
- -----------------------
</TABLE>
<PAGE>
The annual expenses listed for all the Portfolios are net of certain
reimbursements and fee waivers by the Portfolios' investment advisers. GECA
cannot guarantee that the reimbursements will continue.
Absent reimbursements and fee waivers, total annual expenses during 1997 for the
Portfolios of GE Investments Funds, Inc. would have been .76% for the Income
Fund, .04% for the Premier Growth Equity Fund, .46% for the Value Equity Fund,
1.43% for the International Equity Fund, .86% for the U.S. Equity Fund, and .48%
for the Money Market Fund.
Example
For purposes of presenting the Example, we have made certain assumptions
mandated by the Securities and Exchange Commission (the "Commission"). We assume
that there are no exchanges or other transactions and that the "Other Expenses"
line item under "Portfolio Annual Expenses" will remain the same. Such
assumptions, which the Commission mandates in an attempt to provide prospective
investors with standardized data with which to compare various annuity
contracts, do not take into account certain features of the Contract and
prospective changes in the size of the Portfolio which may operate to change the
expenses borne by Participants. Consequently, you should not consider the
amounts listed in the Example a representation of past or future expenses, and
your actual expenses may be greater or lesser than those shown.
In addition, for purposes of calculating the values in the Example, we have
translated the $40 certificate maintenance charge listed under "Annual Contract
Fee" to a 0.058% annual asset charge based on an average Certificate Value of
$44,740 with the additional assumption that we waive the charge on 35% of all
Certificates due to the waiver in place for Certificates with a Certificate
Value of $40,000 or greater. We base this estimate on sales information from
annuities issued under this prospectus.
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets and the charges and expenses reflected in the Fee Table above,
if you:
<TABLE>
<CAPTION>
Annuitized or did not surrender* your
Surrendered* your Certificate at the end Certificate at the end of the
of the applicable period: applicable
period:
----------------------------------------- ----------------------------------------
1 3 5 10 1 3 5 10
Portfolio Year Year Year Year Year Year Year Year
--------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund $65.63 $99.85 $127.92 $237.72 $20.78 $64.21 $110.23 $237.72
Premier Growth Equity
Fund $60.06 $82.91 $99.36 $178.83 $15.24 $47.35 $81.74 $178.83
Value Equity Fund $64.33 $95.87 $121.24 $224.11 $19.48 $60.25 $103.57 $224.11
International Equity Fund $73.18 $122.48 $165.58 $312.62 $28.29 $86.75 $147.81 $312.62
U.S. Equity Fund $72.38 $120.09 $161.63 $304.92 $27.49 $84.37 $143.87 $304.92
Money Market Fund $62.91 $91.56 $114.00 $209.24 $18.07 $55.96 $96.34 $209.24
</TABLE>
* Surrender includes annuitization over a period of less than 5 years.
Accumulation Unit Values
The Accumulation Unit Values and the number of Accumulation Units outstanding
for each Variable Sub-account for the periods shown are as follows:
<TABLE>
<CAPTION>
Sub-accounts: Sub-accounts:
Income 1997 International Equity 1997
<S> <C> <C> <C>
o December 12* Unit Value.. $10.00 o December 12* Unit Value.. $10.00
o December 31 Unit Value... $9.98 o December 31 Unit Value... $10.20
o December 31, Units....... 508,249 o Decmeber 31, Units....... 206,295
Premier Growth Equity U.S. Equity
o December 12* Unit Value.. $10.00 o December 12* Unit Value.. $10.00
o December 31 Unit Value... $10.33 o December 31 Unit Value... $10.23
o December 31, Units....... 943,827 o December 31, Units....... 1,156,869
Value Equity Money Market
o December 12* Unit Value.. $10.00 o December 12* Unit Value.. $10.00
o December 31 Unit Value... $10.23 o December 31 Unit Value... $10.02
o December 31, Units....... 991,032 o December 31, Units....... 128,751
</TABLE>
<PAGE>
Each of the above-referenced Sub-accounts became available under the Contracts
on December 12, 1997, under an order of substitution issued by the Commission.
The number of units and unit values for the Sub-accounts available prior to
December 12, 1997, the date of the substitution, were as follows:
<TABLE>
<CAPTION>
GNA Growth 1997 1996 1995
<S> <C> <C> <C>
o January 1 UnitValue....... $15.237 $13.154 $10.001*
o December 31 Unit Value.... $19.382** $15.237 $13.154
o December 31, Units........ 487,595.202632** 501,296.749795 221,675.041558
GNA Value
o January 1 Unit Value...... $15.182 $12.592 $10.001*
o December 31 Unit Value.... $20.368** $15.182 $12.592
o December 31, Units........ 487,120.754019** 479,779.462510 158,124.112269
GNA Government
o January 1 Unit Value...... $11.661 $11.441 $9.996*
o December 31 Unit Value.... $12.454** $11.661 $11.441
o December 31, Units........ 158,279.329415** 177,813.422659 120,988.166975
GNA Adjustable Rate
o January 1 Unit Value...... $11.447 $10.998 $10.001*
o December 31 Unit Value.... $11.915** $11.447 $10.998
o December 31, Units........ 39,783.063285** 43,229.833640 7,535.253952
GE International Equity
o January 1 Unit Value...... $13.292 $11.614 $10.001*
o December 31 Unit Value.... $13.683** $13.292 $11.614
o December 31, Units........ 151,818.927334** 149,104.691691 88,199.568780
GE U.S. Equity
o January 1 Unit Value...... $16.050 $13.369 $10.001*
o December 31 Unit Value.... $20.457** $16.050 $13.369
o December 31, Units........ 565,970.209618** 558,978.499416 128,448.286686
GE Fixed Income
o January 1 Unit Value...... $11.693 $11.526 $10.001*
o December 31 Unit Value.... $12.514** $11.693 $11.526
o December 31, Units........ 209,631.673106** 253,249.356565 81,369.894632
GE Money Market
o January 1 Unit Value...... $10.786 $10.429 $10.001*
o December 31 Unit Value.... $11.155** $10.786 $10.429
o December 31, Units........ 115,465.830459** 147,357.482064 237,634.647996
</TABLE>
* As of commencement on January 3, 1995.
** As of December 12, 1997 the date of the substitution described above.
We qualify the above summary in its entirety by the detailed information
appearing elsewhere in this Prospectus and Statement of Additional Information
and the accompanying Prospectus and Statement of Additional Information for the
Fund, to which you should refer. This Prospectus generally describes only the
variable aspects of the Contract, except where we specifically mention fixed
aspects.
<PAGE>
General Information
General Electric Capital Assurance Company
GECA is a stock life insurance company organized under the laws of the State of
Delaware in 1956. It is principally engaged in the offering of annuity,
interest-sensitive life, accidental death and dismemberment, and long-term care
insurance coverage. GECA is admitted to do business in 48 states and the
District of Columbia. The principal offices are 6604 West Broad Street,
Richmond, Virginia 23230.
GECA is a wholly-owned subsidiary of GNA Corporation, which is indirectly a
wholly-owned subsidiary of General Electric Capital Corporation ("GE Capital").
GE Capital, a New York corporation, is a diversified financial services company
whose subsidiaries consist of specialty insurance, equipment management and
consumer and commercial financing businesses. GE Capital's parent, General
Electric Company, founded more than 100 years ago by Thomas Edison, is the
world's largest manufacturer of jet engines, engineering plastics, medical
diagnostic equipment and large-size electric power generation equipment.
Effective January 1, 1999, GECA's wholly-owned subsidiary Great Northern Insured
Annuity Corporation ("GNA") was merged with and into GECA with GECA as the
surviving corporation. As a result of the merger, GECA assumed all of the rights
and obligations of GNA, including those related to the Separate Account.
GNA Variable Investment Account
The Separate Account was established in 1981 under the laws of the State of
Washington. The income, gains and losses, whether or not realized, from assets
of the Separate Account are, in accordance with the Contracts, credited to or
charged against the Separate Account without regard to our other income, gains
or losses. Nevertheless, all obligations arising under the Contracts are our
general corporate obligations. Assets of the Separate Account may not be charged
with liabilities arising out of any of our other business.
The Separate Account is registered with the Commission under the Investment
Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment
trust is a type of investment company which invests its assets in specified
securities, such as the shares of one or more investment companies. Registration
under the 1940 Act does not involve supervision by the Commission of the
management or investment policies or practices of the Separate Account.
There are currently six Variable Sub-accounts within the Separate Account
available under the Contracts: the Income Sub-account, the Premier Growth Equity
Sub-account, the Value Equity Sub-account, the International Equity Sub-account,
the U.S. Equity Sub-account, and the Money Market Sub-account. The Company
reserves the right to add other Sub-accounts, make available other Separate
Accounts established by GECA or an affiliated company, eliminate existing
Sub-accounts, combine Sub-accounts with other Sub-accounts or other Separate
Accounts or transfer assets in one Sub-account to another Sub-account or to
another Separate Account established by the Company or an affiliated company.
The Company will not eliminate existing Sub-accounts or combine Sub-accounts
without the prior approval of the appropriate state or federal regulatory
authorities. The Company reserves the right to deregister the Separate Account,
operate the Separate Account as a management investment company or make any
change required by the 1940 Act.
The Funds
We invest the assets of each Variable Sub-account of the Separate Account in
shares of a corresponding Portfolio: the Income Fund, the Premier Growth Equity
Fund, the Value Equity Fund, the International Equity Fund, the U.S. Equity Fund
and the Money Market Fund of the GE Investments Fund, Inc. GE Investments Fund,
Inc. is registered under the 1940 Act as an open-end management investment
company. Each of the Portfolios is diversified for purposes of the 1940 Act.
The investment adviser of GE Investment Funds, Inc. is GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company.
The following is a brief description of each Portfolio:
<PAGE>
The Income Fund. The investment objective of the Income Fund is to provide
maximum income consistent with prudent investment management and preservation of
capital. It seeks to achieve this objective by investing primarily in
income-bearing debt securities and other income-bearing instruments.
The Premier Growth Equity Fund. The investment objective of the Premier Growth
Equity Fund is to provide long-term growth of capital as well as future (rather
than current) income. It seeks to achieve this objective by investing primarily
in growth-oriented equity securities.
The Value Equity Fund. The investment objective of the Value Equity Fund is to
provide long-term growth of capital. It seeks to achieve this objective by
investing primarily in common stock and other equity securities that are
undervalued by the market at the time of purchase and offer above-average
potential for capital growth.
The International Equity Fund. The investment objective of the International
Equity Fund is to provide long-term growth of capital. It seeks to achieve this
objective by investing primarily in foreign equity and equity-related
securities.
The U.S. Equity Fund. The investment objective of the U.S. Equity Fund is to
provide long-term growth of capital. It seeks to achieve this objective by
investing primarily in equity securities of U.S. companies.
The Money Market Fund. The investment objective of the Money Market Fund is to
provide the highest level of current income as is consistent with liquidity and
safety of principal. It seeks to achieve this objective by investing in various
types of good quality money market securities.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other retail mutual funds which can be
purchased outside of a variable insurance product, and that may be managed by
the same investment adviser or manager. The investment results of the
Portfolios, however, may be higher or lower than the results of such other
portfolios. There can be no assurance, and no representation is made, that the
investment results of any of the Portfolios will be comparable to the investment
results of any other portfolio, even if the other portfolio has the same
investment adviser or manager.
If shares of a Portfolio are no longer available for investment or in our
judgment investment in a Portfolio becomes inappropriate to the purposes of the
Contract, we may eliminate the shares of the Portfolio and substitute shares of
another portfolio or another open-end registered investment company.
Substitution may be made with respect to both existing investments and the
investment of future purchase payments. However, no such substitution will be
made without Notice to the Contract holder and prior approval of the Commission
to the extent required by the 1940 Act.
We will vote shares of the Portfolios held in the Separate Account at meetings
of shareholders of the Portfolio in accordance with voting instructions received
from the persons having the voting interest under the Certificates. We will
determine the number of Portfolio shares for which you may give voting
instructions in the manner described below, not more than 90 days prior to the
meeting of the Portfolio. We will distribute fund proxy material to each person
having the voting interest under the Certificate together with appropriate forms
for giving voting instructions. We will vote Portfolio shares held in the
Separate Account that we attribute to Certificates and as to which we received
no timely instructions, in proportion to the instructions received. We will vote
Portfolio shares that are not attributable to Certificates in our discretion.
Prior to the Annuity Date, the person having the voting interest under a
Certificate is the Participant. We determine the number of votes as to each
Portfolio for which the Participant may give voting instructions by dividing the
Certificate's Accumulation Value for the Variable Sub-account in which we hold
such Portfolio shares by the net asset value per share of that Portfolio. After
the Annuity Date, the person having the voting interest under a Certificate is
the Annuitant. We determine the number of votes as to each Portfolio for which
the Annuitant may give voting instructions by dividing the reserve for the
Annuity Payment Option allocated to the Variable Sub-account in which such
Portfolio shares are held by the net asset value per share of that Portfolio.
Generally, the number of votes tends to decrease as annuity payments progress
since the amount of reserves attributable to an Annuity Payment Option under a
Certificate will usually decrease after the commencement of annuity payments. We
reserve the right to make any changes in the voting rights described above that
may be permitted by the federal securities laws or regulations or
interpretations of these laws or regulations.
<PAGE>
The Prospectus for the Fund which accompanies this Prospectus contains a full
description of the Portfolios, including the investment objectives, policies and
restrictions of the Portfolios and should be read by a prospective purchaser
before investing.
Description of the Contract
In most states the Contract described in this Prospectus is a group Contract.
The group contract is an allocated contract pursuant to which specific accounts
are maintained for each Participant. The group Contract may have been issued to
a broker-dealer or other financial institution for a group consisting of clients
of the broker-dealer or financial institution. The Contract may also have been
issued to any other organized group acceptable to us, including a trust
established for account holders of a broker-dealer or other financial
institution. In certain states where the group Contract was not approved for
sale, an individual Contract may have been available. We no longer offer the
Contract for sale, and no longer accept new Participants under the outstanding
group Contracts. Current Participants may continue to make purchase payments
subject to the limitations described in this Prospectus.
The Contract may have been issued in connection with either Nonqualified Plans
or certain Qualified Plans. Qualified Plans include individual retirement
accounts and annuities, pension and profit-sharing plans for corporations and
sole proprietorships/partnerships ("H.R. 10" and "Keogh" plans), Tax-Sheltered
annuities, and deferred compensation plans of state and local governments and
tax-exempt organizations.
A person, or in the case of a group Contract an eligible member of a group to
which a Contract has been issued, may have become a Participant by completing an
application and forwarding payment of a purchase payment to us. The application
is subject to our acceptance. We summarize the rights and benefits of a
Participant under a Contract in a Certificate issued to the Participant.
Provisions of the Contract are controlling. A Participant may exercise all
rights and benefits under a group Contract without the consent of the Contract
holder. Provisions of any plan in connection with which a Contract has been
issued may restrict a person's eligibility to purchase or participate under the
Contract, the minimum or maximum amount of the purchase payment, and the
Participant's ability to exercise the rights and/or receive the benefits
provided under the Contract. In the case of a group Contract, we reserve the
right to terminate a Contract as to eligible members of the group not accepted
as Participants at the time of termination.
Accumulation Provisions
Purchase Payments
You pay purchase payments to us at our Variable Annuity Service Center. The
minimum initial purchase payment is $2000. You may make subsequent purchase
payments at any time in amounts of at least $500, except that any portion of a
purchase payment you allocate to a Fixed Guarantee Period must be at least
$2000. We may arrange by separate agreement for purchase payments as small as
$100 to be automatically withdrawn from your bank account on a periodic basis.
We allocate purchase payments among the Variable Sub-accounts and the Fixed
Guarantee Periods of the Fixed MGA Account according to the percentages you
designated in the application. You may change the allocation of subsequent
purchase payments at any time upon written Notice to us or by telephone in
accordance with our telephone transfer procedures. You currently may allocate
Certificate Value to no more than six Variable Sub-accounts and ten Fixed
Guarantee Periods at any one time. The minimum allocation to a Fixed Guarantee
Period is $2000. Any allocation to a Fixed Guarantee Period which would result
in a total Fixed MGA Account Value exceeding $500,000 requires our prior
approval.
Variable Accumulation
Accumulation Units. We credit purchase payments and transfers to a Variable
Sub-account to your Certificate in the form of Accumulation Units. We determine
the number of Accumulation Units credited by dividing the net purchase payment
or transfer allocated to that Variable Sub-account by the value of the
Accumulation Unit for that Variable Sub-account for the Valuation Period during
which we receive a purchase payment at our Variable Annuity Service Center if
received before 4:00 p.m., New York time. If received at or after 4:00 p.m., New
York time, we will use the Accumulation Value computed on the next Valuation
date.
<PAGE>
When we receive a completed application and initial purchase payment by mail at
our Variable Annuity Service Center, we usually will issue a certificate within
two business days. We will contact you if your application is incomplete and we
need more information. We will return your initial purchase payment if we do not
complete this process within five business days unless you otherwise agree. We
will credit initial purchase payments received by wire transfer from
broker-dealers in the Valuation Period during which we received them where such
broker-dealers have made special arrangements with GECA for the collection and
forwarding of applications.
Value of Accumulation Units. The value of Accumulation Units for each Variable
Sub-account will vary from one Valuation Period to the next depending upon the
investment results of the Variable Sub-account. We arbitrarily set the value of
an Accumulation Unit for each Variable Sub-account at $10 for the first
Valuation Period under the Certificates. We determine the value of an
Accumulation Unit for any subsequent Valuation Period by multiplying the value
of an Accumulation Unit for the immediately preceding Valuation Period by the
net investment factor for such Variable Sub-account (described below) for the
Valuation Period for which we are determining the value.
Net Investment Factor. The net investment factor is an index used to measure the
investment performance of a Variable Sub-account from one Valuation Period to
the next. We determine the net investment factor for each Variable Sub-account
for any Valuation Period by dividing (a) by (b) and subtracting (c) from the
result:
Where (a) is:
(1) the net asset value per share of a Portfolio share held in the Variable
Sub-account determined at the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gain distributions made
by the Portfolio on shares held in the Variable Sub-account if the
"ex-dividend" date occurs during the current Valuation Period.
Where (b) is:
the net asset value per share of a Portfolio share held in the Variable
Sub-account determined as of the end of the immediately preceding Valuation
Period.
Where (c) is:
a factor representing the charges deducted from the Variable Sub-account for
administration and mortality and expense risks. Such factor is equal on an
annual basis to 1.40%: (0.15% for administration and 1.25% for mortality and
expense risks).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease or remain
the same.
We reserve the right to adjust the foregoing formula to make provision for any
change in tax law that requires us to pay tax on capital gains in the Separate
Account or any charge that may be assessed against the Separate Account for
assessments of federal premium taxes or federal, state or local excise, profits
or income taxes measured by or attributable to its receipt of purchase payments.
Fixed Accumulation
Fixed Guarantee Periods. There are currently ten fixed investment options under
the Contract. Each Fixed Guarantee Period provides for the accumulation of value
at a fixed rate of interest for a Guarantee Period ranging from one to ten
years. You select the Guarantee Period for each purchase payment or portion
thereof allocated to the Fixed MGA Account. You may not select more than ten
Fixed Guarantee Periods for allocation at any one time. Generally, the longer
the Guarantee Period, the higher the interest rate will be, but this will not
always be the case.
We establish a new Fixed Guarantee Period on each date that a Participant
allocates purchase payment or transfers value to the Fixed MGA Account. Once a
Certificate Year, a Participant may transfer amounts from a Fixed Guarantee
Period subject to certain restrictions described below and a market value
adjustment, if applicable. In addition, a Participant may withdraw the value of
a Fixed Guarantee Period, subject to certain restrictions described below and
any applicable market value adjustment, withdrawal charge or certificate
maintenance charge. Withdrawals may be subject to a 10% penalty tax under the
Code.
<PAGE>
The fixed portion of a Participant's Certificate Value, sometimes referred to as
the Fixed MGA Account Value, is the sum of the values of each Fixed Guarantee
Period under the Certificate. The value of each Fixed Guarantee Period equals
the amount allocated or transferred to that Fixed Guarantee Period, plus
credited interest, less any taxes previously deducted, less the amount of any
certificate maintenance charge previously deducted, less any amounts previously
transferred or withdrawn from the Fixed Guarantee Period (including any transfer
or withdrawal charges arising from any previous transfer or withdrawal) and plus
or minus any market value adjustment arising from any previous transfer or
withdrawal.
We quote a guaranteed interest rate for each Fixed Guarantee Period. Unless we
state otherwise, we will credit the guaranteed rate to the Fixed Guarantee
Period daily using a 365-day year. (We will not credit interest for February
29.) Our determination of the guaranteed interest rates for the different
Guarantee Periods will be influenced by, but not necessarily correspond to,
interest rates available on fixed income investments which it may acquire with
the purchase payments it receives under the Contracts. See "Investments
Supporting the Fixed Guarantee Periods". We will also consider other factors in
determining the guaranteed rates, including regulatory and tax requirements,
sales commissions and administrative expenses, general economic trends and
competitive factors. We will make the final determination of the guaranteed
rates we declare. We cannot predict or guarantee the level of future guaranteed
rates.
At the end of a Guarantee Period, you may select a new Fixed Guarantee Period
for the reinvestment of account values or may transfer such values to a Variable
Sub-account. We will not treat any such reinvestment or transfer as a transfer
for purposes of the limits on the number of transfers that we allow. The minimum
amount necessary to start a new Fixed Guarantee Period is $2000.
We will notify you of your right to make the selection at least forty-five days
before the end of the Guarantee Period. We guarantee interest rates for
reinvestments to be the same as the guaranteed interest rates then being offered
for new Certificates, but there is no guaranteed minimum interest rate. If we do
not receive notice before the end of the Guarantee Period, we will transfer the
Fixed Guarantee Period Value to the Money Market Sub-account. You may leave
Notice on file giving instructions for the reinvestment of all Fixed Guarantee
Periods. If you give Notice to start a new Guarantee Period with less than
$2000, we will reinvest the amount in the Money Market Sub-account.
Transfers Among Investment Options
Before the Annuity Date you may transfer amounts among the available investment
options subject to the following. The minimum amount which you can transfer from
a Variable Sub-account or Fixed Guarantee Period is $1000 or the entire value of
the Participant's interest in that Variable Sub-account or Fixed Guarantee
Period if such interest is less than $1500. If after the transfer the amount
remaining in the Variable Sub-account or Fixed Guarantee Period is less than
$500, we will transfer the entire amount instead of the requested amount. Any
transfer from a Fixed Guarantee Period prior to the end of its Guarantee Period
may be subject to a market value adjustment. (See "Market Value Adjustment"
below.)
If you make more than six transfers in a Certificate Year from or between
Variable Sub-accounts, each additional transfer may be subject to a $25 charge
to cover the administrative costs associated with the transfer. You may make a
transfer from or between Fixed Guarantee Periods only once in a Certificate
Year. If we should permit more than one such transfer, we reserve the right to
assess the $25 charge for that transfer. We will deduct the transfer charge from
the amount transferred if you transfer the entire amount of your interest in the
Variable Sub-account or Fixed Guarantee Period. Otherwise we will deduct the
charge from the Variable Sub-account or Fixed Guarantee Period from which you
make the transfer. If you make a transfer from more than one Variable
Sub-account or Fixed Guarantee Period, we will allocate the transfer charge
among such Variable Sub-accounts or Fixed Guarantee Periods in the same
proportion as the allocation of the total amount to be transferred, except that
any transfer from Fixed Guarantee Periods of the same duration shall be
considered together for transfer purposes, and we will transfer amounts on a
first-in, first-out basis.
Any transfer to a Fixed Guarantee Period initiates a new Fixed Guarantee Period.
We will not allow a transfer that would result in there being more than ten
Fixed Guarantee Periods or six Variable Sub-accounts. Any transfer that would
result in a total of more than $500,000 in all Fixed Guarantee Periods requires
our prior approval. We reserve the right to at any time and without prior Notice
to terminate, suspend or modify the transfer privilege. We may also delay
transfers from any Variable Sub-account in the circumstances described below for
the postponement of payment of withdrawals.
<PAGE>
Special Transfer Services
Dollar Cost Averaging
We administer a Dollar Cost Averaging ("DCA") program which enables you to
pre-authorize a periodic exercise of certain of the transfer rights described
above. When you enter into a DCA agreement you instruct us to transfer monthly
or quarterly a predetermined dollar amount from any one Variable Sub-account to
any other Variable Sub-accounts (not to exceed five) until the amount in the
Variable Sub-account is exhausted or until you cancel the program. The DCA
program is generally suitable for Participants making a substantial purchase
payment to the Contract and who desire to control the risk of investing at the
top of a market cycle. The DCA program allows such investments to be made in
equal installments over time in an effort to reduce such risk. The minimum
amount that a Participant may transfer is $1000 per transfer. To initiate the
program, the Certificate Value based on the Variable Sub-account from which the
transfers are to be made must be sufficient to provide for transfer payments for
at least one year. We will not count transfers under the program against the six
free transfers allowed each Certificate Year. Please contact our Variable
Annuity Service Center for more information about the DCA program.
Automatic Asset Allocation
We provide an Automatic Asset Allocation service under which you may specify the
portion of your total Sub-account Values to be allocated among various
Sub-accounts. Each quarter-year period we will send a statement to you
indicating the specified allocations, the current allocation of Sub-account
Values and any reallocation of the current values to conform them to the
specified allocations. If you make no objection to us within the prescribed
time, we will reallocate current Sub-account Values so that they will conform to
the allocations previously specified by the Participant. The DCA program and
Systematic Withdrawal Plan will not be available to Participants in the
Automatic Asset Allocation service.
Withdrawals
Before the earlier of the Annuity Date or the death of any person whose death
causes payment of the death benefit, you may withdraw all or a portion of the
Withdrawal Value of your Certificate upon Notice to our Variable Annuity Service
Center. The Certificate's Withdrawal Value is the Certificate Value less any
withdrawal charge, plus or minus the market value adjustment for amounts
withdrawn from Fixed Guarantee Periods, less any applicable taxes and less the
certificate maintenance charge if you make a full withdrawal on a date other
than December 31. Withdrawals may have tax consequences, including the
possibility of being subject to a penalty tax. For certain Qualified
Certificates, exercise of the withdrawal right may require the consent of your
spouse under the Code and regulations promulgated by the Treasury Department.
Under Tax-Sheltered Annuities, withdrawals attributable to contributions made
pursuant to a salary reduction agreement may be made only after the Participant
reaches age 59 1/2 or in other limited circumstances. (See "FEDERAL TAX
MATTERS.") For full withdrawals, surrender of the Certificate may be required.
In the case of a total withdrawal, we will pay the Withdrawal Value as of the
date of receipt of the request at our Variable Annuity Service Center, and we
will cancel the Certificate. In the case of a partial withdrawal, we will pay
the amount requested and withdraw an amount equal to the amount requested plus
the withdrawal charge, plus any applicable taxes, plus or minus any market value
adjustment. (See "CHARGES AND DEDUCTIONS.")
When making a partial withdrawal, you should specify the Variable Sub-accounts
or Fixed Guarantee Periods from which we will make the withdrawal. The amount
you request from a Variable Sub-account or Fixed Guarantee Period may not exceed
the value thereof minus any applicable withdrawal charge, minus any applicable
taxes, plus or minus any market value adjustment. If you do not specify the
Variable Sub-account or Fixed Guarantee Period from which we take the partial
withdrawal, we will make the partial withdrawal from each Variable Sub-account
and Fixed Guarantee Period in the same proportion that the Accumulation Value
for each Variable Sub-account and the value of each Fixed Guarantee Period bear
to the Certificate Value, except that Fixed Guarantee Periods of the same
duration shall be considered together for withdrawal purposes, and we shall take
the amounts withdrawn on a first-in, first-out basis.
<PAGE>
There is no limit on the frequency of partial withdrawals; however, the minimum
amount of any withdrawal is $1000. For any partial withdrawal, the remaining
Accumulation Value for each Variable Sub-account and the remaining value of each
Fixed Guarantee Period must be at least $500, and the remaining Certificate
Value must be at least $2000. If after the withdrawal (including the deduction
of any withdrawal charge and the application of any market value adjustment) the
remaining Accumulation Value for any Variable Sub-account or the remaining value
of any Fixed Guarantee Period from which we make the transfer is less than $500,
we will treat the partial withdrawal as a withdrawal of the entire amount of the
Participant's interest in the investment option. If a partial withdrawal
(including the deduction of any withdrawal charge and the application of any
market value adjustment) would reduce the Certificate Value to less than $2000,
we will treat the partial withdrawal as a request for a total withdrawal of the
Withdrawal Value.
We will pay the amount of any withdrawal from a Variable Sub-account promptly
and in any event within seven days of receipt of the request in proper form at
our Variable Annuity Service Center, except that we reserve the right to suspend
or postpone payment of the amount for any period when: (1) the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (2)
trading on the New York Stock Exchange is restricted, (3) an emergency exists as
a result of which disposal of securities held in the Separate Account is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Separate Account's net assets, or (4) the Commission, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
described in (2) and (3) exist.
The amount of any withdrawal from a Fixed Guarantee Period is subject to our
right to suspend or postpone payment of the amount for up to six months from the
date it receives Notice at its Variable Annuity Service Center. If we defer
under this right, we will pay interest as required by the law of your state of
residence at that time.
Special Withdrawal Services
Systematic Withdrawal Plan
We administer a Systematic Withdrawal Plan ("SWP") which enables a Participant
to pre-authorize a periodic exercise of the withdrawal rights described above.
Participants entering into an SWP agreement may instruct us to withdraw a level
dollar amount from specified investment options on a monthly or quarterly basis,
provided the Certificate Value satisfies certain minimums and the dollar amount
of each withdrawal is at least $100. We generally limit the total of SWP
withdrawals in a Certificate Year to not more than 10% of the Certificate Value
at the beginning of each Certificate Year. If a Participant makes an unscheduled
withdrawal while enrolled in an SWP, such withdrawal will not be eligible for
the free withdrawal privilege. If a Participant terminates the SWP, the
Participant may not reinstate it until the next Certificate Anniversary under a
new application. An SWP is not available if one is participating in the DCA
program, the Automatic Asset Allocation service or if purchase payments are
being automatically deducted from a bank account on a periodic basis. SWP
withdrawals will be free of withdrawal charges, but if made from a Fixed
Guarantee Period, will be subject to a market value adjustment. SWP withdrawals
may also be subject to the 10% federal tax penalty on early withdrawals and to
income tax. (See "FEDERAL TAX MATTERS.") Participants interested in an SWP may
elect to participate in this program on their application or by separate
application. Participants may obtain a separate application and full information
concerning the program and its restrictions from their securities dealer or the
Variable Annuity Service Center.
Telephone Transactions
You may request transfers and withdrawals by telephone. We will not be liable
for following instructions communicated by telephone that we reasonably believe
to be genuine. To request a transfer or withdrawal by telephone, you must sign
our telephone authorization form. We will employ reasonable procedures to
confirm that your telephone instructions are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where we fail to
employ our procedures properly. Such procedures include the following. Upon
telephoning a request, we will ask you to provide your account number, and if
not available, your social security number. For your and our protection, we will
tape record all conversations with you. We will follow all telephone
transactions by a confirmation statement of the transaction.
<PAGE>
Market Value Adjustment
Whenever you make a withdrawal from a Fixed Guarantee Period, or take an amount
from a Fixed Guarantee Period to apply it to effect an annuity, prior to the end
of the Guarantee Period, we will apply a market value adjustment. We will base
the market value adjustment on the amount withdrawn. (See "Death Benefit"
below.)
Because of the market value adjustment provision of the Contract, you bear the
investment risk that the guaranteed interest rates we offer at the time you make
a withdrawal or start receiving annuity payments may be higher than the
guaranteed interest rate of the Fixed Guarantee Period from which you take the
amount withdrawn or annuitized. If this happens, the amount available for you to
receive or to have applied to an annuity may be substantially reduced.
The market value adjustment we make will depend on the remaining time in the
Guarantee Period of the Fixed Guarantee Period from which you take the amount.
It also will depend on the change in the guaranteed interest rates offered by us
that has occurred since establishment of the Fixed Guarantee Period. The market
value adjustment may be either positive or negative, depending on the
relationship of (1) the current guaranteed interest rate for a period equal to
the time remaining in the Fixed Guarantee Period, which rate is interpolated (on
a straight line basis) from the rates currently offered by us for Fixed
Guarantee Periods with Guarantee Periods closest to such period, to (2) the
guaranteed interest rate for the Fixed Guarantee Period. If the current
guaranteed interest rate of (1) above is lower than the guaranteed rate of (2),
there will be a positive market value adjustment; if (1) is higher than (2),
there will be a negative market value adjustment. However, a negative market
value adjustment will not exceed an amount that would reduce the credited
interest on a Fixed Guarantee Period below an effective rate of 3% per year
determined from the date we established the relevant Fixed Guarantee Period to
the date of the transfer or payment (the "Negative Market Value Adjustment
Floor"). If the adjustment is positive, the additional amount will be provided
by us. If negative, the amount deducted will be retained by us for our own
benefit.
We base the amount of the market value adjustment on the relationship of the
guaranteed interest rates currently offered by us to the guaranteed interest
rate credited to the affected Fixed Guarantee Period. If the remaining period of
time in the Fixed Guarantee Period is a whole number of years, we use the
guaranteed interest rate currently offered by us for a Fixed Guarantee Period
equal to the number of remaining years. If the remaining period of time in the
Fixed Guarantee Period is not a whole number of years, we derive an interest
rate from the guaranteed interest rates currently offered for the Fixed
Guarantee Periods nearest the remaining period of time. This derivation is by
straight-line interpolation, except where the remaining period of time is less
than one year in which case we use the current guaranteed rate for a Guarantee
Period of one year. If, for example, the remaining period is 5.20 years, the
interpolated guaranteed interest rate we will use is equal to the sum of
four-fifths of the five year rate and one-fifth of the six year rate. If the
five year rate were 5.25% and the six year rate were 5.50%, the interpolated
rate would be 5.30%, 5.25% times .80 plus 5.50% times .20.
The amount of the market value adjustment is determined from the following
formula:
A X [ (1+B) n/365 ]
----- -1
[ (1+C) ]
Where:
o "A" is the total amount withdrawn from the Fixed Guarantee
Period,
o "B" is the guaranteed interest rate (expressed as a decimal)
for the Fixed Guarantee Period,
o "C" is the guaranteed interest rate that we now are offering
for a Guarantee Period of a duration of years equal to "n"/365
or that is interpolated for "n"/365 based on the guaranteed
interest rates we now are offering for Guarantee Periods
nearest "n"/365, and
o "n" is the remaining number of days in the Guarantee Period
of the Fixed Guarantee Period from which the amount withdrawn
or annuitized is taken.
<PAGE>
For example, assume that you make a full withdrawal of the Variable Value of
$10,000 from a Fixed Guarantee Period with 1,898 days (5.20 years) remaining in
an initial Guarantee Period of ten years and a guaranteed interest rate of 5%.
Assume also that the guaranteed interest rates currently offered for Guarantee
Periods of 5 and 6 years are 5.25% and 5.50%, respectively. "C" is equal to
5.30%, the sum of 5.25% times .80 and 5.50% times .20. The
market value adjustment is:
$10,000 X [ (1.050) 5.20 ]= $ -147.26
----- -1
[ (1.053) ]
Since this figure is a negative number and the withdrawal is a full withdrawal,
we subtract it from the amount withdrawn, resulting in a net payment (assuming
no withdrawal charge) of $9,852.74 ($10,000--$147.26). If "C" had been 4.70%,
instead of 5.30%, the market value adjustment would have been +$149.90, which
would have been added to the amount withdrawn, resulting in a net payment of
$10,149.90.
In the first example, assume the initial account value in the Fixed Guarantee
Period was $7,912.23 ($7,912.23 with interest credited at 5.0% for 4.8 years
equals $10,000) and that no withdrawals or transfers have been previously taken.
The Negative Market Value Adjustment Floor requires that the net payment
(assuming no withdrawal charge) at least equal the initial account value in the
Fixed Guarantee Period with interest credited at a rate of 3.0% per year
($7,912.23 with interest credited at 3% per year for 4.8 years equals
$9,118.23). The amount of the Negative Market Value Adjustment Floor is the
difference between this minimum required net payment and the amount withdrawn
($9,118.23 - $10,000 = -$881.77). In this example, the Negative Market Value
Adjustment Floor does not affect the amount of the market value adjustment.
The greater the difference in interest rates, the greater the effect of the
market value adjustment. If in the above example "C" had been 6%, 7% and 8%, the
market value adjustment would have been -$480.94, -$934.56 and -$1,362.64,
respectively. However, at the 7% and 8% levels the Negative Market Value
Adjustment Floor would apply and the amount of the market value adjustment would
be limited to -$881.77. The market value adjustment is also affected by the
remaining period in the Fixed Guarantee Period from which the withdrawal is
made, which is "n" in the formula. Thus, if in the first example above (C =
5.30%) "n"/365 were 3.2 or 1.2, the market value adjustment would be -$90.88 or
- -$34.18, respectively. Tables showing the impact of the market value adjustment
and withdrawal charge on hypothetical full withdrawals are set forth in Appendix
B.
Death Benefit
If the Participant or a non-spouse Joint Participant dies prior to the Annuity
Date, we will pay to the Beneficiary the greater of the Certificate Value or the
minimum death benefit as of the Valuation Period in which we receive both due
proof of death and a payment election. The minimum death benefit on the
effective date of the Certificate is equal to the initial purchase payment. For
each subsequent purchase payment we increase the minimum death benefit by the
amount of the payment, and for each withdrawal we decrease the minimum death
benefit by the amount (net of withdrawal charges) of the withdrawal. On each
"Reset Date," if the then Certificate Value is greater than the minimum death
benefit, the minimum death benefit is reset to equal the then Certificate Value.
Reset Dates are the fifth Certificate Anniversary and each Certificate
Anniversary which is a five-year interval from the fifth Certificate
Anniversary.
If the Participant is not an individual, we will pay the death benefit to the
Beneficiary if the Annuitant (or the first to die if joint Annuitants) dies
prior to the Annuity Date. If the Participant is an individual but is not the
Annuitant, the Participant must select a new Annuitant, and if the Participant
does not select a new Annuitant within 30 days of the death of the Annuitant,
the Participant will become the Annuitant. No death benefit is payable on the
death of a spouse Joint Participant.
We will make payment in a lump sum unless the Beneficiary chooses an Annuity
Payment Option. The Beneficiary must choose an Annuity Payment Option election
within 60 days of the date of death. For tax consequences of a lump sum payment,
see "FEDERAL TAX MATTERS--Federal Tax Considerations." The Beneficiary must
receive the death benefit within five years of the date of death. If the
Beneficiary chooses an Annuity Payment Option, annuity payments must begin
within one year of the date of death, or such later date as the law may allow,
and the option must limit payments to a period not exceeding the Beneficiary's
lifetime or life expectancy. If the Beneficiary is the surviving spouse of the
deceased Participant or of the deceased Annuitant if the Participant is not a
<PAGE>
person, such Beneficiary may choose to continue the Certificate in force, in
which event we will not pay a death benefit. A spouse Joint Participant and the
surviving spouse where the Annuitant and joint Annuitant are spouses and the
Participant is not a person are automatically deemed to be the Beneficiary
regardless of any Beneficiary designation.
We will pay death benefits within seven days of receipt of due proof of death
and payment election at our Variable Annuity Service Center, subject to
postponement under the same circumstances that payment of withdrawals may be
postponed. (See "Withdrawals" above.)
If we have not received the Beneficiary's election, we may pay the death benefit
in a single sum six (6) months after the date we receive due proof of death.
Before your death, you may make elections regarding payment options for the
Beneficiary which will be binding upon the Beneficiary.
If the Annuitant dies after the Annuity Date, we will pay any guaranteed amounts
remaining unpaid to the Beneficiary under the same method of distribution in
force at the date of death. If no Beneficiary survives the Annuitant, we will
pay the Participant. For additional provisions affecting payment of the death
benefit, see "Beneficiary" under "Other Contract Provisions".
Annuity Provisions
General
Annuity payments will commence on the Annuity Date. We will pay the Annuitant
unless you ask that the payment be made to another payee and we agree. The
Participant is the Annuitant unless another person designated as Annuitant is
living. A Participant who is not a person must name a living person as
Annuitant.
Any applicable premium taxes, if not previously paid, will be paid at the
Annuity Date. Premium taxes imposed by states and local jurisdictions currently
range from 0% to 3.5% depending on the tax treatment of the Certificate.
Annuity Date. You may select the Annuity Date and an Annuity Payment Option. If
you do not do so, the Annuity Date will be the first or fifteenth day of the
calendar month immediately following the later of (i) the Certificate
Anniversary immediately after the Annuitant's 85th birthday or (ii) ten years
after the effective date of the Certificate, and the Annuity Payment Option will
be a life annuity with a 10-year guarantee. (For Qualified Contracts, the
Annuity Date selected must be no later than April 1 of the first calendar year
following the later of (i) the calendar year in which the Annuitant attains age
70 1/2 or (ii) the calendar year in which the Annuitant retires.)
You may change the Annuity Date or the Annuity Payment Option on written Notice
received at our Variable Annuity Service Center at least 30 days prior to the
current Annuity Date.
Annuity Options
Annuity benefits currently are available under the Contract only on a fixed
basis. You may select any one of the following Annuity Payment Options. We may
make other Annuity Payment Options, including variable Annuity Payment Options,
available from time to time. Treasury regulations may preclude the availability
of certain Annuity Payment Options in connection with certain Qualified
Contracts.
Payments for a Fixed Period: We will make payments for the period chosen. The
period must be at least 10 years.
*Life Annuity: We will make payments during the life of the Annuitant. Payments
will cease with the last payment due prior to the Annuitant's death.
Life Annuity With Payments for a Certain Period: We will make payments for the
guaranteed period chosen (5, 10, 15 or 20 years) and as long thereafter as the
Annuitant lives.
*Joint and Survivor Life Annuity: We will make payments during the lifetimes of
the Annuitant and a designated second person. Payments will continue as long as
either is living.
*THESE OPTIONS ARE LIFE ANNUITIES UNDER WHICH IT IS POSSIBLE FOR YOU TO RECEIVE
ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED
SECOND PERSON) DIES AFTER THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO ANNUITY
PAYMENTS IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED SECOND PERSON) DIES
AFTER THE SECOND PAYMENT, AND SO ON.
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Amount of Fixed Annuity Payments
Determining Amount of Fixed Annuity Payments. We determine the amount of Fixed
Annuity payments by applying the Adjusted Certificate Value to the Fixed Annuity
payment tables contained in the Contract. The Adjusted Certificate Value is the
Certificate Value immediately preceding the Annuity Date, plus or minus the
market value adjustment applicable to Fixed Guarantee Periods which are not at
the end of their Guarantee Periods, less any applicable taxes and less any
pro-rata share of the certificate maintenance charge if the Annuity Date is not
December 31. The amount of each Fixed Annuity payment will remain constant.
Minimum Annuity Payments. Annuity payments will be made monthly unless you
choose less frequent payments. But if any payment would be less than $100 we may
change the frequency so payments are at least $100 each. If the Certificate
Value to be applied at the Annuity Date is less than $2,500, we may elect to pay
that amount in a lump sum. For tax consequences of a lump sum payment, see
"Annuity Payments" under "Federal Tax Considerations".
Annuity Tables. Our Fixed Annuity payment tables show the minimum guaranteed
amount of each monthly payment for each $1,000 according to the age and sex of
the Annuitant at the Annuity Date. We base the tables on the 1983 Table "a" for
Individual Annuity Valuation with interest at 3%, except for Certificates issued
in certain states or in connection with certain employer-sponsored plans where
we may not use sex-based tables. If we offer better payment rates for similar
annuities at the Annuity Date, we will substitute such rates for the rates in
the Fixed Annuity payment table.
Amount of Variable Annuity Payments
If we should agree to make annuity payments available on a variable basis, the
following shall apply:
Determination of Amount of the First Variable Annuity Payment. We determine the
first variable annuity payment by applying that portion of the Adjusted
Certificate Value used to purchase a variable annuity to the variable annuity
payment tables contained in the Contract. We based the tables on the 1983-a
Individual Annuity Valuation and reflect an assumed interest rate of 4% per
year.
Annuity Units and the Determination of Subsequent Variable Annuity Payments. We
will base variable annuity payments after the first on the investment
performance of the Variable Sub-accounts selected. We determine the amount of
such subsequent payments by dividing the amount of the first annuity payment
from each Variable Sub-account by the then current annuity unit value for such
Variable Sub-account to establish the number of annuity units which we will
thereafter use to determine payments. This number of annuity units for each
Variable Sub-account is then multiplied by the annuity unit value for that
Sub-account, and we then total the resulting amounts for each Variable
Sub-account to arrive at the amount of the payment we make. The number of
annuity units remains constant during the annuity payment period, but the dollar
amount of the payments will vary.
We determine the value of an annuity unit for each Variable Sub-account for any
Valuation Period by multiplying the annuity unit value for the immediately
preceding Valuation Period by the net investment factor for that Variable
Sub-account for the Valuation Period for which we are calculating the annuity
unit value and by a factor to neutralize the assumed interest rate.
A 4% assumed interest rate is built into the annuity tables used to determine
the first variable annuity payment. A higher assumption would mean a larger
first annuity payment, but more slowly rising subsequent payments when actual
investment performance exceeds the assumed rate, and more rapidly falling
subsequent payments when actual investment performance is less than the assumed
rate. A lower assumption would have the opposite effect. If the actual net
investment performance is 4% annually, annuity payments will be level.
Transfers After Annuity Date. After the Annuity Date, the Annuitant, or such
other person that has been designated as payee, may transfer all or part of the
investment upon which variable annuity payments are based from one Variable
Sub-account to another. All such transfers will be subject to the restrictions
described above for transfers during the period prior to the Annuity Date. A
transfer between Variable Sub-accounts will not affect the dollar amount of a
variable annuity payment made on the date of the transfer. We do not allow
transfers to or from amounts supporting Fixed Annuity Payment Options.
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Death Benefit on or After Annuity Date
If annuity payments have been selected based on an Annuity Payment Option
providing for payments for a guaranteed period, and the Annuitant dies on or
after the Annuity Date, we will make the remaining guaranteed payments to the
Beneficiary. We will make such payments as rapidly as under the method of
distribution being used as of the date of the Annuitant's death. If no
Beneficiary is living, we will commute any unpaid guaranteed payments to a
single sum (on the basis of the interest rate used in determining the payments)
and pay that single sum to the estate of the last to die of the Annuitant and
the Beneficiary.
Other Contract Provisions
Proof of Age, Sex and Survival. We may require satisfactory proof of the age,
sex or survival of any person on whose continued life any payment under a
Certificate depends.
Misstatement of Age or Sex. If the age or sex of an Annuitant or joint Annuitant
is misstated, we will adjust annuity payments to reflect the correct age and
sex. We will deduct any overpayments we have made as the result of the
misstatement from the next payments due, and we will charge interest on the
overpayment at the rate of 6% per year. We will pay in full with the next
payment due any underpayment resulting from the misstatement together with
interest on the underpayment at the rate of 6% per year.
Ownership. You may exercise all rights described in your Certificate unless
otherwise provided or as may be restricted by the provisions of any plan in
connection with which we issued the Contract or Certificate. You may name a
Joint Participant. A Participant and spouse Joint Participant may exercise
rights on behalf of the other, except for changes of Participant or Joint
Participant. A Participant and non-spouse Joint Participant must exercise rights
jointly. A Participant may change the Participant by Notice to the Company. We
may impose limits on the age of a new Participant. Such change will take effect
as of the date the Participant signed the Notice, except that we will not be
liable for any payments made or actions taken prior to our receipt of the
Notice. Special restrictions apply to Qualified Contracts and Certificates.
In the case of Nonqualified Contracts and Certificates, you may make a
collateral assignment of your rights to a creditor as security for a debt by
Notice. The rights of an assignee have priority over the rights of a
Beneficiary. We assume no liability for any payments made or actions taken
before our receipt of the Notice, nor will we be responsible for the validity or
sufficiency of any assignment. There may be significant tax consequences
associated with an assignment, and you should consult a competent tax advisor
before making any assignment.
In the case of Qualified Contracts and Certificates, you generally may not
assign, pledge or transfer your rights, and joint participation in a Certificate
is not permitted.
Beneficiary. The Beneficiary is the person or persons named in the Certificate
application to whom we make payment upon the death of the Participant (or other
appropriate individual) or Annuitant. A spouse Joint Participant and the
surviving spouse where the Annuitant and joint Annuitant are spouses and the
Participant is not a person are automatically deemed to be the Beneficiary
regardless of any Beneficiary designation. Unless a Beneficiary has been
irrevocably designated, you may change the Beneficiary by Notice prior to the
time a death benefit is payable. You may name a Beneficiary irrevocably, in
which case a change in Beneficiary can be made only with the Beneficiary's
consent.
The estate or heirs of a Beneficiary who dies prior to the death which causes
the payment of a death benefit have no rights to any portion of the death
benefit. If no Beneficiary survives a sole Participant, we will pay to the
Participant's estate. If any Beneficiary dies within 15 days after the death
which causes the payment of the death benefit and before we make payment, we
will make payment as if that Beneficiary had died before the death which causes
the payment of the death benefit.
You may designate both primary beneficiaries and contingent beneficiaries. If
there is more than one primary Beneficiary entitled to a death benefit, we will
pay them in equal shares unless otherwise designated. A contingent Beneficiary
is entitled to payment only if there are no surviving primary beneficiaries. If
there is more than one contingent Beneficiary entitled to a death benefit, we
will pay each of them in equal shares unless otherwise designated. If a
surviving spouse Joint Participant, as primary Beneficiary, dies prior to
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receiving the entire death benefit, we will pay any then surviving contingent
Beneficiary instead of to the spouse Joint Participant's estate, unless the
spouse Joint Participant has designated otherwise.
Certain restrictions in the application of the foregoing provisions may apply in
the case of Qualified Contracts or Certificates.
Notices and Elections. Unless we otherwise agree, all Notices, changes and
choices available under a Certificate must be in writing, dated, signed by the
proper party, received at our Variable Annuity Service Center and acceptable to
it in our sole discretion to be effective. When recorded by us, Notices, changes
and choices relating to beneficiaries will take effect as of the date signed
unless we have already acted in reliance on the prior status.
Amendment of Contract and Certificates. At any time we may amend the Contract
and the Certificates as required to conform to any applicable law, regulation or
ruling issued by a government agency.
Free Look Right. You may cancel your Certificate within the time period set
forth on the Certificate Schedule following your receipt of the Certificate by
delivering or mailing it to us at our Variable Annuity Service Center or to the
agent through whom you purchased it. We will refund the Certificate Value
computed at the end of the Valuation Period during which we received the
Certificate, and the Certificate will be void as if it had never been in force.
In states where required, we will refund the purchase payment rather than the
Certificate Value. We reserve the right to allocate all purchase payments
allocated to a Variable Sub-account to the Money Market Sub-account until the
expiration of 7 days from the end of the free look period. If we so allocate
payments, we will refund the greater of purchase payments or the Certificate
Value. No transfers or partial withdrawals may be made during the free look
period. We reserve the right to reject an application from any person who, in
connection with a prior application, previously exercised his or her free look
right.
Company Approval. We reserve the right to accept or reject any Contract or
Certificate application at our sole discretion.
Charges and Deductions
We assess charges and deductions under the Certificates against purchase
payments, Certificate Values or annuity payments. There are no deductions from
purchase payments, except for premium taxes in certain states. In addition,
there are deductions from and expenses paid out of the assets of the Portfolios
that are described in the accompanying Prospectuses of the Fund.
Withdrawal Charges
If you make a withdrawal from the Certificate before the Annuity Date, we may
assess a withdrawal charge (contingent deferred sales charge) against amounts
withdrawn attributable to purchase payments that have been in the Certificate
less than five complete years. There is no withdrawal charge with respect to
earnings accumulated under the Certificate, certain free withdrawal amounts
described below or purchase payments that you made five years or more before the
withdrawal date. In no event may the total withdrawal charges exceed 5% of total
purchase payments. We discuss the amount of the withdrawal charge and when we
assess it below.
We calculate the amount of the withdrawal charge by multiplying the amount of
the purchase payment being liquidated by the applicable withdrawal charge
percentage obtained from the following table.
Number of Complete Years Since Withdrawal Charge
Purchase Payment Made Percentage
0 5%
1 5%
2 4%
3 3%
4 2%
5+ 0%
The total withdrawal charge will be the sum of the withdrawal charges for the
purchase payments being liquidated.
<PAGE>
We allocate each withdrawal from a Certificate, first, to the "free withdrawal
amount," second, to remaining purchase payments which you have not withdrawn
previously on a first-in first-out basis, and, third, to any remaining
Certificate Value.
On the first withdrawal in any Certificate Year, the Participant may withdraw
free of any withdrawal charge an amount equal to 10% of the Certificate Value at
the time of the withdrawal. The free withdrawal amount is non-cumulative and
does not apply to subsequent withdrawals in a Certificate Year. Any part of the
free withdrawal taken from a Fixed Guarantee Period will still be subject to a
market value adjustment.
We deduct the withdrawal charge from the Certificate Value remaining after we
pay you the amount you request, except in the case of a complete withdrawal when
we deduct it from the amount otherwise payable. In the case of a partial
withdrawal, the amount you request from any Variable Sub-account or Fixed
Guarantee Period may not exceed the value of that account minus any applicable
withdrawal charge, minus any applicable taxes, and in the case of withdrawals
from a Fixed Guarantee Period, plus or minus the amount of the market value
adjustment. We will subtract the withdrawal charge from the Variable
Sub-accounts and Fixed Guarantee Periods from which you made the withdrawal in
the same proportion that the amount withdrawn from each Variable Sub-account or
Fixed Guarantee Period bears to the total amount withdrawn, except that Fixed
Guarantee Periods of the same duration shall be considered together for
withdrawal purposes, and we shall take amounts withdrawn out on a first-in,
first-out basis.
There is no withdrawal charge on distributions made as a result of the death of
the Participant or Annuitant. We do not impose withdrawal charges on or after
the Annuity Date.
We will use the amount collected from the withdrawal charge to reimburse us for
the compensation paid to cover selling concessions to broker-dealers,
preparation of sales literature and other expenses related to sales activity.
We compute the withdrawal charge without regard to the application of any market
value adjustment to the amount withdrawn, so that in the event of a negative
market value adjustment, we will determine the charge on the basis of the full
amount withdrawn, including the amount payable to us as a result of the market
value adjustment. Conversely, in the event of a positive market value
adjustment, we will not assess the charge against any increased amount
attributable to the positive market value adjustment. For examples of
calculation of the withdrawal charge, see Appendix B.
From time to time we may agree in writing to reduce the amount of the withdrawal
charge, the period during which it applies, or both, when we sell Certificates
to individuals, entities or groups of individuals in a manner that reduces our
sales expenses. We will consider such factors as (a) the size and type of group,
(b) the amount of purchase payments we expect to receive, and/or (c) other
transactions where sales expenses are reduced. In no event will we permit the
reduction or elimination of the withdrawal charge where such reduction or
elimination will be unfairly discriminatory to any person.
Administration Charges
Certificate Maintenance Charge. Each year we will deduct a certificate
maintenance charge of $40 as partial compensation for the cost of providing all
administrative services attributable to the Contracts and Certificates and the
operations of the Separate Account and the Company in connection with the
Contracts and Certificates. We will waive the charge if at the time of the
assessment the Certificate Value is $40,000 or greater.
Before the Annuity Date, we deduct the certificate maintenance charge on
December 31 of each year, except for the first Certificate Year when we deduct a
pro-rata portion of the charge on December 31. We withdraw the charge from your
interest in each Variable Sub-account and Fixed Guarantee Period in the same
proportion that the Accumulation Value for each Variable Sub-account and the
value of each Fixed Guarantee Period bears to the Certificate Value. If you make
a full withdrawal of the Certificate's Withdrawal Value on a day other than
December 31, we will deduct the $40 certificate maintenance charge from the
amount paid. If the Annuity Date is not December 31, we will deduct a pro-rata
portion of the charge on the Annuity Date.
We may reduce or eliminate the amount of the certificate maintenance charge when
sales of the Certificates are made to individuals, entities or groups of
individuals in such a manner that results in savings of administration expenses.
We will determine the entitlement to such a reduction or elimination of this
charge by considering the size and type of group and other circumstances which
could result in reduced administrative expenses. In no event will reduction or
elimination of the certificate maintenance charge be permitted where such
reduction or elimination will be unfairly discriminatory to any person.
<PAGE>
Administration Charge. We deduct a daily charge at an annual rate of 0.15% of
the average daily value of each Variable Sub-account from each Variable
Sub-account to reimburse us for administrative expenses. We do not deduct this
asset-based administrative charge from the Fixed MGA Account Value. We will
reflect the charge in the Certificate Value as a proportionate reduction in the
Accumulation Value for each Variable Sub-account. Because this administrative
charge is a percentage of assets rather than a flat amount, larger Certificate
Values will in effect pay a higher proportion of this charge than smaller
Certificate Values.
Even though administrative expenses may increase, we guarantee that it will not
increase the amount of the administration fees as to outstanding Certificates.
Mortality and Expense Risk Charge
The mortality risk we assume is the risk that Annuitants may live for a longer
period of time than we estimated. We assume this mortality risk by virtue of
annuity rates incorporated into the Contract which we cannot change as to
outstanding Certificates. This assures each Annuitant that his longevity will
not have an adverse effect on the amount of annuity payments. Also, we guarantee
that if the Annuitant dies before the maturity date, we will pay a death
benefit. (See "DEATH BENEFIT BEFORE ANNUITY DATE") The expense risk we assume is
the risk that the administration charges or withdrawal charge may be
insufficient to cover actual expenses.
To compensate us for assuming these risks, we deduct from each Variable
Sub-account a daily charge at an annual rate of 1.25% of the average daily value
of the Variable Sub-account. We do not assess the mortality and expense risk
charge against the Fixed MGA Account Value. We reflect the charge in the
Certificate Value as a proportionate reduction in the Accumulation Value for
each Variable Sub-account. We cannot increase the rate of the mortality and
expense risk charge. If the charge is insufficient to cover the actual cost of
the mortality and expense risks undertaken, we will bear the loss. Conversely,
if the charge proves more than sufficient, the excess will be profit to us and
will be available for any proper corporate purpose including, among other
things, payment of distribution expenses.
Taxes
We will deduct any taxes, fees or assessments paid to a governmental entity
relating to a Certificate from purchase payments or the Certificate Value. We
will determine when taxes have resulted from the investment experience of the
Separate Account, our receipt of purchase payments or the commencement of
annuity payments. We may pay premium taxes when due and deduct that amount from
the Certificate Value at a later date. The amount we deduct will depend on the
premium tax assessed in the applicable state. State premium taxes currently
range from 0% to 3.5% depending on the jurisdiction and the tax status of the
Contract or Certificate and are subject to change by the legislature or other
authority. (See "APPENDIX A: State Premium Taxes.")
Federal Tax Matters
Introduction
The Contracts are designed for use in connection with retirement plans that do
not qualify for special federal income tax treatment under the Internal Revenue
Code (the "Code") and also with plans that qualify for special income tax
treatment under the Code, such as individual retirement accounts and annuities,
pension and profit-sharing plans for corporations and sole
proprietorships/partnerships ("H.R. 10" and "Keogh" plans), Tax-Sheltered
annuities, and deferred compensation plans of state and local governments and
tax-exempt organizations. The ultimate effect of federal income taxes on
Certificate Value, on annuity payments and on the economic benefit to the
Participant, Annuitant or Beneficiary depends on GECA's tax status, on the type
of retirement plan for which the Contract or Certificate is purchased and on the
tax and employment status of the individual concerned. The following discussion
is general in nature and is not intended as tax advice. Each person concerned
should consult a competent tax adviser. No attempt is made to consider any
applicable state or other tax laws. This discussion is based on GECA's
understanding of current federal income tax laws as currently interpreted. No
representation is made regarding the likelihood of continuation of those laws or
of the current interpretations by the Internal Revenue Service. GECA MAKES NO
GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR CERTIFICATE OR ANY
TRANSACTION INVOLVING THE CONTRACTS OR CERTIFICATES.
<PAGE>
GECA's Tax Status
GECA is taxed as a life insurance company under the Internal Revenue Code. It
owns all assets supporting its obligations under the Contracts, and any income
earned on those assets is considered GECA's income. Since the operations of the
Separate Account are a part of, and are taxed with, the operations of GECA, the
Separate Account is not separately taxed as a "regulated investment company"
under Subchapter M of the Code. Under existing federal income tax laws,
investment income and capital gains of the Separate Account are not taxed to the
extent they are applied to increase reserves under a Contract or Certificate.
Since, under the Contracts, investment income and realized capital gains of the
Separate Account are automatically applied to increase reserves, GECA does not
anticipate that it will incur any federal income tax liability attributable to
the Separate Account, and therefore it does not intend to make provision for any
such taxes. If GECA is taxed on investment income or capital gains of the
Separate Account, then it may impose a charge against the Separate Account in
order to make provision for such taxes.
Tax Status of the Certificates
In General. Under existing provisions of the Code, except as described below,
any increase in the Certificate Value is generally not taxable to the
Participant or Annuitant until received, either in the form of annuity payments,
as contemplated by the Contract, or in some other form of distribution. However,
this rule applies only if (1) the Participant is an individual, (2) the
investments of the Separate Account are "adequately diversified" in accordance
with applicable Treasury Department regulations, and (3) GECA, rather than the
Participant, is considered the owner of the assets of the Separate Account for
federal tax purposes.
Non-Natural Owner. As a general rule, income accruing on deferred annuity
contracts held by "non-natural persons" such as a corporation, trust or other
similar entity, as opposed to a natural person (i.e., an individual), must be
reported currently by the owner. The investment income on such contracts is
taxed as ordinary income that is received or accrued by the owner of the
contract during the taxable year. There are several exceptions to this general
rule for non-natural contract owners. First, contracts will generally be treated
as held by a natural person if the nominal owner is a trust or other entity
which holds the contract as an agent for a natural person. However, this special
exception will not apply in the case of any employer who is the nominal owner of
an annuity contract under a nonqualified deferred compensation arrangement for
its employees.
In addition, exceptions to the general rule for non-natural contract owners will
apply with respect to (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain Qualified Contracts, (3)
contracts purchased by employers upon the termination of certain Qualified
Plans, (4) certain contracts used in connection with structured settlement
agreements, and (5) contracts purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
Diversification Requirements. For a contract other than a pension plan contract
to be treated as an annuity for federal income tax purposes, the investments of
the Separate Account that are allocable to the contract must be "adequately
diversified" in accordance with Treasury Regulations. The Secretary of the
Treasury has issued regulations which prescribe standards for determining
whether the investments of the Separate Account are "adequately diversified." If
the Separate Account failed to comply with these diversification standards, a
contract (other than a pension plan contract) would not be treated as an annuity
contract for federal income tax purposes and the contract owner would be taxable
currently on the excess of the contract value over the premiums paid for the
contract.
Although we do not control the investments of the Portfolios, we expect that the
Portfolios will comply with such regulations so that the Separate Account will
be considered "adequately diversified."
Ownership Treatment. In certain circumstances, variable annuity contract owners
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
contract owners' gross income. The Internal Revenue Service (the "Service") has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. In addition, in 1986 the Treasury Department announced, in
connection with the issuance of regulations concerning investment
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diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a separate account
may cause the investor, rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts [of a
separate account] without being treated as owners of the underlying assets." As
of the date of this Prospectus, no such guidance has been issued.
The ownership rights under the Contracts and Certificates are generally similar
to, but different in certain respects from, those described by the Service in
Revenue Rulings in which it was determined that contract owners were not owners
of separate account assets. For example, Participants have the choice of more
investment options to which to allocate purchase payments than were available in
such rulings. In addition, we do not know what standards will be set forth in
the regulations or rulings which the Treasury Department has stated it expects
to issue. We do not expect that variable annuity contract owners would be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts, but reserve the right to
modify the Contract and Certificates as necessary to attempt to prevent the
Participants from being considered owners of the assets of the Separate Account.
Death Benefits. Furthermore, in order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any Nonqualified
Contract to provide that (a) if any owner dies on or after the annuity
commencement date but prior to the time the entire interest in the contract has
been distributed, the remaining portion of such interest will be distributed at
least as rapidly as under the method of distribution being used as of the date
of that owner's death; and (b) if any owner dies prior to the Annuity Date the
entire interest in the Contract will be distributed within five years after the
date of the owner's death. These requirements will be considered satisfied as to
any portion of the owner's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
"designated beneficiary" or over a period not extending beyond the life
expectancy of the beneficiary, provided that such distributions begin within one
year of that owner's death. The owner's "designated beneficiary" is the person
designated by the owner as a beneficiary and to whom ownership of the contract
passes by reason of death and must be a natural person. However, if the owner's
"designated beneficiary" is the surviving spouse of the owner, the contract may
be continued with the surviving spouse as the new owner.
The Nonqualified Contracts contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Contracts and Certificates issued in connection with
Qualified Plans.
THE FOLLOWING DISCUSSION ASSUMES THAT THE CERTIFICATES WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES, THAT GECA WILL BE TREATED AS THE
OWNER OF SEPARATE ACCOUNT ASSETS, AND THAT PARTICIPANTS ARE NATURAL
PERSONS
Federal Tax Considerations
Withdrawals. In the case of a partial withdrawal or surrender under a Qualified
Certificate under Section 72(e) of the Code, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment in the
contract" to the Participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any purchase payments paid by or on behalf of any individual under a
Certificate which was not excluded from the individual's gross income. For
Qualified Certificates, a Participant's "investment in the contract" can be
zero. Special tax rules may be available for certain distributions under
Qualified Certificates.
With respect to Nonqualified Certificates, partial withdrawals are generally
treated as taxable income to the extent that the Certificate Value immediately
before the withdrawal exceeds the "investment in the contract" at that time.
Although there is no definitive guidance on this subject, it appears that the
Certificate Value immediately before a partial withdrawal must be increased by
any positive market value adjustments that result from such a withdrawal.
In the case of a full withdrawal under a Nonqualified Certificate, under Section
72(e) amounts received are generally treated as taxable income to the extent the
net amount received exceeds the "investment in the contract" at that time.
<PAGE>
Annuity Payments. Although tax consequences may vary depending on the Annuity
Payment Option elected under the Certificate, under Non-qualified Certificates
Section 72(b) generally provides that gross income does not include that part of
any amount received as an annuity under an annuity contract that bears the same
ratio to such amounts as the investments in the contract bears to the expected
return at the Annuity Date. With Tax-Sheltered Annuities, gross income does not
include the amount in any monthly annuity payment which does not exceed the
amount obtained by dividing the "investment in the contract" (as of the Annuity
Date) by (i) the number of anticipated payments under the Certificate, as
determined under Section 72(d) of the Code, or (ii) the number of monthly
annuity payments in the case of a Certificate where the expected return under
the Certificate does not depend in whole or in part on the life expectance of
one or more individuals. Where annuity payments are made under a Qualified
Certificate, the portion of each payment that is excluded from gross income will
generally be equal to the total amount of any investment in the Certificate as
of the Annuity Date, divided by the number of anticipated payments, which are
determined by reference to the age of the Annuitant. In this respect (prior to
recovery of the investment in the contract), there is generally no tax on the
amount of each payment which represents the same ratio that the "investment in
the contract" bears to the total expected value of the annuity payments for the
term of the payments or, under Qualified Certificates, the total number of
anticipated payments; however, the remainder of each income payment is taxable.
In all cases, after the "investment in the contract" is recovered, the full
amount of any additional annuity payments is taxable.
Penalty Tax on Certain Withdrawals. In the case of a distribution under a
Nonqualified Certificate, there may be imposed a federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty tax on distributions: (1) made on or after the date on which the
Participant attains age 59 1/2; (2) made as a result of death or disability of
the Participant; or (3) received in substantially equal periodic payments over
the life or life expectancy of the Participant (or joint life or life expectancy
of the Participant and a designated Beneficiary). In certain circumstances,
other exceptions may apply. Other tax penalties may apply to certain
distributions under a Qualified Certificate.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Certificate because of the death of a Participant or an Annuitant. Generally,
such amounts are includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
withdrawal of the Certificate, as described above, or (2) if distributed under
an Annuity Payment Option, they are taxed in the same manner as annuity
payments, as described above.
Transfers, Assignments, or Exchanges of a Certificate. A transfer of ownership
of a Certificate; the designation of an Annuitant, payee, or other beneficiary
who is not also the Participant; the selection of certain Annuity Dates; or the
exchange of a Certificate may result in certain tax consequences to Participants
that are not discussed herein. The assignment, pledge, or agreement to assign or
pledge any portion of the Certificate Value (and in the case of a Qualified
Certificate any portion of an interest in the Qualified Plan) generally will be
treated as a distribution. The taxable portion of a distribution (in the form of
a single sum payment or an annuity) is taxable as ordinary income. A Participant
contemplating any transfer, assignment, or exchange of his or her interest under
a Certificate should contact a competent tax adviser with respect to the
potential tax effects of such a transaction.
Multiple Contracts. All nonqualified annuity contracts entered into after
October 21, 1988 that are issued by us (or our affiliates) to the same owner
during any calendar year are treated as one annuity contract for purposes of
determining the amounts includable in gross income under Section 72(e) of the
Code. In addition, the Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. Congress has also indicated that the
Treasury Department may have authority to treat the combination purchase of an
immediate annuity contract and a separate deferred annuity contract as a single
annuity contract under its general authority to prescribe rules as may be
necessary to enforce the income tax laws.
Withholding. Pension and annuity distributions generally are subject to
withholding for the recipient's federal income tax liability at rates that vary
according to the type of distribution and the recipient's tax status.
Recipients, however, generally are provided the opportunity to elect not to have
tax withheld from distributions. As of January 1, 1993, we are generally
required to withhold on distributions under certain Qualified Contracts or
Certificates.
Possible Tax Legislation. There is no way of knowing if legislation will be
enacted by Congress at some future time that will impact the taxation of
tax-deferred annuities, or the extent to which any change would be retroactive
in effect (i.e., effective prior to the date of enactment).
<PAGE>
Other Tax Consequences. As noted above, the foregoing discussion of the federal
income tax consequences under the Certificates is not exhaustive and special
rules are provided with respect to other tax situations not discussed in this
Prospectus. Further, the federal income tax consequences discussed herein
reflect our understanding of current law and the law, or our interpretation by
the Internal Revenue Service, may change. Federal estate and state and local
income, estate, inheritance, and other tax consequences of ownership or receipt
of distribution under a Contract or Certificate depend on the individual
circumstances of each Participant or recipient of the distribution. A competent
tax adviser should be consulted for further information.
Qualified Plans
The Contract or Certificates may be issued in connection with plans qualifying
for special tax treatment under the Code. The tax rules applicable to
Participants in such plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be available
for certain types of contributions and distributions. Adverse tax consequences
may result from contributions in excess of specified limits; distributions prior
to age 59 1/2 (subject to certain exceptions); distributions that do not conform
to specified commencement and minimum distribution rules; aggregate
distributions in excess of a specified annual amount; and in other specified
circumstances. Therefore, no attempt is made to provide more than general
information about the use of the Contracts and Certificates with such plans.
Participants, Annuitants and Beneficiaries are cautioned that the rights of any
person to any benefits under plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Contract.
Some retirement plans are subject to distribution and other requirements that
are not incorporated into our Contract administration procedures. Owners,
Participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are brief descriptions of the
various types of plans in connection with which we will issue a Contract or
Certificate. When issued in connection with such a plan, a Contract or
Certificate will be amended as necessary to conform to the requirements of the
Code.
Individual Retirement Annuities and Individual Retirement Accounts. Section 408
of the Code permits eligible individuals to contribute to an individual
retirement program known as an Individual Retirement Annuity or Individual
Retirement Account (each hereinafter referred to as "IRA"). IRAs are subject to
limits on the amount that may be contributed, the contributions that may be
deducted from taxable income, the persons who may be eligible and the time when
distributions may commence. Also, distributions from certain other types of
plans qualifying for special tax treatment may be "rolled over" on a
tax-deferred basis into an IRA. Sales of the Contracts and Certificates for use
with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Contract or Certificates thereunder for use
with IRAs will be provided with supplemental information required by the
Internal Revenue Service or other appropriate agency. Such purchasers will have
the right to revoke their purchase within 7 days of the earlier of the
establishment of the IRA or their purchase. The Internal Revenue Service has not
reviewed the Contract for qualification as an IRA and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
Purchasers should seek competent advice as to the suitability of the Contract
for use with IRAs.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public school
employees and employees of certain types of religious, charitable, educational
and scientific organizations specified in Section 501(c)(3) of the Code to
purchase annuity contracts and, subject to certain limitations, exclude the
amount of premiums from gross income for tax purposes. These annuity contracts
are commonly referred to as "Tax-Sheltered Annuities." Premiums excluded from
gross income will be subject to FICA taxes. Purchasers using the Contracts or
Certificates as Tax-Sheltered Annuities should seek competent advice as to
eligibility, limitations on permissible amounts of premiums and tax consequences
on distribution. Withdrawals under Tax-Sheltered Annuities which are
attributable to contributions made pursuant to salary reduction agreements are
prohibited unless made after the Participant attains age 59 1/2, upon the
Participant's separation of service, upon the Participant's death or disability,
or for an amount not greater than the total of such contributions in the case of
hardship. Effective January 1, 1993, distributions under Tax-Sheltered Annuities
are generally subject to mandatory income tax withholding. (At the present time,
GECA will issue a Tax-Sheltered Annuity only when the funds are directly
transferred from an existing Tax-Sheltered Annuity.)
Restrictions under the Texas Optional Retirement Program. Under applicable state
law, Participants in the Texas Optional Retirement Program ("ORP") may withdraw
their interest in an annuity contact issued under the ORP only upon (1)
termination of employment in the Texas public institutions of higher education,
(2) retirement, or (3) death. A Participant in the ORP (or the Participant's
estate if the Participant has died) will be required to obtain a certificate of
termination from the employer or a certificate of death before distributions can
be made.
<PAGE>
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and Profit-Sharing
Plans. Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The
Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10" or "Keogh," permits self-employed individuals also to
establish such tax-favored retirement plans for themselves and their employees.
These retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax or other legal consequences to
the plan, to the Participant or to both may result if a Certificate is assigned
or transferred to any individual as a means to provide benefit payments, unless
the plan complies with all legal requirements applicable to such benefits prior
to transfer of the Certificate. Employers intending to use the Contract or
Certificates in connection with such plans should seek competent advice.
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations. Section 457 of the Code permits employees of state and local
governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. To the extent the Contracts or
Certificates are used in connection with an eligible plan in existence prior to
August 20, 1996, employees are considered general creditors of the employer and
the employer as owner of the Certificates has the sole right to the proceeds
under the Contract until December 31, 1998, or such earlier date as may be
established by plan amendment. Amounts deferred under a plan created on or after
August 20, 1996, however, must be held in trust, custodial account or annuity
contract for the exclusive benefit of plan participants and their beneficiaries.
Generally, with respect to purchase payments made after February 28, 1986, a
Contract or Certificate purchased by a state or local government or a tax-exempt
organization will not be treated as an annuity contract for federal income tax
purposes. Those who intend to use the Contracts or Certificates in connection
with such plans should seek competent advice.
General Matters
Performance Data
From time to time the Separate Account may publish advertisements containing
performance data relating to its Variable Sub-accounts. Performance data will
consist of total return quotations, which will always include quotations for
recent one year and, when applicable, five and ten year periods and, where less
than five or ten years, for the period subsequent to the date each Variable
Sub-account first became available for investment. The quotations for such
periods will be the average annual rates of return required for an initial
purchase payment of $1,000 to equal the actual Certificate Value attributable to
such purchase payment on the last day of the period, after reflection of all
charges. We base the performance figures used by the Separate Account on the
actual historical performance of its Variable Sub-accounts for specified
periods, and the figures are not intended to indicate future performance. More
detailed information on the computations is set forth in the Statement of
Additional Information.
Financial Statements
We included the statutory financial statements of GECA and the Separate
Account in the Statement of Additional Information.
Year 2000 Compliance
Like all financial services providers, we utilize computer systems that may be
affected by Year 2000 date data processing issues and we also rely on service
providers, including banks, custodians, administrators, and investment managers
that also may be affected. We are engaged in a process to evaluate and develop
plans to have our computer systems and critical applications ready to process
Year 2000 date data. We also are confirming that our service providers are so
engaged. The resources that are being devoted to this effort are substantial.
Further, it is anticipated that our parent company, GE Financial Assurance
Holdings, Inc., will spend approximately $45 million on this conversion for its
subsidiaries. Remedial actions include inventorying our computer systems,
applications and interfaces, assessing the impact of Year 2000 date data on
them, developing a range of solutions specific to particular situations and
implementing appropriate solutions. Some systems, applications and
interfaces will be replaced or upgraded to new software or new releases or
existing software which are Year 2000 ready. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on us and the Separate Account.
However, as of the date of this Prospectus, it is not anticipated that you will
experience negative effects on your investment, or on the services provided in
connection therewith, as a result of Year 2000 transition implementation.
<PAGE>
Our target dates for completion of these activities depend upon the particular
situation. Our goal is to be substantially Year 2000 ready for critical
applications on or about mid-1999, but there can be no assurance that we will be
successful, or that interaction with other service providers will not impair our
services at that time.
If we are not successful in our Year 2000 transition, implementation or
interaction with other service providers is impaired, it is possible that we
could encounter difficulty and/or delays in calculating unit values, delivering
account statements and providing other information, communication and servicing
to you. In light of our current efforts to address this issue, we do not
consider the likelihood of such occurrences to be very high.
Restrictions Under the Texas Optional Retirement Program
Section 36.105 of the Texas Education Code permits Participants in the ORP to
withdraw their interest in a variable annuity contract issued under the ORP only
upon (1) termination of employment in the Texas public institutions of higher
education, (2) retirement, or (3) death. Accordingly, a Participant in the ORP,
or the Participant's estate if the Participant has died, must obtain a
certificate of termination from the employer or a certificate of death before
the Certificate can be terminated. The foregoing restrictions on withdrawal do
not apply in the event a Participant in the ORP transfers the Certificate Value
to another contract or another qualified custodian during the period of
participation in the ORP.
Distribution of Contracts
We entered into an agreement with GNA Distributors, Inc. pursuant to which GNA
Distributors, Inc. acted as the principal underwriter of the Contracts and used
its best efforts to promote the sale of the Contracts and Certificates
thereunder. GNA Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer under the Securities Exchange Act of 1934
("1934 Act") and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). GNA Distributors, Inc. arranged for distribution of the Contracts
and Certificates primarily by other broker-dealers registered under the 1934 Act
and members of the NASD, including Capital Brokerage Corporation (formerly known
as GNA Securities, Inc.). Sales of the Contracts and Certificates were made by
registered representatives of such broker-dealers (or individuals not otherwise
required to be registered) who were also licensed insurance agents, either
individually or through various licensed insurance agencies. GECA or GNA
Distributors, Inc. will pay a commission up to a maximum of six and one-fourth
percent (6.25%) of each premium payment. In some instances there may also be
paid a commission based on reinvested premium and/or Certificate Value on a
certain date. GNA Distributors, Inc. and Capital Brokerage Corporation are
wholly owned subsidiaries of GNA Corporation.
Legal Proceedings
There is no material pending litigation to which the Company is a party or of
which any of the Company's property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against the Company of
which we have any knowledge.
Legal Matters
The organization of GECA and its authority to issue the Contracts and the
validity of the form of the Contracts have been passed upon by Ward Bobitz, Vice
President and Assistant Secretary of GECA.
Experts
The statutory financial statements of General Electric Capital Assurance Company
as of and for the years ended December 31, 1997 and 1996, have been included
herein in reliance upon the report of KPMG LLP (formerly known as KPMG Peat
Marwick LLP) (KPMG), independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG dated April 24, 1998, contains explanatory
paragraphs that state the following:
o KPMG did not audit the 1996 statutory financial statements of First
Colony Life Insurance Company (FCL), an 80% owned subsidiary of the
Company. The Company's investment in FCL as of December 31, 1996 was
$518.1 million, the amount of the contribution of the investment in FCL
by the Company's parent on December 31, 1996. The 1996 statutory
financial statements of FCL were audited by other auditors whose report
was furnished to KPMG, and KPMG's opinion, insofar as it relates to the
amounts included for FCL, is based solely on the report of the other
auditors; and
o As described more fully in note 1 to the statutory financial statements,
the Company prepared the financial statements using accounting practices
prescribed or permitted by the State of Delaware Department of Insurance,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory
basis of accounting and generally accepted accounting principles are also
described in note 1 to the statutory financial statements.
The financial statements of the GNA Variable Investment Account as of December
31, 1997, and for each of the years or lesser periods in the three year period
then ended, have been included herein in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
<PAGE>
Registration Statements
A registration statement has been filed with the Commission, under the
Securities Act of 1933 as amended, for the Contracts being offered here. This
Prospectus does not contain all the information in the registration statements,
its amendments and exhibits. Please refer to the registration statement for
further information about the Separate Account, the Company, and the Contracts
offered. Statements in this Prospectus about the content of contracts and other
legal instruments are summaries. For the complete text of those contracts and
instruments, please refer to those documents as filed with the Commission and
available on the Commission's website at http://www.sec.gov.
STATEMENT OF ADDITIONAL INFORMATION
Table of Contents
Page
Performance Data..............
Services......................
Servicing Agent..........
Principal Underwriter....
Financial Statements..........
<PAGE>
Appendix A
State Premium Taxes
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
TAX RATE
QUALIFIED NONQUALIFIED
STATE Contracts Contracts
- ----- ----------- ---------
ALABAMA........... 1.00% 1.00%
CALIFORNIA........ .50% 2.35%
DISTRICT OF
COLUMBIA........ 2.25% 2.25%
KANSAS............ .00 2.00%
KENTUCKY.......... 2.00% 2.00%
MAINE............. .00 2.00%
MISSISSIPPI....... .00 2.00%
NEVADA............ .00 3.50%
NORTH
CAROLINA........ .00 1.90%
PUERTO RICO....... 1.00% 1.00%
SOUTH DAKOTA...... .00 1.25%
WEST VIRGINIA..... 1.00% 1.00%
WYOMING........... .00 1.00%
<PAGE>
Appendix B
Examples of Market Value Adjustments
We designed the table below to show the impact of the market value adjustment
and withdrawal charge on a single premium of $10,000. It assumes you allocated
the purchase payment to a Sub-account with a 10-year Guarantee Period with a
guaranteed rate of interest of 5%.
We base the market value adjustments on interpolated current interest rates
(defined in the Contract as "C") of 3%, 5% and 7%. The Net Sub-account Values
shown in the table are the maximum amounts available as cash withdrawals. We
base the withdrawal charges shown on the withdrawal charge table set forth under
"Charges and Deductions--Withdrawal Charges" in the Prospectus. The withdrawal
charges shown also assume that you made no partial withdrawals, and thus the 10%
free partial withdrawal is available. Values shown in the table have been
rounded to the nearest dollar, and therefore the figures under the Net
Sub-account Value columns may not equal the sum of corresponding figures under
the Sub-account Value, Market Value Adjustment and Withdrawal Charge columns.
We use the five percent guaranteed interest rate assumed in the table for
purposes of illustration only. You should not consider it a representation of
the interest rate we will guarantee for 10-year Guarantee Periods. Further, you
should not consider the three, five and seven percent interest rates on which we
based the figures in the table a prediction since current rates we use may vary
over the ten year period we assumed in the table.
Variable Annuity Fixed MGA Account
Market Value Adjustments, Withdrawal Charges and Net Sub-account Values for a
10-year Sub-account With a Guaranteed Interest Rate of 5% Based on Interpolated
Current Interest Rates of:
Guaranteed Rate New Rate
5.00% 3%
End 0f Sub- Market Minimum Net
Certificate Account Value Withdrawal 3% Guaranteed Sub-
Year Value Adjustment Charge Account Account
Value Value
1 10,500 1,984 448 10,300 12,037
2 11,025 1,834 445 10,609 12,414
3 11,576 1,668 354 10,927 12,891
4 12,155 1,487 264 11,255 13,378
5 12,763 1,288 174 11,593 13,877
6 13,401 1,072 0 11,941 14,473
7 14,071 836 0 12,299 14,907
8 14,775 579 0 12,668 15,354
9 15,513 301 0 13,048 15,815
10 16,289 0 0 13,439 16,289
Guaranteed Rate New Rate
5.00% 5%
End 0f Sub- Market Minimum Net
Certificate Account Value Withdrawal 3% Guaranteed Sub-
Year Value Adjustment Charge Account Account
Value Value
1 10,500 0 448 10,300 10,300
2 11,025 0 445 10,609 10,609
3 11,576 0 354 10,927 11,223
4 12,155 0 264 11,255 11,892
5 12,763 0 174 11,593 12,588
6 13,401 0 0 11,941 13,401
7 14,071 0 0 12,299 14,071
8 14,775 0 0 12,668 14,775
9 15,513 0 0 13,048 15,513
10 16,289 0 0 13,439 16,289
<PAGE>
Guaranteed Rate New Rate
5.00% 7%
End 0f Sub- Market Minimum Net
Certificate Account Value Withdrawal 3% Guaranteed Sub-
Year Value Adjustment Charge Account Account
Value Value
1 10,500 -1,640 448 10,300 10,300
2 11,025 -1,545 445 10,609 10,609
3 11,576 -1,432 354 10,927 10,927
4 12,155 -1,301 264 11,255 11,255
5 12,763 -1,149 174 11,593 11,593
6 13,401 -974 0 11,941 12,427
7 14,071 -774 0 12,299 13,297
8 14,775 -547 0 12,668 14,227
9 15,513 -290 0 13,048 15,223
10 16,289 0 0 13,439 16,289
The formulas used in determining the amounts shown in the above table are as
follows:
(1+Guaranteed Interest Rate)n/365-1
(1) Market Value Adjustment Factor (MVAF) = --------------------------
1+Current Rate
(2) Maximum Free Withdrawal Amount (MFW) = 10% of current Sub-account Value.
MFW is subject to MVA but not to withdrawal charge.
(3) Market Value Adjustment (MVA)= [(Sub-Account Value) X MVAF].
(4) Withdrawal Charge (WC) = [(Premium-MFW) X Withdrawal Charge Percent].
(5) Minimum Guarantee at 3% (MG3) of purchase payment = Purchase
Payment X (1.03)^(n/365).
(6) Net Sub-Account Value = Maximum of [(Sub-Account Value + MVA-WC) or MG3].
<PAGE>
PART B
Information Required in a
Statement of Additional Information
<PAGE>
Statement of Additional Information
GNA Variable Investment Account
of
General Electric Capital Assurance Company
Group Deferred Variable Annuity and
Modified Guaranteed Annuity Contract
This Statement of Additional Information is not a Prospectus. It contains
information in addition to that described in the Prospectus and should be read
in conjunction with the Prospectus dated the same date as this Statement of
Additional Information. The Prospectus may be obtained by writing General
Electric Capital Assurance Company ("GECA") at its Variable Annuity Service
Center, 300 Berwyn Park, Berwyn, PA 19312-0031 or by telephoning 1-800-455-0870,
or by accessing the Securities and Exchange Commission's website at
htpp://www.sec.gov.
The date of this Statement of Additional Information is January __, 1999.
General Electric Capital Assurance Company
6604 West Broad Street
Richmond, Virginia 23230
(804) 281-6000
<PAGE>
Statement of Additional Information
Table of Contents
Page
Performance Data...............
Services.......................
Servicing Agent...........
Principal Underwriter.....
Financial Statements...........
Performance Data
Each of the Variable Sub-accounts may in its advertising and sales
materials quote total return figures. The Variable Sub-accounts may advertise
both "standardized" and "non-standardized" total return figures, although
standardized figures will always accompany non-standardized figures. Such
figures will always include the average annual total return for recent one year
and, when applicable, five and ten year periods and, where less than five or ten
years, the period since the Variable Sub-account first became available for
investment. Where the period since inception is less than one year, the total
return quoted will be the aggregate return for the period. Standardized total
return begins from when a portfolio first became available in an investment
subdivision.
The average annual total return is the average annual compounded rate of
return that equates a purchase payment to the market value of such purchase
payment on the last day of the period for which such return is calculated. The
aggregate total return is the percentage change (not annualized) that equates a
purchase payment to the market value of such purchase payment on the last day of
the period for which such return is calculated. For purposes of the calculations
it is assumed that an initial payment of $1,000 is made on the first day of the
period for which the return is calculated. In calculating standardized return
figures, all recurring charges are reflected, the asset charges are reflected in
changes in unit values and the $40 certificate maintenance charge is translated
to a 0.058% annual asset charge based on an assumed average Certificate Value of
$44,740, with the additional assumption that the charge is waived on 35% of all
Certificates due to the waiver in place for Certificates with a Certificate
Value of $40,000 or greater. These assumptions are based on sales information
from annuities issued under the Prospectus. Standardized total return figures
will be quoted assuming redemption at the end of the period. Such figures may be
accompanied by non-standardized total return figures that are calculated on the
same basis as the standardized returns except that the calculations assume no
redemption at the end of the period. We believe such non-standardized figures
are useful to Participants who wish to assess the performance of an ongoing
Certificate of the size that is meaningful to the individual owner. Of course,
any performance data quoted for the any of the Variable Sub-accounts of the
Separate Account represents only historical performance and is not intended to
predict future results.
<PAGE>
The following are the average annual total returns for the periods indicated:
Non-
Standardized Standardized
12/12/97** 12/12/97**
Variable Sub-account to 12/31/97 to 12/31/97
-------------------- ----------- -----------
Income Fund -4.71% -0.21%
Premier Growth Equity Fund -1.22% 3.36%
Value Equity Fund -2.28% 2.21%
International Equity Fund -2.52% 1.97%
U.S. Equity Fund -2.23% 2.25%
Money Market Fund -4.38% 0.12%
**Date first available through the Separate Account.
Additionally, the Separate Account also advertises its Money Market
Sub-account's "Yield" and "Effective Yield". Both figures are based on
historical earnings and are not intended to indicate future performance. The
"Yield" of the Sub-account refers to income generated by an hypothetical
investment in the Money Market Sub-account over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as an annual
percentage of return on the investment. The "Effective Yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Sub-account is assumed to be reinvested. The "Effective Yield" will be slightly
higher than the "Yield" because of the compounding effect of the assumed
reinvestment. Neither yield quotation assumes redemption at the end of the
period. If the charges related to redemptions were included in the yield
figures, the "Yield" and "Effective Yield" would be reduced. Each figure assumes
imposition of the pro rata portion of the $40 certificate maintenance charge.
The current seven day "Yield" and "Effective Yield" as of December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
12/31/97 12/31/97
Variable Sub-account "Yield" "Effective Yield"
-------------------- ------- -----------------
<S> <C> <C>
Money Market Fund 3.97% 4.05%
</TABLE>
<PAGE>
Services
Servicing Agent
Delaware Valley Financial Services ("DVFS") provides to us a computerized
data processing recordkeeping system for variable annuity administration. DVFS
provides various daily, semimonthly, monthly, semiannual and annual reports
including: daily updates on accumulation unit values, Participant transactions
and agent production and commissions; semimonthly commission statements; monthly
summaries of agent production and daily transaction reports; semiannual
statements for Participants and annual Participant tax reports. DVFS receives
compensation for its services based primarily on percentages of purchase
payments received and monthly account balances.
Principal Underwriter
GNA Distributors, Inc., a wholly-owned subsidiary of GNA Corporation,
served as principal underwriter of the Contracts and Certificates. The Contracts
and Certificates are no longer offered, but were offered on a continuous basis.
Financial Statements
The financial statements of GECA which we included in this Statement of
Additional Information should be considered only as bearing on the ability of
GECA to meet its obligations under the Contracts. They should not be considered
as bearing on the investment performance of the assets held in the Separate
Account. We also include the financial statements for the GNA Variable
Investment Account in this Statement of Additional Information.
Index to Financial Statements
GNA Variable Investment Account
Contents
Financial Statements: Page
GNA Variable Investment Account
Independent Auditors' Report...................................
Statements of Assets and Liabilities as of December 31, 1997...
Statements of Operations for the Period from December 12, 1997 to
1997, the Period from January 1, 1997 to December 11, 1997,
and the Years Ended December 31, 1996 and 1995 .............
Statements of Changes in Net Assets for the Period From
December 12, 1997 to December 31, 1997, the Period from January
1, 1997 to December 11, 1997, and the Years
Ended December 31, 1996 and 1995 ....................
Notes to Financial Statements..................................
General Electric Capital Assurance Company
Index to Financial Statements
Contents
Page
Statutory-Basis Financial Statements:
General Electric Capital Assurance Company
Independent Auditors' Report.....................................
Statutory Statement of Admitted Assets, Liabilities, and Capital
and Surplus as of December 31, 1997 and 1996..................
Statutory Statements of Summary of Operations for the Years Ended
December 31, 1997 and 1996....................................
Statutory Statements of Changes in Capital and Surplus for the
Years Ended December 31, 1997 and 1996........................
Statutory Statements of Cash Flows for the Years Ended December
31, 1997 and 1996.............................................
Notes to Statutory Financial Statements..........................
<PAGE>
Statutory Statement of Admitted Assets, Liabilities, and Capital
and Surplus as of September 30, 1998 (unaudited) and
December 31, 1997.............................................
Statutory Statements of Summary of Operations for the Nine Months
Ended September 30, 1998 and 1997 (unaudited).................
Statutory Statements of Changes in Capital and Surplus for the
Nine Months Ended September 30, 1998 and 1997 (unaudited).....
Statutory Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).......................
Notes to Statutory Financial Statements..........................
<PAGE>
[KPMG Peat Marwick Letterhead]
Independent Auditors' Report
Contractholders
GNA Variable Investment Account
and 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, 1997 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 three years or lesser periods 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, 1997 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,
1997, and the results of their operations and changes in their net assets for
each of the three years or lesser periods then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
February 13, 1998
<PAGE>
GNA Variable Investment Account
Statements of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
---------------------------------------
Premier
Growth
Income Equity
Assets Fund Fund
- - -------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in GE Investments Funds, Inc., at fair value:
Income Fund (1,693,088 shares,
cost $20,520,124) $ 20,503,296 -
Premier Growth Equity Fund (315,569 shares,
cost $15,725,853) - 16,245,467
Value Equity Fund (1,121,044 shares,
cost $14,368,793) - -
International Equity Fund (814,087 shares,
cost $8,525,266) - -
U. S. Equity Fund (858,360 shares,
cost $23,377,774) - -
Money Market Fund (4,232,461 shares,
cost $4,232,461) - -
- - -------------------------------------------------------------------------------------------------------------
Total assets $ 20,503,296 16,245,467
=============================================================================================================
Net assets:
Attributable to Great Northern Insured Annuity
Corporation 15,428,699 6,493,920
For deferred variable annuity contractholders 5,074,597 9,751,547
- - -------------------------------------------------------------------------------------------------------------
$ 20,503,296 16,245,467
=============================================================================================================
Outstanding units held by contractholders 508,249 943,827
Net asset value per unit $ 9.98 10.33
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
-------------------------------------------------------------------
Value International U.S. Money
Equity Equity Equity Market
Assets Fund Fund Fund Fund
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in GE Investments Funds, Inc., at fair value:
Income Fund (1,693,088 shares,
cost $20,520,124) - - - -
Premier Growth Equity Fund (315,569 shares,
cost $15,725,853) - - - -
Value Equity Fund (1,121,044 shares,
cost $14,368,793) 14,696,891 - - -
International Equity Fund (814,087 shares,
cost $8,525,266) - 8,699,630 - -
U. S. Equity Fund (858,360 shares,
cost $23,377,774) - - 23,931,078 -
Money Market Fund (4,232,461 shares,
cost $4,232,461) - - - 4,232,461
- - --------------------------------------------------------------------------------------------------------------------------------
Total assets 14,696,891 8,699,630 23,931,078 4,232,461
================================================================================================================================
Net assets:
Attributable to Great Northern Insured Annuity
Corporation 4,561,851 6,594,823 12,094,824 2,942,657
For deferred variable annuity contractholders 10,135,040 2,104,807 11,836,254 1,289,804
- - --------------------------------------------------------------------------------------------------------------------------------
14,696,891 8,699,630 23,931,078 4,232,461
================================================================================================================================
Outstanding units held by contractholders 991,032 206,295 1,156,869 128,751
Net asset value per unit 10.23 10.20 10.23 10.02
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GNA Variable Investment Account
Statements of Operations
December 31, 1997
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
---------------------------------------------------------
Premier
Growth
Income Equity
Fund Fund
---------------------------------------------------------
Period from December 12, 1997 to December 31, 1997
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 53,264 9,920
Expenses:
Mortality and expense risk charges (note 3) 3,285 6,135
Administrative charges 394 736
- - -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 49,585 3,049
- - -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) (62) 13,532
Unrealized appreciation
(depreciation) on investments (16,828) 519,614
- - -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (16,890) 533,146
- - -------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 32,695 536,195
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc.
-------------------------------------------------------
Value International U. S. Money
Equity Equity Equity Market
Fund Fund Fund Fund
-------------------------------------------------------
Period from December 12, 1997 to December 31, 1997
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends - - 11,628 6,805
Expenses:
Mortality and expense risk charges (note 3) 6,415 1,349 7,503 835
Administrative charges 770 162 900 100
- - --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (7,185) (1,511) 3,225 5,870
- - --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 8,652 4,562 4,856 -
Unrealized appreciation
(depreciation) on investments 328,098 174,364 553,304 -
- - --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 336,750 178,926 558,160 -
- - --------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 329,565 177,415 561,385 5,870
====================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statements of Operations, Continued
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------- ------------------------------------
GNA Variable Series Trust Portfolios
----------------------------------------- ------------------------------------
GNA Adjustable GNA
Rate Government
Portfolio Portfolio
----------------------------------------- ------------------------------------
Period from Period from
January 1, January 1,
1997 to 1997 to
December 11, Year ended Year ended December 11, Year ended Year ended
1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 388,100 436,519 272,765 488,825 651,585 362,009
Expenses:
Mortality and expense risk charges
(note 3) 5,383 4,486 380 23,496 26,287 4,829
Administrative charges 646 549 45 2,820 3,157 580
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 382,071 431,484 272,340 462,509 622,141 356,600
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 130,953 (1,827) 305 273,899 (24,629) 9,193
Unrealized appreciation
(depreciation) on investments (188,288) (103,401) 291,689 (100,222) (374,717) 474,939
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (57,335) (105,228) 291,994 173,677 (399,346) 484,132
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 324,736 326,256 564,334 636,186 222,795 840,732
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
GNA Variable Series Trust Portfolios
---------------------------------------------------------------------------------
GNA Growth GNA Value
Portfolio Portfolio
-------------- ------------------------------ ----------------------------------
Period from Period from
January 1, January 1,
1997 to 1997 to
December 11, Year ended Year ended December 11, Year ended Year ended
1997 1996 1995 1997 1996 1995
- - ---------------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends - 122,337 20,308 76,044 721,670 49,624
Expenses:
Mortality and expense risk charges
(note 3) 102,106 77,425 8,460 105,445 68,945 3,515
Administrative charges 12,286 9,260 1,016 12,654 8,080 422
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (114,392) 35,652 10,832 (42,055) 644,645 45,687
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 6,005,331 116,128 36,380 5,204,833 105,042 2,754
Unrealized appreciation
(depreciation) on investments (2,470,123) 1,432,026 1,038,097 (1,474,306) 911,945 562,361
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 3,535,208 1,548,154 1,074,477 3,730,527 1,016,987 565,115
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 3,420,816 1,583,806 1,085,309 3,688,472 1,661,632 610,802
===================================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statements of Operations, Continued
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
GE Variable Investment Trust Portfolios
-------------------------------------------------------------------------------
GE U.S. GE International
Equity Equity
Portfolio Portfolio
--------------------------------------- ---------------------------------------
Period from Period from
January 1, January 1,
1997 to 1997 to
December 11, Year ended Year ended December 11, Year ended Year ended
1997 1996 1995 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends - 1,832,682 85,342 - 732,236 16,990
Expenses:
Mortality and expense risk charges
(note 3) $ 127,409 82,274 4,397 25,225 20,256 5,557
Administrative charges 15,289 9,873 528 3,051 2,482 667
- - ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (142,698) 1,740,535 80,417 (28,276) 709,498 10,766
- - ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 6,278,595 99,571 1,376 654,601 44,447 37,517
Unrealized appreciation
(depreciation) on
investments (998,789) 971,255 27,534 (345,887) 286,920 58,967
- - ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 5,279,806 1,070,826 28,910 308,714 331,367 96,484
- - ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 5,137,108 2,811,361 109,327 280,438 1,040,865 107,250
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
GE Variable Investment Trust Portfolios
-------------------------------------------------------------------------------
GE Fixed GE Money
Income Market
Portfolio Portfolio
----------------------------------------- -------------------------------------
Period from Period from
January 1, January 1,
1997 to 1997 to
December 11, Year ended Year ended December 11, Year ended Year ended
1997 1996 1995 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 323,899 403,850 62,009 210,867 241,146 67,713
Expenses:
Mortality and expense risk charges
(note 3) 32,166 29,108 3,740 7,958 30,219 14,467
Administrative charges 3,860 3,534 449 2,151 3,700 1,736
- - ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 287,873 371,208 57,820 200,758 207,227 51,510
- - ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) (100,939) (28,384) 152 - - -
Unrealized appreciation
(depreciation) on investment 218,413 (207,379) (11,034) - - -
- - ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 117,474 (235,763) (10,882) - - -
- - ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 405,347 135,445 46,938 200,758 207,227 51,510
==============================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statements of Operations, Continued
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Paragon Portfolios
--------------------------------------------------------------
Paragon Power Paragon Power
Intermediate Term Value Growth
Bond Portfolio Portfolio
-------------------------- ---------------------------------
Year ended Year ended Year ended Year ended
1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 23,621 100,731 3,324 48,783
Expenses:
Mortality and expense risk charges
(note 3) 1,542 6,539 1,286 9,499
Administrative charges 191 785 189 1,140
- - ----------------------------------------------------------------------------------------------------------------
Net investment income (expense) 21,888 93,407 1,849 38,144
- - ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 74,098 18,069 337,822 73,987
Unrealized appreciation
(depreciation) on investments (144,769) 144,769 (331,796) 331,796
- - ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (70,671) 162,838 6,026 405,783
- - ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations (48,783) 256,245 7,875 443,927
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
Paragon Portfolios
-----------------------------------------------------------------
Paragon Power Paragon Power
Value Equity Gulf South
Income Portfolio Growth Portfolio
------------------------------ ---------------------------------
Year ended Year ended Year ended Year ended
1996 1995 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 10,506 86,631 - 3,897
Expenses:
Mortality and expense risk charges
(note 3) 1,123 5,927 986 9,481
Administrative charges 136 711 168 1,138
- - ---------------------------------------------------------------------------------------------------------------
Net investment income (expense) 9,247 79,993 (1,154) (6,722)
- - ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) 414,570 58,419 327,512 40,543
Unrealized appreciation
(depreciation) on investments (353,580) 353,580 (386,094) 386,094
- - ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 60,990 411,999 (58,582) 426,637
- - ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 70,237 491,992 (59,736) 419,915
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GNA Variable Investment Account
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
GE Investments Fund, Inc.
----------------------------------------------------------------------
Interna-
Premier Value tional U. S. Money
Income Growth Equity Equity Equity Market
Fund Fund Fund Fund Fund Fund
---------------------------------------------------------------------
Period from December 12, 1997 to December 31, 1997
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income (loss) $ 49,585 3,049 (7,185) (1,511) 3,225 5,870
Net realized gain (loss) (62) 13,532 8,652 4,562 4,856 -
Unrealized appreciation (depreciation) on investments (16,828) 519,614 328,098 174,364 553,304 -
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 32,695 536,195 329,565 177,415 561,385 5,870
- - ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by Great Northern
Insured Annuity Company 15,388,105 6,271,166 4,457,440 6,458,980 11,801,519 2,939,080
Net contract purchase payments 2,780 4,382 5,063 2,870 4,000 517
Transfers to the general account of Great
Northern Insured Annuity Corporation:
Surrender Benefits (5,457) (6,778) (6,683) (2,671) (12,952) (1,563)
Interfund transfers 5,085,173 9,440,502 9,911,506 2,063,036 11,577,126 1,288,557
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 20,470,601 15,709,272 14,367,326 8,522,215 23,369,693 4,226,591
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 20,503,296 16,245,467 14,696,891 8,699,630 23,931,078 4,232,461
Net assets at beginning of period - - - - - -
- - ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 20,503,296 16,245,467 14,696,891 8,699,630 23,931,078 4,232,461
==================================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
GNA Variable Series Trust Portfolios
--------------------------------------------------------------------------
GNA Adjustable GNA
Rate Government
Portfolio Portfolio
----------------------------------- -------------------------------------
Period from Period from
January 1, 1997 Year ended January 1, 1997 Year ended
to December 11, December 31, to December 11, December 31,
1997 1996 1995 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) $ 382,071 431,484 272,340 462,509 622,141 356,600
Net realized gain (loss) 130,953 (1,827) 305 273,899 (24,629) 9,193
Unrealized appreciation
(depreciation) on investments (188,288) (103,401) 291,689 (100,222) (374,717) 474,939
- - --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 324,736 326,256 564,334 636,186 222,795 840,732
- - --------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by
Great Northern Insured
Annuity Corporation (6,158,342) 5,460 4,975,000 (6,488,903) 34,853 4,975,000
Net contract purchase payments 10,245 164,878 101,739 8,146 214,486 457,518
Transfers (to) from the general account of
Great Northern Insured Annuity Corporation
Surrenders (23,205) (28,649) (77) (112,501) (100,387) (38,039)
Transfers from (to) the
Fixed Guarantee Period
Account (note 1) - - (85,757) 317 4,472 (300)
Interfund transfers (500,222) 258,575 65,029 (2,106,593) 537,106 915,112
- - --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
transactions (6,671,524) 400,264 5,055,934 (8,699,534) 690,530 6,309,291
- - --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (6,346,788) 726,520 5,620,268 (8,063,348) 913,325 7,150,023
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 5,620,268 - 8,063,348 7,150,023
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
GNA Variable Series Trust Portfolios
----------------------------------------------------------------------------
GNA GNA
Growth Value
Portfolio Portfolio
--------------------------------------- ------------------------------------
Period from Period from
January 1, 1997 Year ended January 1, 1997 Year ended
to December 11, December 31, to December 11, December 31,
1997 1996 1995 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) (114,392) 35,652 10,832 (42,055) 644,645 45,687
Net realized gain (loss) 6,005,331 116,128 36,380 5,204,833 105,042 2,754
Unrealized appreciation (depreciation)
on investments (2,470,123) 1,432,026 1,038,097 (1,474,306) 911,945 562,361
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 3,420,816 1,583,806 1,085,309 3,688,472 1,661,632 610,802
- - ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by
Great Northern Insured
Annuity Corporation (6,153,825) 96,161 2,975,000 (4,342,012) 80,960 1,975,000
Net contract purchase payments 184,598 1,341,984 1,358,417 196,401 1,051,573 470,427
Transfers (to) from the general account of
Great Northern Insured Annuity Corporation:
Surrenders (541,696) (274,949) (31,090) (506,461) (197,975) (24,112)
Transfers from (to) the
Fixed Guarantee Period
Account (note 1) 5,292 92,804 24,546 61,352 44,494 -
Interfund transfers (9,318,325) 2,670,231 1,480,921 (9,555,206) 3,299,972 1,484,681
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
transactions (15,823,956) 3,926,231 5,807,794 (14,145,926) 4,279,024 3,905,996
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (12,403,140) 5,510,037 6,893,103 (10,457,454) 5,940,656 4,516,798
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 6,893,103 - 10,457,454 4,516,798
==================================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
GE Variable Investment Trust Portfolios
------------------------------------------------------------------------
GE U.S. GE International
Equity Equity
Portfolio Portfolio
------------------------------------ -----------------------------------
Period from Period from
January 1, 1997 Year ended January 1, 1997 Year Ended
to December 11, December 31, to December 11, December 31,
1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) $ (142,698) 1,740,535 80,417 (28,276) 709,498 10,766
Net realized gain (loss) 6,278,595 99,571 1,376 654,601 44,447 37,517
Unrealized appreciation (depreciation) on
investments (998,789) 971,255 27,534 (345,887) 286,920 58,967
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 5,137,108 2,811,361 109,327 280,438 1,040,865 107,250
- - ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by Great
Northern Insured Annuity Corporation (11,661,721) 97,072 7,300,000 (6,429,736) 28,962 5,300,000
Net contract purchase payments 326,796 1,961,924 545,680 68,681 236,002 618,381
Transfers (to) from the general account of
Great Northern Insured Annuity Corporation:
Surrenders (723,956) (329,497) (5,192) (112,780) (160,144) (42,025)
Transfers from (to) the Fixed
Guarantee Period Account (note 1) 19,082 108,232 - 318 - (300)
Interfund transfers (11,090,320) 4,300,083 1,094,021 (1,984,547) 691,403 357,232
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
transactions (23,130,119) 6,137,814 8,934,509 (8,458,064) 796,223 6,233,288
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (17,993,011) 8,949,175 9,043,836 (8,177,626) 1,837,088 6,340,538
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 9,043,836 - 8,177,626 6,340,538
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
GE Variable Investment Trust Portfolios
--------------------------------------------------------------------------
GE Fixed GE Money
Income Market
Portfolio Portfolio
------------------------------------ ----------------------------------
Period from Period from
January 1, 1997 Year ended January 1, 1997 Year ended
to December 11, December 31, to December 11, December 31,
1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) 287,873 371,208 57,820 200,758 207,227 51,510
Net realized gain (loss) (100,939) (28,384) 152 - - -
Unrealized appreciation (depreciation) on
investments 218,413 (207,379) (11,034) - - -
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 405,347 135,445 46,938 200,758 207,227 51,510
- - ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by Great
Northern Insured Annuity Corporation (2,619,291) 36,831 2,300,000 (2,907,614) 50,122 2,600,000
Net contract purchase payments 11,635 276,849 47,652 108,361 7,890,566 10,367,509
Transfers (to) from the general account of
Great Northern Insured Annuity Corporation:
Surrenders (327,061) (240,069) (60) (471,661) (411,149) (79,132)
Transfers from (to) the
Fixed Guarantee
Period Account (note 1) - 50,012 24,846 672,162 181,003 (106,763)
Interfund transfers (2,838,511) 1,861,031 828,406 (1,972,176)(8,642,581) (7,738,142)
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
transactions (5,773,228) 1,984,654 3,200,844 (4,570,928) (932,039) 5,043,472
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (5,367,881) 2,120,099 3,247,782 (4,370,170) (724,812) 5,094,982
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 3,247,782 - 4,370,170 5,094,982
===================================================================================================================================
</TABLE>
<PAGE>
GNA Variable Investment Account
Statement of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
Paragon Portfolios
--------------------------------------------------
Paragon Power Paragon Power
Intermediate Term Value Growth
Bond Portfolio Portfolio
------------------------- -----------------------
Year ended December 31, Year ended December 31,
1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) $ 21,888 93,407 1,849 38,144
Net realized gain (loss) 74,098 18,069 337,822 73,987
Unrealized appreciation (depreciation) on investments (144,769) 144,769 (331,796) 331,796
- - ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (48,783) 256,245 7,875 443,927
- - ----------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by Great Northern Insured
Annuity Corporation (1,140,084) 1,000,000 (1,301,752) 1,000,000
Net contract purchase payments 10,561 506,155 53,436 656,066
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders (9,249) (13,324) (22,065) (41,075)
Transfers from (to) the Fixed Guarantee Period
Account (note 1) - - - (400)
Interfund transfers (1,255,350) 693,829 (1,329,275) 533,263
- - ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (2,394,122) 2,186,660 (2,599,656) 2,147,854
- - ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (2,442,905) 2,442,905 (2,591,781) 2,591,781
Net assets at beginning of period 2,442,905 - 2,591,781 -
- - ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ - 2,442,905 - 2,591,781
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
Paragon Portfolios
--------------------------------------------------
Paragon Power Paragon Power
Value Equity Gulf South
Income Portfolio Portfolio
----------------------- -------------------------
Year ended December 31, Year ended December 31,
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) 9,247 79,993 (1,154) (6,722)
Net realized gain (loss) 414,570 58,419 327,512 40,543
Unrealized appreciation (depreciation) on investments (353,580) 353,580 (386,094) 386,094
- - -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 70,237 491,992 (59,736) 419,915
- - -----------------------------------------------------------------------------------------------------------------
From capital transactions:
Net effect of transactions by Great Northern Insured
Annuity Corporation (1,436,738) 1,000,000 (1,259,857) 1,000,000
Net contract purchase payments 45,278 930,586 23,920 952,839
Transfers (to) from the general account of Great Northern
Insured Annuity Corporation:
Surrenders (10,486) (5,063) (23,260) (34,080)
Transfers from (to) the Fixed Guarantee Period
Account (note 1) - - - -
Interfund transfers (1,149,209) 63,403 (1,241,986) 222,245
- - -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (2,551,155) 1,988,926 (2,501,183) 2,141,004
- - -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (2,480,918) 2,480,918 (2,560,919) 2,560,919
Net assets at beginning of period 2,480,918 - 2,560,919 -
- - -----------------------------------------------------------------------------------------------------------------
Net assets at end of period - 2,480,918 - 2,560,919
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GNA Variable Investment Account
Notes to Financial Statements
December 31, 1997, 1996 and 1995
- - -------------------------------------------------------------------------
(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 - Shares of Income Fund -
GNA Variable Series Trust GE Investments Funds, Inc.
Shares of Government Portfolio - Shares of Income Fund -
GNA Variable Series Trust GE Investments Funds, Inc.
Shares of Fixed Income Portfolio - Shares of Income Fund -
GE Variable Investment Trust GE Investments Funds, Inc.
Shares of Growth Portfolio - Shares of Premier Growth Equity Fund -
GNA Variable Series Trust GE Investments Funds, Inc.
Shares of Value Portfolio - Shares of Value Equity Fund -
GNA Variable Series Trust GE Investments Funds, Inc.
</TABLE>
<PAGE>
GNA Variable Investment Account
Notes to Financial Statements
- - ------------------------------------------------------------------------------
(1) Continued
<TABLE>
<CAPTION>
Before the Substitution After the Substitution
<S> <C>
Shares of International Equity Portfolio - Shares of International Equity Fund -
GE Variable Investment Trust GE Investments Funds, Inc.
Shares of U.S. Equity Portfolio - Shares of U.S. Equity Fund -
GE Variable Investment Trust GE Investments Funds, Inc.
Shares of Money Market Portfolio - Shares of Money Market Fund -
GE Variable Investment Trust GE Investments 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
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.
<PAGE>
(2) Continued
The aggregate cost of investments acquired and the aggregate proceeds
of investments sold, for the years ended December 31, 1997, 1996 and
1995, were:
<TABLE>
<CAPTION>
1997
- - ----------------------------------------------------------------------------------------------------------
Cost of Proceeds
shares from shares
acquired sold
- - ----------------------------------------------------------------------------------------------------------
<S> <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>
<TABLE>
<CAPTION>
1996
- - -----------------------------------------------------------------------------------------------------------
Cost of Proceeds
shares from shares
acquired sold
- - -----------------------------------------------------------------------------------------------------------
<S> <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>
(2) Continued
<TABLE>
<CAPTION>
1995
- - -----------------------------------------------------------------------------------------------------------
Cost of Proceeds
shares from shares
acquired sold
- - -----------------------------------------------------------------------------------------------------------
<S> <C>
GNA Variable Series Trust Portfolios:
GNA Adjustable Rate $ 5,415,820 87,692
GNA Government 6,965,704 302,207
GNA Growth 6,451,300 632,674
GNA Value 3,980,271 28,588
GE Variable Investment Trust Portfolios:
GE U.S. Equity 9,025,695 10,769
GE International Equity 6,537,176 293,124
GE Fixed Income 3,263,075 4,411
GE Money Market 15,387,726 10,292,701
Paragon Portfolio:
Paragon Power Intermediate Term Bond 2,606,526 326,459
Paragon Power Value Growth 2,714,338 528,340
Paragon Power Value Equity Income 2,575,896 506,977
Paragon Power Gulf South Growth 2,389,531 255,248
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
Unit Activity
The increase (decrease) in outstanding units from capital transactions
for the years ended December 31, 1997, 1996 and 1995 are as follows:
Year ended December 31, 1997:
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
------------------------------------------------------------------------------
Premier International Money
Income Growth Value Equity U.S. Market
Fund Equity Equity Fund Equity Fund
- - ---------------------------------------------------------------------------------------------------------------
<S> <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>
<PAGE>
(2) Continued
<TABLE>
<CAPTION>
GNA Variable Series Trust Portfolios
-----------------------------------------------------
GNA GNA
Adjustable Govern- GNA GNA
Rate ment Growth Value
Portfolio Portfolio Portfolio Portfolio
- - ----------------------------------------------------------------------------------------------------------
<S> <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>
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 GNA
Adjustable Govern- GNA GNA
Rate ment Growth Value
Portfolio Portfolio Portfolio Portfolio
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <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>
(2) Continued
<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>
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>
<TABLE>
<CAPTION>
Paragon Portfolios
------------------------------------------------------
Intermediate
Term Value Value Gulf
Bond Growth Equity South
- - -----------------------------------------------------------------------------------------------------------------
<S> <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>
Year ended December 31, 1995:
<TABLE>
<CAPTION>
GNA Variable Series Trust Portfolios
-----------------------------------------------------------
GNA GNA
Adjustable Govern- GNA GNA
Rate ment Growth Value
Portfolio Portfolio Portfolio Portfolio
- - -------------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding, beginning of year - - - -
Units purchased 15,579 146,873 269,323 160,204
Units redeemed (8,044) (25,885) (47,648) (2,080)
- - -------------------------------------------------------------------------------------------------------------
Units outstanding, end of year 7,535 120,988 221,675 158,124
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
<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>
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>
<TABLE>
<CAPTION>
Paragon Portfolios
------------------------------------------------------
Paragon Paragon Paragon
Intermediate Paragon Value Gulf
Term Value Equity South
Bond Growth Income Growth
Portfolio Portfolio Portfolio Portfolio
- - -----------------------------------------------------------------------------------------------------------
<S> <C>
Units outstanding, beginning of year - - - -
Units purchased 137,613 153,392 125,446 127,480
Units redeemed (27,838) (43,188) (38,579) (20,470)
- - -----------------------------------------------------------------------------------------------------------
Units outstanding, beginning of year 109,775 110,204 86,867 107,010
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
Distributions
The net investment income (loss) and realized capital gains of the
Account are retained and reinvested within the Account.
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.
<PAGE>
(2) Continued
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. The individual portfolios agree
to pay the Investment Advisor a fee based upon each portfolio's daily
net assets, calculated at an effective annual rate of .10% and 1.00%
depending on the nature of the portfolio. 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 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.
- -------------------------------------------------------------------------------
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Report
The Board of Directors
General Electric Capital Assurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital and surplus of General Electric Capital Assurance
Company as of December 31, 1997 and 1996, and the related statutory statements
of summary of operations, changes in capital and surplus, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 1996 statutory
financial statements of First Colony Life Insurance Company (FCL), an 80% owned
subsidiary of the Company. The Company's investment in FCL at December 31, 1996
was $518.1 million, the amount of the contribution of the investment in FCL by
the Company's parent on December 31, 1996. The 1996 statutory financial
statements of FCL were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for FCL,
is based solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
As described more fully in note 1 to the accompanying financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the State of Delaware Department of Insurance, which
practices differ from generally accepted accounting principles. The effects on
the financial statements of the variances between the statutory basis of
accounting and generally accepted accounting principles also are described in
note 1.
In our opinion, based on our audits and the report of the other auditors,
because of the effects of the matter discussed in the preceding paragraph, the
financial statements referred to above do not present fairly, in conformity with
generally accepted accounting principles, the financial position of General
Electric Capital Assurance Company as of December 31, 1997 and 1996, or the
results of its operations or its cash flows for the years then ended.
Also, in our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the admitted assets, liabilities and capital and surplus of General
Electric Capital Assurance Company at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended, on the
basis of accounting described in note 1.
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
the accompanying Schedule of Selected Data is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ KPMG Peat Marwick LLP
April 24, 1998
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
December 31, 1997 and 1996
(Dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Admitted Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Bonds $ 6,463.7 $ 6,195.9
Preferred stocks 5.9 16.5
Common stocks 1,931.8 1,588.7
Mortgage loans 457.5 355.9
Short-term investments - 0.1
Policy loans 604.0 539.9
Limited partnership interests 188.8 -
Receivable for securities 19.1 -
European call options 35.0 3.3
- -----------------------------------------------------------------------------------------------------------------------
Total investments 9,705.8 8,700.3
Cash 6.7 -
Investment income due and accrued 166.0 156.3
Guaranty association assessments 8.7 10.0
Accident and health premiums due and unpaid 38.7 27.4
Receivable from subsidiaries and affiliates 7.1 1.6
Other assets 7.9 4.8
- -----------------------------------------------------------------------------------------------------------------------
Total admitted assets $ 9,940.9 $ 8,900.4
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Capital and Surplus
- -----------------------------------------------------------------------------------------------------------------------
Liabilities:
Aggregate reserves - life, annuity and accident and health $ 6,914.5 $ 6,276.9
Supplementary contracts without life contingencies 103.5 110.2
Policy and contract claims 48.6 39.4
Interest maintenance reserve 116.4 113.0
General expenses due and accrued 58.6 36.3
Taxes, licenses and fees due and accrued 12.4 16.4
Federal income taxes due or accrued 84.7 50.6
Remittances and items not allocated 108.4 83.8
Payable to subsidiaries and affiliates 38.7 10.2
Asset valuation reserve 79.6 65.2
Premiums and annuity considerations received in advance 8.8 7.6
Commissions payable 13.5 11.9
Funds held under reinsurance treaties with unauthorized reinsurers - 7.2
Borrowed money 23.2 42.1
Other liabilities 1.1 2.2
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 7,612.0 6,873.0
- -----------------------------------------------------------------------------------------------------------------------
Capital and surplus:
Common stock, Class A ($1 par value, 4,200,000 shares authorized,
4,011,258 issued and 3,521,258 outstanding) 4.0 4.0
Common stock, Class B ($1 par value, 2,000,000 shares authorized,
550,000 issued and outstanding) 0.6 0.6
Preferred stock ($1 par value, 1,000,000 shares authorized, 300,000 issued
and outstanding) 0.3 0.3
Paid-in surplus 1,798.9 1,798.9
Unassigned surplus 586.4 284.9
Less treasury stock, Class A ($1 par value, 490,000 shares) (61.3) (61.3)
- -----------------------------------------------------------------------------------------------------------------------
Total capital and surplus 2,328.9 2,027.4
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and capital and surplus $ 9,940.9 $ 8,900.4
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Summary of Operations
Years ended December 31, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums and annuity considerations $ 1,006.0 $ 681.5
Considerations for supplementary contracts 31.3 47.1
Investment income, net of investment expense of $3.2 in 1997
and $3.9 in 1996 590.3 550.6
Amortization of interest maintenance reserve 14.3 13.2
Commission and expense allowances on reinsurance ceded 1.9 3.2
Other 1.5 0.8
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,645.3 1,296.4
- -------------------------------------------------------------------------------------------------------------------------------
Benefits:
Death benefits 8.6 12.8
Annuity benefits 233.2 208.5
Disability benefits and benefits under accident and health policies 153.9 132.3
Surrender benefits and other fund withdrawals 232.3 302.0
Payments on supplementary contracts 44.5 44.7
Interest on policy or contract funds 2.6 0.6
Increase in aggregate reserves - life, annuity and accident and health 625.2 215.9
Increase (decrease) in reserve for supplementary contracts without life
contingencies (6.7) 7.8
- -------------------------------------------------------------------------------------------------------------------------------
Total benefits 1,293.6 924.6
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Commissions 141.3 111.1
General insurance expenses 170.7 148.0
Insurance taxes, licenses and fees 10.7 17.6
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 322.7 276.7
- -------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,616.3 1,201.3
- -------------------------------------------------------------------------------------------------------------------------------
Income before federal income taxes and realized capital losses 29.0 95.1
Federal income tax provision 39.7 32.6
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before realized capital losses (10.7) 62.5
Realized capital losses, net of tax provision of $6.3 in 1997 and $.7 in 1996
and excluding $17.7 in 1997 and $.5 in 1996
transferred to interest maintenance reserves (8.4) (2.8)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (19.1) $ 59.7
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Changes in Capital and Surplus
Years ended December 31, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Common Paid-in Unassigned Treasury
Stock Surplus Surplus stock
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 20.9 $ 976.4 $ 103.7 $ 61.3
Net income - - 59.7 -
Change in net unrealized capital gains - - 125.7 -
Increase in nonadmitted assets - - (1.0) -
Decrease in asset valuation reserve - - 1.4 -
Transfer of capital to paid-in surplus (16.0) 16.0 - -
Increase in paid-in surplus - 806.5 - -
Other surplus adjustment - (4.6) -
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4.9 1,798.9 284.9 61.3
Net loss - - (19.1) -
Change in net unrealized capital gains - - 350.8 -
Decrease in nonadmitted assets - - 2.4 -
Increase in asset valuation reserve - - (14.4) -
Change in reserve on account of change in valuation basis - - (12.5) -
Prior year federal income tax adjustment - - (5.7) -
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 4.9 $ 1,798.9 $ 586.4 $ 61.3
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Cash Flows
Years ended December 31, 1997 and 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash from operations:
Premiums and annuity considerations $ 996.0 $ 681.0
Other premiums, considerations and deposits 31.3 47.1
Investment income received (excluding realized gains or losses and net 557.5 496.0
investment expense)
Other income received 3.3 2.3
- -----------------------------------------------------------------------------------------------------------------
Cash provided from revenues 1,588.1 1,226.4
- -----------------------------------------------------------------------------------------------------------------
Life, annuity and accident and health claims paid 385.7 353.8
Surrender benefits and other fund withdrawals paid 232.4 302.0
Other benefits to policyholders paid 47.0 45.4
- -----------------------------------------------------------------------------------------------------------------
Cash applied to benefits 665.1 701.2
- -----------------------------------------------------------------------------------------------------------------
Commissions 139.7 109.8
Other expenses and taxes paid 163.7 161.0
Federal income taxes paid (excluding tax on capital gains) 11.3 25.6
- -----------------------------------------------------------------------------------------------------------------
Cash applied to general and other expenses 314.7 296.4
- -----------------------------------------------------------------------------------------------------------------
Total cash provided by operations 608.3 228.8
- -----------------------------------------------------------------------------------------------------------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 844.6 598.6
Common and preferred stocks 14.9 10.2
Mortgage loans 17.9 16.2
Miscellaneous proceeds (0.7) -
- -----------------------------------------------------------------------------------------------------------------
Total investment proceeds 876.7 625.0
Net tax on capital gains 6.3 0.8
- -----------------------------------------------------------------------------------------------------------------
Net investment proceeds 870.4 624.2
- -----------------------------------------------------------------------------------------------------------------
Cost of investments acquired (long-term only):
Bonds 1,061.6 685.8
Common stocks 18.8 829.5
Mortgage loans 119.6 244.6
Limited Partnership interests 188.8 -
Miscellaneous applications 20.6 3.3
- -----------------------------------------------------------------------------------------------------------------
Total investments acquired 1,409.4 1,763.2
- -----------------------------------------------------------------------------------------------------------------
Net increase in policy loans 64.1 49.1
- -----------------------------------------------------------------------------------------------------------------
Net cash used by investments (603.1) (1,188.1)
- -----------------------------------------------------------------------------------------------------------------
Cash from financing and miscellaneous sources:
Cash provided:
Capital and surplus paid in - 806.5
Borrowed money (18.8) 42.1
Other cash provided 59.6 91.1
- -----------------------------------------------------------------------------------------------------------------
Total cash provided 40.8 939.7
Cash applied:
Dividends paid to stockholders - 10.5
Other applications 39.4 4.5
- -----------------------------------------------------------------------------------------------------------------
Total cash applied 39.4 15.0
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing and miscellaneous sources 1.4 924.7
- -----------------------------------------------------------------------------------------------------------------
Net change in cash and short-term investments 6.6 (34.6)
Cash and short-term investments at beginning of year 0.1 34.7
- -----------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 6.7 $ 0.1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
(1) Corporate Structure, Basis of Presentation and Summary of Significant
Accounting Policies
Corporate Structure
General Electric Capital Assurance Company (the Company), a Delaware
domiciled insurance company, is primarily engaged in the business of
providing annuity, interest-sensitive life, accidental death and
dismemberment and long-term care insurance coverage. The Company is a
wholly-owned subsidiary of GNA Corporation which is wholly owned by GE
Financial Assurance Holdings, Inc. (GEFA) (formerly GE Life Insurance
Group, Inc.) which is owned by General Electric Capital Corporation. On
June 30, 1996, the Company was the survivor of a merger with its
affiliate, AMEX Life Assurance Company. The following are the company's
direct subsidiaries:
<TABLE>
<CAPTION>
Percentage
owned
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Great Northern Insured Annuity Corporation (GNA) 100.0%
Federal Home Life Insurance Company (FHL) 100.0
Seguros del Centro, S.A. (Seguros) 99.5
AFORE Capitaliza, S.A. de C.V. (AFORE) 99.0
The Life Insurance Company of Virginia (LOV) 80.0
First Colony Life Insurance Company (FCL) 80.0
GE Capital Life Assurance Company of New York (GE Capital Life) 52.0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Significant intercompany ownership changes which have occurred since
1995 are noted below:
On April 1, 1996, GNA Corporation contributed 80% of LOV to the
Company. GEFA owns the remaining 20% of LOV.
On December 20, 1996, the Company acquired approximately 99.5% of the
outstanding capital stock of Seguros, a Mexican insurance company, for
$13.5.
On December 31, 1996, GNA Corporation contributed 80% of FCL to the
Company. GEFA owns the remaining 20% of FCL.
On January 31, 1997, the Company incorporated and capitalized AFORE, a
Mexican pension fund management company. The Company and its affiliate,
GE Capital de Mexico, S.A. de C.V. are the shareholders of 99% and 1%
of AFORE, respectively.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
On June 16, 1997, American First Security Life Insurance Company, an
affiliate, was voluntarily dissolved.
On January 1, 1999, GNA was merged with and into the Company, with the
Company as the surviving corporation.
Differences Between Statutory Accounting Principles and Generally
Accepted Accounting Principles
The accompanying statutory financial statements of the Company have
been prepared in accordance with insurance accounting practices
prescribed by the National Association of Insurance Commissioners
(NAIC) and the State of Delaware Department of Insurance. Prescribed
statutory accounting practices include a variety of publications of the
NAIC, as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The Company has no significant
permitted accounting practices which vary from prescribed accounting
practices or generally accepted accounting principles.
In March 1998, the NAIC adopted the codification of Statutory
Accounting Principles (the Codification). Once implemented, the
definitions of what comprises prescribed versus permitted statutory
accounting practices may result in changes to accounting policies that
insurance enterprises use to prepare their statutory financial
statements. The implementation date is ultimately dependent on an
insurer's state of domicile. The Company does not expect a material
impact on its statutory financial statements resulting from the
implementation of codification.
The preparation of financial statements requires management to make
estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates.
Statutory accounting principles (SAP) differ from generally accepted
accounting principles (GAAP) in several respects, which cause
differences in reported net income, cash flows and shareholders'
interest (statutory capital and surplus). The principal SAP which
differ from GAAP include:
o The financial statements of subsidiaries are not
consolidated and are accounted for as investments in
common stock. Subject to certain statutory limitations,
the book value of subsidiaries is adjusted to their
statutory surplus by a credit or charge for an unrealized
gain or loss, a component of surplus.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
o Fixed maturity securities, all of which are classified as
available-for-sale, are generally reported at amortized
cost and changes in market value are not recorded.
o Certain assets (principally furniture, equipment and
prepaid expenses) have been designated as non-admitted
assets and excluded from assets by a charge to statutory
surplus.
o Intangible assets (present value of future profits and
goodwill) and other adjustments, resulting from the
Company's and its subsidiaries' acquisitions, are not
recorded.
o Aggregate reserves for life, annuities and accident and
health are based on statutory mortality and interest
requirements without consideration for anticipated
withdrawals. Morbidity assumptions are based on the
Company's experience.
o Interest Maintenance Reserve (IMR) represents the deferral
of interest-related realized gains and losses, net of tax,
on primarily fixed maturity investments which are
amortized into income over the remaining life of the
investment sold.
o Deferred income taxes are not provided.
o Asset Valuation Reserve (AVR) represents a contingency
reserve for credit-related risk on most invested assets of
the Company, and is charged to statutory surplus.
o Policy acquisition costs are expensed as incurred.
o State guaranty association assessments are capitalized
when paid and amortized in accordance with state premium
tax offset provisions.
o Deductions from policy and contract liabilities, including
aggregate reserves, for reinsurance ceded are reported net
of the policy obligation rather than shown as an asset.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
o The Statements of Cash Flows differ in certain respects
from the presentation required by Statement of Financial
Accounting Standards No. 95, including the presentation of
the changes in cash and short-term investments instead of
cash and cash equivalents. Short-term investments include
securities with maturities, at the time of acquisition, of
one year or less. There is no reconciliation between net
income and cash from operations.
The principal differences between statutory capital and surplus and
GAAP shareholders' interest at December 31 are as follows:
1997 1996
- -------------------------------------------------------------------------------
(Unaudited)
Statutory capital and surplus $ 2,329 $ 2,027
Minority interest and investment in subsidiaries 2,692 2,208
Investment valuations differences 318 20
Non-admitted assets 5 9
Intangible assets 339 409
Reserves (600) (641)
IMR 116 113
Deferred income tax benefit 173 274
AVR 80 65
Deferred acquisition costs 200 115
Guaranty fund assessments (19) (22)
Other (2) (4)
- -------------------------------------------------------------------------------
GAAP shareholders' interest $ 5,631 $ 4,573
- -------------------------------------------------------------------------------
The GAAP net income for 1997 and 1996 was $62 and $187, respectively.
Products
The Company markets and sells products through financial institutions
and various agencies. The primary products of the Company are
investment type deferred annuities, structured settlements, immediate
annuities and long-term care policies.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Recognition of Revenue and Related Expenses
Premiums and annuity considerations are recognized as revenue when the
policies and contracts are issued. For accident and health contracts,
premiums are earned on a pro rata basis over the applicable policy
period. Benefits and other fund withdrawals are expensed as incurred.
Policy acquisition and maintenance expenses are charged to operations
as incurred.
Investments
Bonds are stated at amortized cost. Amortization of bond premium and
accretion of bond discount are recognized on a level yield method. At
December 31, 1997, there were no non-admitted bonds. At December 31,
1996, bonds totaling $12.7 were non-admitted due to market value
falling below amortized cost on NAIC class 6 bonds.
The Company uses prepayment assumptions and the resulting cash flows
retrospectively to determine the carrying value of loan backed
structured securities in accordance with the NAIC Accounting Practices
and Procedures manual.
Investments in common stocks of subsidiaries are carried on the equity
basis. Changes in the proportionate share of such subsidiaries are
recorded as unrealized gains and losses.
Preferred stocks are carried at cost, except where NAIC market value
has fallen below cost, in which case it is carried at market value.
Mortgage loans are stated at the aggregate unpaid principal balance.
Policy loans are stated at the aggregate unpaid principal balance,
which approximates fair value. Short-term investments are stated at
cost, which approximates fair value. Other invested assets, which
primarily consists of limited partnerships invested in hedge funds, are
accounted for using the equity method.
The Company temporarily loans securities to broker-dealers and other
financial institutions. In accordance with the NAIC Valuations of
Securities manual, the Company requires minimum collateral on
securities loaned equal to 102% of the market value of the loaned
securities. Collateral requirements are validated daily by the Company.
The Company also tracks each lending transaction and the data elements
necessary for NAIC reporting. As of December 31, 1997, the Company had
loaned securities with a market value of $197.8 to others.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Realized gains and losses, determined on a specific identification
basis, are reduced by amounts transferred to IMR and are reflected as
an element of net income, net of related tax. Unrealized gains and
losses, primarily related to changes to the statutory equity of
subsidiaries, are reflected as credits or charges to surplus.
Aggregate Reserves
Policy reserves on annuity and supplementary contracts are calculated
using the Commissioners' Annuity Reserve Valuation Method. The
valuation interest assumptions follow the Standard Valuation Law and
vary by the contracts' characteristics and their issue year.
Policy reserves on universal life and single premium whole life
contracts are based on statutory mortality and valuation interest rates
using the Commissioner's Reserve Valuation Method. The valuation
interest and mortality assumptions follow the Standard Valuation Law
and vary by the contracts' characteristics and their issue year.
Accident and health benefit reserves are developed by actuarial methods
and are determined based on published tables using specified statutory
interest rates, mortality or morbidity assumptions and valuation
methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum of guaranteed policy cash values or the
amounts required by law.
Reserve estimates are subject to the effects of trends in claim
severity and frequency. Although considerable variability is inherent
in such estimates, management believes that the reserves are adequate.
The estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments
are included in current operations.
Unpaid Claims and Claims Adjustment Expenses
Unpaid claims and claim adjustment expenses on accident and health
policies represent the estimated ultimate net cost of all reported and
unreported claims incurred through December 31. The reserves for unpaid
claims and claim adjustment expenses are estimated using individual
case-basis valuations and statistical analyses. The estimates are
continually reviewed and adjusted as necessary as experience develops
or new information becomes known; such adjustments are included in
current operations.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Interest Maintenance Reserve
IMR represents the deferral of interest-related realized capital gains
and losses, net of tax, on primarily fixed maturity investments. These
gains and losses are amortized into income over the estimated remaining
life of the investment sold.
Asset Valuation Reserve
AVR is a contingency reserve for credit-related losses on most
investments and is recorded as a liability through a charge to
statutory surplus.
Federal Income Taxes
The Company files a consolidated life insurance federal income tax
return with its subsidiaries.
The method of income tax allocation is subject to written agreement
authorized by the Board of Directors. Allocation is based on the
separate return liabilities with offsets for losses and credits
utilized to reduce current consolidated tax liability. Intercompany tax
balances are settled quarterly, with a final true-up after filing of
the federal income tax return.
Federal income tax expense on income before realized capital gains
varies from amounts computed by applying the current federal corporate
income tax rate to income before federal income taxes, principally
because of the effect of differences in calculations of aggregate
reserves, amortization of intangibles, deferral of market discount on
bonds, deferral of policy acquisition costs, and deduction for
dividends received.
Reinsurance
Reinsurance premiums, claims and benefit expenses are accounted for on
bases consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts. Premiums,
benefits, claims, aggregate reserves and reserves for policy and
contract liabilities are reported net of reinsured amounts.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Reclassifications
Certain reclassifications have been made to the 1996 statutory
financial statements to conform to the 1997 presentation. These
reclassifications have no effect on reported net income or capital and
surplus.
(2)Investments
For the years ended December 31, the sources of investment income of
the Company were as follows:
1997 1996
- --------------------------------------------------------------------------------
Bonds $ 481.7 $ 466.8
Equity securities 9.4 10.1
Mortgage loans 33.7 21.8
Policy loans 59.0 53.3
Other 9.7 2.5
- --------------------------------------------------------------------------------
Gross investment income 593.5 554.5
Investment expenses 3.2 3.9
- --------------------------------------------------------------------------------
Net investment income $ 590.3 $ 550.6
- --------------------------------------------------------------------------------
For the years ended December 31, proceeds and gross realized capital
gains and losses resulting from sales or other redemptions of
investment securities were as follows:
1997 1996
- -----------------------------------------------------------------------------
Proceeds from sales or other redemptions $ 859.5 $ 608.8
- -----------------------------------------------------------------------------
Gross realized capital:
Gains 38.6 13.6
Losses (23.0) (15.2)
- -----------------------------------------------------------------------------
Sub-total 15.6 (1.6)
Federal income tax provision (6.3) (0.7)
Transferred to IMR, net of tax (17.7) (0.5)
- -----------------------------------------------------------------------------
Net realized capital losses $ (8.4)$ (2.8)
- -----------------------------------------------------------------------------
Bonds and Equity Securities
At December 31, the amortized cost, gross unrealized gains and losses,
and NAIC market values of the Company's bonds and equity securities,
excluding equity securities of affiliates, were as follows:
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross NAIC
Amortized unrealized unrealized market
1997 cost gains losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds:
Governments $ 342.3 $ 39.0 $ - $ 381.3
States and political subdivisions 18.4 1.0 - 19.4
Special revenue 245.7 27.8 - 273.5
Public utilities 652.3 38.2 1.2 689.3
Industrial and miscellaneous 4,159.8 180.2 9.3 4,330.7
Mortgage-backed 1,045.2 - 21.6 1,023.6
- -------------------------------------------------------------------------------------------------------
Total bonds $ 6,463.7 $ 286.2 $ 32.1 $ 6,717.8
Equity securities 20.2 0.1 - 20.3
- -------------------------------------------------------------------------------------------------------
Total bonds and equity securities $ 6,483.9 $ 286.3 $ 32.1 $ 6,738.1
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross NAIC
Amortized unrealized unrealized market
1996 cost gains losses Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds:
Governments $ 401.9 $ 0.4 $ 40.7 $ 361.6
States and political subdivisions 18.8 0.9 - 19.7
Special revenue 207.3 - 5.1 202.2
Public Utilities 446.1 15.3 3.9 457.5
Industrial and miscellaneous 4,111.9 115.3 56.1 4,171.1
Mortgage-backed 1,009.9 - - 1,009.9
- ------------------------------------------------------------------------------------------------------------
Total bonds $ 6,195.9 $ 131.9 $ 105.8 $ 6,222.0
Equity securities 26.1 2.5 - 28.6
- ------------------------------------------------------------------------------------------------------------
Total bonds and equity securities $ 6,222.0 $ 134.4 $ 105.8 $ 6,250.6
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of bonds in accordance with generally accepted
accounting principles was $6,806.4 and $6,226.6 at December 31, 1997
and 1996, respectively.
The scheduled maturity distribution of the bond portfolio at December
31 follows. Expected maturities may differ from scheduled contractual
maturities because issuers of securities may have the right to call or
prepay obligations with or without call or prepayment penalties.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
1997
--------------------------
NAIC
Amortized market
cost value
- --------------------------------------------------------------------------------
Due in one year or less $ 46.7 $ 46.7
Due after one year through five years 1,613.4 1,655.3
Due after five years through ten years 1,211.9 1,260.8
Due after ten years 2,546.5 2,731.4
- --------------------------------------------------------------------------------
Subtotals 5,418.5 5,694.2
Mortgage-backed securities 1,045.2 1,023.6
- --------------------------------------------------------------------------------
Totals $ 6,463.7 $ 6,717.8
- --------------------------------------------------------------------------------
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders
with a statement value of $3.6 and $8.1 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, approximately 70.2%, 13.4% and 10.2% of the
Company's investment portfolio is comprised of security issues in the
industrial, special revenue, and public utilities categories,
respectively, the vast majority of which are rated investment grade,
and which are senior secured bonds. This portfolio is widely
diversified among various geographic regions in the United States, and
is not dependent on the economic stability of one particular region.
The credit quality of the bond portfolio at December 31 follows. The
quality ratings represent NAIC designations.
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
Amortized Amortized
cost Percent cost Percent
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 - highest quality $ 3,662.4 56.7% $ 3,504.3 56.6%
Class 2 - high quality 2,258.7 34.9 2,241.9 36.2
Class 3 - medium quality 402.2 6.2 393.3 6.3
Class 4 - low quality 119.3 1.9 53.2 0.8
Class 5 - lower quality 21.1 0.3 - -
Class 6 - in or near default - - 3.2 0.1
- --------------------------------------------------------------------------------------------------------
Totals $ 6,463.7 100.0% $ 6,195.9 100.0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Bonds with ratings ranging from AAA/Aaa to BBB-/Baa3, as assigned by a
rating service such as Standard and Poor's Corporation or Moody's
Investment Services, are generally regarded as investment grade
securities. Some agencies and treasuries (that is, those securities
issued by the United States government or an agency thereof) are not
rated, but all are considered to be investment grade securities. The
NAIC regards agencies and treasuries and all A ratings as Class 1
(highest quality), BBB/Baa ratings as Class 2 (high quality), BB/Ba
ratings as Class 3 (medium quality), B ratings as Class 4 (low
quality), all C ratings as Class 5 (lower quality) and D ratings as
Class 6 (in or near default).
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
There were no bonds in default at December 31, 1997. The amortized cost
and statement value of bonds in default at December 31, 1996 totaled
$15.9 and $3.2, respectively.
Common Stocks of Affiliates
The Company's investment in common stock at December 31, 1997 and 1996
includes its proportionate ownership percentage as disclosed in note
1(a) of FCL, LOV, GNA, FHL, and GE Capital Life. The following tables
summarize data from the statutory financial statements of those
affiliates as of and for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
GE
Capital
FCL LOV GNA FHL Life
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- -------------------------------------------------------------------------------------------------------------
Total assets $ 10,026.0 $ 10,564.7 $ 6,679.0 $ 2,094.7 $ 1,672.7
Total liabilities 9,214.8 10,042.2 6,182.5 1,854.0 1,510.1
Total capital and surplus 811.2 522.5 496.5 240.7 162.6
Net income 171.1 73.9 73.0 6.9 13.7
Other changes in capital
and surplus (7.4) 29.5 12.3 16.3 (9.2)
- -------------------------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------------------------
Total assets $ 9,406.6 $ 9,002.7 $ 6,737.5 $ 2,217.5 $ 1,578.5
Total liabilities 8,759.0 8,583.6 6,326.3 2,000.0 1,420.4
Total capital and surplus 647.6 419.1 411.2 217.5 158.1
Net income 148.7 61.4 65.4 12.5 16.5
Other changes in capital
and surplus 104.6 (6.5) (11.1) 21.8 (17.1)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Mortgage Loans
At December 31, 1997 and 1996, the Company's mortgage loan portfolio
consisted of 202 and 172 first lien commercial mortgage loans,
respectively. The loans, which were originated by the Company through a
network of mortgage bankers, were made only on developed and leased
properties and have a maximum loan-to-value ratio of 75% at the date of
origination. The Company does not engage in construction lending or
land loans.
The Company originated $27.2 and $49.9 of mortgages secured by real
estate in California which represents 23.1% and 20% of 1997 and 1996
originations, respectively. At December 31, 1997 and 1996 the Company
held $91.1 and $72.8 of mortgages secured by real estate in California
which is 20% of its total mortgage portfolio for both years.
The portfolio consisted of loans with an average loan balance of $2.3
at December 31, 1997. All of the Company's mortgages were in good
standing with no principal or interest payments delinquent more than 90
days.
Derivative Instruments
The Company held $35.0 in European style call options at December 31,
1997. The notional value of these options at December 31, 1997 was $93
and options expire from September 1998 to October 2007. The options are
used to hedge market risk associated with the Company's S&P 500 indexed
annuity product.
The Company recognizes investment income on derivative instruments in
accordance with the NAIC Accounting Practices and Procedures Manual.
Derivative instruments are valued consistently with the hedged items.
Realized gains and losses on fixed income contracts adjust the basis of
the hedged item and are therefore amortized on a straight-line basis
into investment income over the remaining life of the hedged item.
Derivatives which are marked to market are recognized as direct
adjustments to surplus while held and as realized gain/loss through the
Summary of Operations upon termination.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(3) Aggregate Reserves
Liabilities for policy reserves on annuity contracts are calculated
based on the Commissioners' Annuity Reserve Valuation Method.
Liabilities for life policy reserves and interest-sensitive life
insurance contracts are based on statutory mortality and interest
requirements without consideration of withdrawals. Liabilities for the
life insurance products use either the 1958 or 1980 CSO table with
interest rates ranging from 2.75% to 6.0%. Liabilities for most
annuities use either the 71IAM, 71GAM, 83GAM or 83a mortality tables
with interest rates ranging from 2.5% to 11.25%.
<TABLE>
<CAPTION>
Line of Business 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Individual life:
Traditional $ 325.6 $ 343.9
Universal 5.8 6.2
- ----------------------------------------------------------------------------------------------------------
Total individual life 331.4 350.1
Group life 597.2 523.1
- ----------------------------------------------------------------------------------------------------------
Total life 928.6 873.2
- ----------------------------------------------------------------------------------------------------------
Annuities:
Individual annuities:
Immediate 1,824.2 1,566.4
Deferred 1,681.9 1,662.5
- ----------------------------------------------------------------------------------------------------------
Total individual annuities 3,506.1 3,228.9
Group annuities 892.5 889.9
- ----------------------------------------------------------------------------------------------------------
Total annuities 4,398.6 4,118.8
- ----------------------------------------------------------------------------------------------------------
Individual supplementary contracts with
life contingencies 57.2 55.7
Other 0.1 0.1
A&H:
Active life - Individual 958.2 730.5
Active life - Group 177.3 143.3
Claim Reserve - Individual 280.1 226.1
Claim Reserve - Group 114.4 129.2
- ----------------------------------------------------------------------------------------------------------
Total A&H 1,530.0 1,229.1
- ----------------------------------------------------------------------------------------------------------
Total aggregate reserves $ 6,914.5 $ 6,276.9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(4) Policy and Contract Claims and Liabilities
For the years ended December 31, the change for accident and health
unpaid claims and claims adjustment expenses net of related reinsurance
is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 387.2 $ 352.4
- -----------------------------------------------------------------------------------------------------------
Incurred related to:
Current year 208.3 183.2
Prior years (13.0) (13.8)
- -----------------------------------------------------------------------------------------------------------
Total incurred 195.3 169.4
- -----------------------------------------------------------------------------------------------------------
Paid related to:
Current year 30.4 28.7
Prior years 121.0 105.9
- -----------------------------------------------------------------------------------------------------------
Total paid 151.4 134.6
- -----------------------------------------------------------------------------------------------------------
Balance at December 31 $ 431.1 $ 387.2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The reduction in the amounts incurred related to prior years resulted
primarily from lower than previously expected claim frequency and
severity on claims incurred in prior years.
(5) Transactions with Affiliates
The Company participates in a reinsurance agreement whereby the Company
assumes GE Capital Life's annuity business for policies issued between
1985 and 1988. See note (7) for detail.
The Company, GNA, FHL, The Harvest Life Insurance Company, FCL,
Jamestown Life Insurance Company, FFRL Re Corp., and LOV are parties to
an administrative agreement under which the Company receives services
from its affiliates for advertising, actuarial, legal EDP, accounting,
underwriting, claims and marketing. Progress payments are made monthly.
For the years ended December 31, 1997 and 1996, these services amounted
to $19.6 and $27.0, respectively.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(5) Continued
The Company and GE Capital Life are parties to an administrative
services agreement under which the Company provides services to GE
Capital Life for advertising, underwriting, claims, marketing,
functional support services, accounting, EDP, tax and auditing.
Progress payments are made monthly. For the year ended December 31,
1997 and 1996, these services amounted to $0.9 and $1.1, respectively.
During the years ended December 31, 1997 and 1996, the Company received
dividends from GE Capital Life of $7.8 and $8.1, respectively.
The Company has an outstanding loan of $23.2 and $42.1 at December 31,
1997 and 1996, respectively under its Master Promissory Note with its
parent, GNA Corporation. The principal is payable upon written demand
of GNA Corporation or at the discretion of the Company. The note pays
interest at the cost of funds of GNA Corporation which was 5.89% and
5.73% during December 1997 and 1996, respectively.
(6) Federal Income Taxes
The following is a reconciliation of the federal statutory tax rate
before realized capital losses to the effective income tax rate for the
years ended December 31, 1997 and 1996:
Percent of pre-tax income
1997 1996
- ------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0%
Amortization of discount and IMR on investments (23.5) (5.5)
Reserves 74.4 (1.1)
Amortization of deferred acquisition costs, net 37.3 (1.0)
Dividends received deduction (9.6) (2.9)
Accruals not currently deductible 15.3 -
Prior year return to provision differences - 6.5
Other 8.1 2.6
- ---------------------------------------------------------------------------
Total 137.0% 33.6%
- ---------------------------------------------------------------------------
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(7) Commitments and Contingencies
Mortgage Loan Commitments
As of December 31, 1997 and 1996, the Company was committed to fund
$14.3 and $84.1, respectively, in mortgage loans. Because of the
short-term nature of these commitments, the face value is a reasonable
estimate of their fair value.
Guaranty Association Assessments
The Company is required by law to participate in the guaranty
associations of the various states in which it is licensed to do
business. The state guaranty associations ensure payment of guaranteed
benefits, with certain restrictions, to policyholders of impaired or
insolvent insurance companies by assessing all other companies
operating in similar lines of business.
There are currently several insurance companies, which had substantial
amounts of life and annuity business, in the process of liquidation or
rehabilitation. The Company paid $1.8 and $1.5 to various state
guaranty associations during 1997 and 1996, respectively. Management
expects additional assessments of approximately $15.4 over the next
five years to impact the Company's earnings.
Litigation
There is no material pending litigation to which the Company is a party
or of which any of the Company's property is the subject, and there are
no legal proceedings contemplated by any governmental authorities
against the Company of which management has any knowledge.
(8) Reinsurance
The Company remains contingently liable for all reinsurance ceded on an
indemnity basis to other companies should they fail to perform their
obligations under the reinsurance agreements.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
Effective September 30, 1985, the Company assumed on a coinsurance
basis a portion of the single premium annuity contracts issued between
1985 and 1988 from GE Capital Life. Investments totaling $82.6 and
$89.8 at December 31, 1997 and 1996, respectively, were placed in a
trust account for the benefit of GE Capital Life policyholders allowing
GE Capital Life to take the reserve credit on this business. Assumed
reinsurance reserves at December 31, 1997 and 1996 were $81.1 and
$89.3, respectively.
Effective June 1, 1989, the Company assumed on an indemnity basis 50%
of long-term care policies issued on or after June 1, 1989 from IDS
Life Insurance Company (IDSLIC). Aggregate reserves assumed at December
31, 1997 and 1996 totaled $219.2 and $154.3, respectively. Information
with respect to premiums and annuity considerations and benefits and
expenses assumed by the Company is as follows:
1997 1996
- -----------------------------------------------------------------------------
Premiums and annuity considerations $ 61.7 $ 51.7
Benefits and expenses 31.0 5.7
- -----------------------------------------------------------------------------
The Company ceded to IDSLIC certain flexible premium and single premium
annuity business and certain individual and group single premium life
business. Aggregate reserves ceded at December 31, 1997 and 1996
totaled $792.4 and $808.0, respectively. Information with respect to
premiums and annuity considerations and benefits and expenses ceded by
the Company is as follows:
1997 1996
- -----------------------------------------------------------------------------
Premiums and annuity considerations $ 0.10 $ 0.2
Benefits and expenses 58.00 72.8
- -----------------------------------------------------------------------------
(9) Statutory Capital and Surplus and Dividend Restriction
The NAIC utilizes Risk-Based Capital (RBC) to evaluate the adequacy of
statutory capital and surplus in relation to risks associated with: (i)
asset quality, (ii) insurance risk, (iii) interest rate risk, and (iv)
other business factors. The RBC formula is designed as an early warning
tool for the states to identify potential under-capitalized companies
for the purpose of initiating regulatory action. In the course of
operations, the Company periodically monitors the level of its RBC and
it exceeds the minimum required levels as of December 31, 1997 and
1996.
The Company is restricted by the Delaware State Insurance Code as to
the amount of dividends that may be paid within a twelve consecutive
month period without regulatory consent. That restriction is the
greater of statutory net gain from operations for the previous year or
10% of the policyholder surplus (net of capital stock) at December 31
of the previous year, subject to a maximum limit equal to statutory
earned surplus. At December 31, 1997, approximately $232.4 is available
without prior approval for dividend payments in 1998. The Company's
preferred stock provides for a $50 per share cumulative dividend. As of
December 31, 1997 and 1996, the Company has dividends in arrears of
$60.0 and $45.0, respectively, on the preferred stock.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
(10) Third Party Administrators
The Company has the following direct premiums written through third
party administrators:
<TABLE>
<CAPTION>
Direct premium
Exclusive Business ------------------
contract Authority granted written 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACSIA Insurance Services, Inc. Yes Premium Collection LTC $ 39.0 $ 38.8
Benefits Consultants, Inc. Yes Premium Collection AD & Life 91.3 82.3
Financial Institution Services, Inc. Yes Premium Collection AD - 4.0
AYCO Corporation Yes Premium Collection Life 28.1 28.4
National Insurance Services No Premium Collection LTD - 3.2
and Underwriting
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Company does not have any direct premium written by managing
general agents.
(11) Fair Value Disclosures
The fair values of financial instruments presented below are estimates
of the fair values at a specific point in time using available market
information and valuation methodologies considered appropriate by
management. These estimates are subjective in nature and involve
uncertainties and significant judgment in the interpretation of current
market data. Therefore, the fair values presented are not necessarily
indicative of amounts the Company could realize or settle currently.
The Company does not necessarily intend to dispose of or liquidate such
instruments prior to maturity.
The Company has no derivative financial instruments as defined by SFAS
No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments at December 31, 1997 or 1996 other than
mortgage loan commitments of $14.3 and $84.1, respectively and $35.0
and $3.3, respectively in European style call options.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
December 31, 1997 and 1996
(Dollar amounts in millions)
- --------------------------------------------------------------------------------
The carrying value of policy loans, short-term investments, other
invested assets and payables and receivables that are financial
instruments approximates fair value at December 31, 1997 and 1996,
respectively and therefore are not presented in the table below.
At December 31, the carrying amounts and fair values (under GAAP) of
the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $ 6,463.7 $ 6,806.4 $ 6,195.9 $ 6,226.6
Preferred stocks 5.9 6.1 16.5 19.1
Mortgage loans 457.5 467.5 355.9 358.3
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of bonds and preferred stocks equals quoted market
price, if available. If a quoted market price is not available, fair
values are estimated based on management's judgment using market prices
for similar instruments.
The fair value of mortgage loans is estimated by discounting the
estimated future cash flows using interest rates applicable to current
loan origination, adjusted for credit risks.
- --------------------------------------------------------------------------------
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
September 30, 1998 (unaudited) and December 31, 1997 (Dollar amounts in
millions, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
Admitted Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Investments:
Bonds $ 7,084.9 $ 6,463.7
Preferred stocks 5.7 5.9
Common stocks 2,177.4 1,931.8
Mortgage loans 519.0 457.5
Short-term investments -- -
Policy loans 667.4 604.0
Limited partnership interests 197.0 188.8
Receivable for securities - 19.1
European call options 87.3 35.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total investments 10,738.7 9,705.8
Cash 79.5 6.7
Investment income due and accrued 173.1 166.0
Guaranty association assessments 6.8 8.7
Accident and health premiums due and unpaid 32.3 38.7
Receivable from subsidiaries and affiliates 0.8 7.1
Other assets 7.5 7.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total admitted assets $ 11,038.7 $ 9,940.9
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Capital and Surplus
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Aggregate reserves - life, annuity and accident and health $ 7,625.2 $ 6,914.5
Supplementary contracts without life contingencies 102.5 103.5
Policy and contract claims 54.6 48.6
Interest maintenance reserve 118.9 116.4
General expenses due and accrued 69.2 58.6
Taxes, licenses and fees due and accrued 5.6 12.4
Federal income taxes due or accrued 85.5 84.7
Remittances and items not allocated 271.8 108.4
Payable to subsidiaries and affiliates 38.1 38.7
Asset valuation reserve 100.8 79.6
Premiums and annuity considerations received in advance 9.1 8.8
Commissions payable 15.0 13.5
Funds held under reinsurance treaties with unauthorized reinsurers -
Borrowed money 17.5 23.2
Other 3.3 1.1
liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,517.1 7,612.0
- ----------------------------------------------------------------------------------------------------------------------------------
Capital and surplus:
Common stock, Class A ($1 par value, 4,200,000 shares authorized,
4,011,258 issued and 3,521,258 outstanding) 4.0 4.0
Common stock, Class B ($1 par value, 2,000,000 shares authorized,
550,000 issued and outstanding) 0.6 0.6
Preferred stock ($1 par value, 1,000,000 shares authorized, 300,000 issued
and outstanding) 0.3 0.3
Paid-in surplus 1,798.9 1,798.9
Unassigned surplus 779.1 586.4
Less treasury stock, Class A ($1 par value, 490,000 shares) (61.3) (61.3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total capital and surplus 2,521.6 2,328.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and capital and surplus $ 11,038.7 $ 9,940.9
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Summary of Operations
Nine Months ended September 30, 1998 and 1997 (Unaudited)
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, September 30,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Premiums and annuity considerations $ 1,013.0 $ 768.4
Considerations for supplementary contracts 33.7 29.1
Investment income, net 462.6 432.8
Amortization of interest maintenance reserve 12.3 10.5
Commission and expense allowances on reinsurance ceded 2.8 0.1
Other 0.3 1.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,524.7 1,242.3
- -----------------------------------------------------------------------------------------------------------------------------------
Benefits:
Death benefits 18.8 7.1
Annuity benefits 213.7 157.9
Disability benefits and benefits under accident and health policies 126.4 114.1
Surrender benefits and other fund withdrawals 151.0 179.6
Payments on supplementary contracts 37.5 35.0
Interest on policy or contract funds 0.4 1.3
Increase in aggregate reserves - life, annuity and accident and health 710.6 478.5
Increase (decrease) in reserve for supplementary contracts without life
contingencies (1.0) (0.8)
- -----------------------------------------------------------------------------------------------------------------------------------
Total benefits 1,257.4 972.7
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Commissions 114.1 103.8
General insurance expenses 134.8 145.0
Insurance taxes, licenses and fees 8.5 14.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 257.4 262.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,514.8 1,235.5
- -----------------------------------------------------------------------------------------------------------------------------------
Income before federal income taxes and realized capital losses 9.9 6.8
Federal income tax provision 33.9 33.0
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before realized capital losses (24.0) (26.2)
Realized capital gains (losses), net of tax 0.2 (4.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (23.8) $ (30.2)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Changes in Capital and Surplus
Nine Months ended September 30, 1998 and 1997 (Unaudited)
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Common Paid-in Unassigned Treasury
Stock Surplus Surplus stock
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 4.9 $ 1,798.9 $ 284.9 $ (61.3)
Net income - - (30.2) -
Change in net unrealized capital gains - - 185.0 -
Decrease in nonadmitted assets - - 1.0 -
Increase in asset valuation reserve - - (15.4) -
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ 4.9 $ 1,798.9 $ 425.3 $ (61.3)
- ------------------------------------------------------------------------- ---------------------------------------------
Balance at December 31, 1997 $ 4.9 $ 1,798.9 $ 586.4 $ (61.3)
Net loss - - (23.8) -
Change in net unrealized capital gains - - 240.4 -
Decrease in nonadmitted assets - - (2.8) -
Increase in asset valuation reserve - - (21.1) -
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $ 4.9 $ 1,798.9 $ 779.1 $ (61.3)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Statutory Statements of Cash Flows
Nine Months ended September 30, 1998 and 1997 (Unaudited)
(Dollar amounts in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash from operations:
Premiums and annuity considerations $ 1,019.7 $ 769.3
Other premiums, considerations and deposits 33.7 29.1
Investment income received (excluding realized gains or losses and net investment 417.5 410.6
expense)
Other income received 2.1 2.6
- ------------------------------------------------------------------------------------------------------------------
Cash provided from revenues 1,473.0 1,211.6
- ------------------------------------------------------------------------------------------------------------------
Life, annuity and accident and health claims paid 352.9 273.5
Surrender benefits and other fund withdrawals paid 151.0 179.6
Other benefits to policyholders paid 37.9 36.3
- ------------------------------------------------------------------------------------------------------------------
Cash applied to benefits 541.8 489.4
- ------------------------------------------------------------------------------------------------------------------
Commissions 112.6 105.3
Other expenses and taxes paid 139.4 121.9
Federal income taxes paid (excluding tax on capital gains) 33.1 15.7
- ------------------------------------------------------------------------------------------------------------------
Cash applied to general and other expenses 285.1 242.9
- ------------------------------------------------------------------------------------------------------------------
Total cash provided by operations 646.1 479.3
- ------------------------------------------------------------------------------------------------------------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 1,006.1 528.8
Common and preferred stocks 0.2 11.7
Mortgage loans 29.5 13.1
Miscellaneous proceeds 0.3 --
- ------------------------------------------------------------------------------------------------------------------
Total investment proceeds 1,036.1 553.6
Net tax on capital gains 10.3 2.9
- ------------------------------------------------------------------------------------------------------------------
Net investment proceeds 1,025.8 550.7
- ------------------------------------------------------------------------------------------------------------------
Cost of investments acquired (long-term only):
Bonds 1,569.3 671.5
Common stocks 16.8 17.3
Mortgage loans 91.0 109.6
Limited Partnership interests 43.9 141.9
- ------------------------------------------------------------------------------------------------------------------
Total investments acquired 1,721.1 940.3
- ------------------------------------------------------------------------------------------------------------------
Net increase in policy loans 63.4 64.1
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investments (758.7) (453.7)
- ------------------------------------------------------------------------------------------------------------------
Cash from financing and miscellaneous sources:
Cash provided:
Borrowed money (5.6) (42.0)
Other cash provided 194.1 92.2
- ------------------------------------------------------------------------------------------------------------------
Total cash provided 188.5 50.2
Cash applied:
Dividends paid to stockholders -- -
Other applications 3.1 9.4
- ------------------------------------------------------------------------------------------------------------------
Total cash applied 3.1 9.4
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing and miscellaneous sources 185.4 40.8
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and short-term investments 72.8 66.4
Cash and short-term investments at beginning of period 6.7 0.0
- ------------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of period $ 79.5 $ 66.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
(1) Corporate Structure, Basis of Presentation and Summary of Significant
Accounting Policies
The accompanying condensed quarterly financial statements represent
General Electric Capital Assurance Company (the Company), a Delaware
domiciled insurance company, is primarily engaged in the business of
providing annuity, interest-sensitive life, accidental death and
dismemberment and long-term care insurance coverage. The Company is a
wholly-owned subsidiary of GNA Corporation which is wholly owned by GE
Financial Assurance Holdings, Inc. (GEFA) (formerly GE Life Insurance
Group, Inc.) which is owned by General Electric Capital Corporation.
The condensed quarterly financial statements are unaudited. These
statements include all adjustments considered necessary by management
to fairly present the Company's results of operations, financial
position and cash flows. The results reported in these condensed
quarterly financial statements should not be regarded as necessarily
indicative of results that may be expected for the entire year.
Differences Between Statutory Accounting Principles and Generally
Accepted Accounting Principles
The accompanying statutory financial statements of the Company have
been prepared in accordance with insurance accounting practices
prescribed by the National Association of Insurance Commissioners
(NAIC) and the State of Delaware Department of Insurance. Prescribed
statutory accounting practices include a variety of publications of the
NAIC, as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The Company has no significant
permitted accounting practices which vary from prescribed accounting
practices or generally accepted accounting principles.
In March 1998, the NAIC adopted the codification of Statutory
Accounting Principles (the Codification). Once implemented, the
definitions of what comprises prescribed versus permitted statutory
accounting practices may result in changes to accounting policies that
insurance enterprises use to prepare their statutory financial
statements. The implementation date is ultimately dependent on an
insurer's state of domicile. The Company does not expect a material
impact on its statutory financial statements resulting from the
implementation of codification.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
The preparation of financial statements requires management to make
estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates.
Statutory accounting principles (SAP) differ from generally accepted
accounting principles (GAAP) in several respects, which cause
differences in reported net income, cash flows and shareholders'
interest (statutory capital and surplus). The principal SAP which
differ from GAAP include:
o The financial statements of subsidiaries are not
consolidated and are accounted for as investments in
common stock. Subject to certain statutory limitations,
the book value of subsidiaries is adjusted to their
statutory surplus by a credit or charge for an unrealized
gain or loss, a component of surplus.
o Fixed maturity securities, all of which are classified as
available-for-sale, are generally reported at amortized
cost and changes in market value are not recorded.
o Certain assets (principally furniture, equipment and
prepaid expenses) have been designated as non-admitted
assets and excluded from assets by a charge to statutory
surplus.
o Intangible assets (present value of future profits and
goodwill) and other adjustments, resulting from the
Company's and its subsidiaries' acquisitions, are not
recorded.
o Aggregate reserves for life, annuities and accident and
health are based on statutory mortality and interest
requirements without consideration for anticipated
withdrawals. Morbidity assumptions are based on the
Company's experience.
o Interest Maintenance Reserve (IMR) represents the deferral
of interest-related realized gains and losses, net of tax,
on primarily fixed maturity investments which are
amortized into income over the remaining life of the
investment sold.
o Deferred income taxes are not provided.
o Asset Valuation Reserve (AVR) represents a contingency
reserve for credit-related risk on most invested assets of
the Company, and is charged to statutory surplus.
<PAGE>
General Electric Capital Assurance Company
Notes to Statutory Financial Statements
September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
o Policy acquisition costs are expensed as incurred.
o State guaranty association assessments are capitalized
when paid and amortized in accordance with state premium
tax offset provisions.
o Deductions from policy and contract liabilities, including
aggregate reserves, for reinsurance ceded are reported net
of the policy obligation rather than shown as an asset.
o The Statements of Cash Flows differ in certain respects
from the presentation required by Statement of Financial
Accounting Standards No. 95, including the presentation of
the changes in cash and short-term investments instead of
cash and cash equivalents. Short-term investments include
securities with maturities, at the time of acquisition, of
one year or less. There is no reconciliation between net
income and cash from operations.
(2) Subsequent Event
On January 1, 1999, Great Northern Insured Annuity
Corporation, a wholly-owned subsidiary of the Company, was
merged with and into the Company with the Company as the
surviving corporation.
<PAGE>
Part C
Other Information
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
(1) Financial Statements of the Registrant, GNA Variable
Investment Account - Statement of Additional
Information.
(2) Financial Statements of the Depositor, General
Electric Capital Assurance Company Statement of
Additional Information.
(b) Exhibits
(1) Resolution of the Board of Directors of Great
Northern Insured Annuity Corporation establishing the
GNA Variable Investment Account. Incorporated by
reference to Exhibit (1) to registration statement
under the Securities Act of 1933 of GNA Variable
Investment Account, File No. 33-78810, filed May 11,
1994.
(2) Agreement and Plan of Merger dated as of May 18,
1998, by and between General Electric Capital
Assurance Company and Great Northern Insured Annuity
Corporation.
(3) Agreements for custody of securities and similar
investments - Not Applicable.
(4)(i) Underwriting Agreement between Great Northern Insured
Annuity Corporation (Depositor) and GNA Distributors,
Inc.(Underwriter). Incorporated by reference to
Exhibit (3)(i) to registration statement under the
Securities Act of 1933 of GNA Variable Investment
Account, File No. 33-78810, filed May 11, 1994.
(ii) Form of broker-dealer agreement between of Great
Northern Insured Annuity Corporation, GNA
Distributors, Inc. (Underwriter), GNA Securities,
Inc. and broker-dealers. Incorporated by reference to
Exhibit (3)(ii) to registration statement under the
Securities Act of 1933 of GECA Variable Investment
Account, File No. 33-78810, filed May 11, 1994.
(5)(i) Specimen Group Deferred Variable Annuity and Modified
Guaranteed Annuity Contract. Previously filed as
Exhibit (4)(i) to Form N-4 filed September 15, 1994.
(ii) Specimen Certificate under Group Deferred
Variable Annuity and Modified Guaranteed Annuity
Contract. Previously filed as Exhibit (4)(ii) to
Form N-4 filed September 15, 1994.
(iii) Endorsements to Contracts or Certificates. Previously
filed as Exhibit (4)(iii) to Form N-4 filed May 11,
1994.
(iv) Addenda to Contracts or Certificates.
<PAGE>
(6)(i) Application for Group Deferred Variable Annuity and
Modified Guaranteed Annuity Contract. Previously
filed as Exhibit (5)(i) to Form N-4 filed May 11,
1994.
(ii) Application for Certificate under Group Deferred
Variable Annuity and Modified Guaranteed Annuity
Contract. Previously filed as Exhibit (5)(ii) to
Form N-4 filed May 11, 1994.
(7)(i) Certificate of Incorporation of General Electric
Capital Assurance Company.
(ii) By-laws of General Electric Capital Assurance
Company.
(8) Contract of reinsurance in connection with the
variable annuity contracts being offered - Not
Applicable.
(9) Service Agreement between Great Northern Insured
Annuity Corporation and Delaware Valley Financial
Services, Inc. Previously filed as Exhibit (8) to
Form N-4 filed November 16, 1994.
(10) Opinion and Consent of Ward E. Bobitz, Esq., Vice
President and Assistant Secretary, as to the legality
of the securities being registered.
(11)(i) Written consent of KPMG LLP.
(12) All financial statements omitted from item 23,
Financial Statements - Not Applicable.
(13) Agreements in consideration for providing initial
capital between or among Registrant, Depositor,
Underwriter or initial contractowners - not
applicable.
(14) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 21.
<PAGE>
Item 25. Directors and Officers of the Depositor.
Executive Officers and Directors
<TABLE>
<CAPTION>
Position with GECA and
Name (Age) Principal Occupation for Last Five Years
---------- ----------------------------------------
<S> <C>
Geoffrey S. Stiff President and Chief Executive Officer of GECA since 1997. Director of GECA since
(46) 1993. Acting President of GECA 1996 - 1997. Senior Vice President and Chief Financial
Officer of GECA 1993 - 1996.
Thomas A. Skiff President, Long Term Care Division of GECA since 1996. President and Chief Executive
(55) Officer of AMEX Life Assurance Company 1995 - 1996. Acting President 1994-1995. Senior
Vice President, Chief Financial Officer and Chief Actuarial Officer of AMEX Life
Assurance Company 1992 - 1995.
James D. Atkins Senior Vice President of GECA since 1997. Senior Vice President of First Colony Life
(41) Insurance Company since 1992.
Donald W. Britton Senior Vice President of GECA since 1998. President of First Colony Life Insurance
(49) Company since 1997. Executive Vice President, Marketing of First Colony Life Insurance
Company 1992 - 1997.
Thomas W. Casey Senior Vice President of GECA since 1998. Chief Financial Officer of GECA since 1997.
(36) Vice President of GECA 1993 - 1998.
John Connolly Senior Vice President, Long Term Care Division of GECA since 1996. Vice President,
(53) Business Operations of GECA 1993 - 1996.
Frank D'Ambra Senior Vice President of GECA since 1997. Vice President of Canada Life 1994 - 1997.
(44) Assistant Vice President of Confederation Life 1990 - 1994.
Frank T. Gencarelli Senior Vice President of GECA since 1997. Vice President of First Colony Life
(44) Insurance Company since 1992.
Debora D. Horvath Senior Vice President and Chief Information Officer of GECA since 1995. Vice President
(43) and Chief Information Officer of GECA 1993 - 1995.
John M. Howard Senior Vice President of GECA since 1997. Vice President of GECA 1997. Program
(31) Manager of GNA 1993-1997.
Charles A. Kaminski Senior Vice President and Director of GECA since 1993. Chief Investment Officer of GECA
(50) since 1997. Vice President of GECA since 1993.
Michael C. Knebel Vice President and Investment Officer of GECA since 1998. Vice President and Assistant
(45) Treasurer, SAFECO Corporation 1988 - 1997.
Clifford A. Lange Senior Vice President and Chief Actuary of GECA since 1998. Senior Vice President and
(41) Chief Actuary of Golden Rule Insurance Company 1996 - 1998. Consulting Actuary of
Tillinghast/TowersPerrin 1994 - 1995. Vice President and Chief Actuary of Connecticut
Mutual Life Insurance Company 1991 - 1994.
Andrew J. Larsen Senior Vice President of GECA since 1998. Director and Executive Vice President of
(51) First Colony Life Insurance Company since 1995. Vice President of First Colony Life
Insurance Company 1986 - 1995.
Victor C. Moses Senior Vice President and Director of GECA since 1993. Chief Actuary of GECA 1993 -
(50) 1998.
<PAGE>
Leon E. Roday Senior Vice President and General Counsel of GECA since 1996. Attorney of LeBoeuf,
(44) Lamb, Greene & MacRae, L.L.P. 1982 - 1996.
Mark E. Schwarzmann Senior Vice President of GECA since 1997. Senior Vice President, Chief Operating
(36) Officer of GE Capital - ResCom 1995 - 1997. Managing Director, Business Development of
GE Capital Commercial Real Estate Financing and Services 1994 - 1995. Program General
Manager of GE Power Generation 1993 - 1994.
Deborah C. Towner Senior Vice President and Chief Mortgage Investment Officer of GECA since 1997.
(45) Assistant Vice President of GECA 1995 - 1997. Assistant Vice President of Great
Northern Insured Annuity Corporation 1985 - 1997.
Marycatherine Yeagley Senior Vice President of GECA since 1995. Vice President of GECA 1993 - 1995.
(51)
</TABLE>
(1) Each director is elected to serve until the next annual meeting of
shareholders or until his or her successor is elected and shall have
qualified.
Item 26. Persons controlled by or under common control with Depositor or
Registrant.
Diagram provided.
Item 27. Number of Contract Owners.
As of December 11, 1998, there were 752 contracts outstanding.
Item 28. Indemnification.
The Depositor's By-Laws provide, inter alia, that any director, officer
or employee of the Depositor may be indemnified by the Depositor against
liability (including fines, penalties and amounts paid or incurred in settlement
of any action or in the satisfaction of a judgment except a judgment in favor of
the Depositor) and reasonable expenses incurred by him or her in connection with
any action of whatever nature, whether civil, criminal, administrative or
investigative, in which her or she may be involved by reason of his or her
having been a director, officer or employee of the Depositor. In the case of an
action brought by or in the right of the Depositor, a person who has been
successful on the merits shall be indemnified as of right, no person who has
been adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Depositor shall be indemnified, and any other party shall
be indemnified if the Board of Directors, acting by a quorum consisting of
directors not having an interest in the action, determines that such person has
not been guilty of negligence or misconduct in the performance of his or her
duty to the Depositor. In the case of any other action, a person who has been
successful on the merits shall be indemnified as of right and any other person
shall be indemnified if the Board of Directors, acting by a quorum consisting of
directors not having an interest in the action, determines that such person
acted in good faith for a purpose which he or she reasonably believed to be in
the best interests of the Depositor and, in any criminal action or proceeding,
that such person had no reasonable cause to believe that his or her conduct was
unlawful.
<PAGE>
Notwithstanding the foregoing, the Depositor hereby makes the following
undertaking pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Depositor pursuant to the foregoing provisions, or
otherwise, the Depositor has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities
(other than the payment by the Depositor of expenses incurred or paid
by a depositor, officer or controlling person of the Depositor in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Depositor will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriters.
a. GNA Distributors, Inc., the principal underwriter, also acts as the
distributor of the following other investment companies: GE
Investments Funds, Inc.
b. The officers and directors of the principal underwriter, GNA
Distributors, Inc. and required information concerning the same are
as follows:
<TABLE>
<CAPTION>
Name
(Position) Principal Business Address
---------- --------------------------
<S> <C>
Geoffrey S. Stiff 6610 West Broad Street
(Director and Senior Vice President) Richmond, VA 23230
Victor C. Moses Two Union Square, P.O. Box 490
(Director and Senior Vice President of Business Development) Seattle, WA 98111-0490
Scott A. Curtis 6610 West Broad Street
(President and Chief Executive Officer) Richmond, VA 23230
Thomas W. Casey 6604 West Broad Street
(Senior Vice President and Chief Financial Officer) Richmond, VA 23230
Jeffrey I Hugunin 6604 West Broad Street
(Treasurer) Richmond, VA 23230
Edward J. Wiles, Jr. 777 Long Ridge Road
(Vice President, Counsel and Secretary) Stamford, CT 06927
John W. Attey 7125 West Jefferson Avenue, Suite 200
(Vice President, Counsel and Assistant Secretary) Lakewood, CO 80235
Stephen N. DeVos 6604 West Broad Street
(Vice President and Controller) Richmond, VA 23230
</TABLE>
<PAGE>
c. For the year ended December 31, 1997, GNA Distributors, Inc.
received $35,991.14 as compensation for sales of the variable annuity contracts
issued by the GNA Variable Investment Account. 100% of that amount was remitted
to Great Northern Insured Annuity Corporation to reimburse it for commissions
paid for such sales.
Item 30. Location of Accounts and Records.
All books and records relating to the Contracts are maintained at the
Annuity Service Center at 300 Berwyn Park, Berwyn, PA 19312-0031 or at 6604 West
Broad Street, Richmond, Virginia 23230.
Item 31. Management Services.
None.
Item 32. Undertakings.
(a) Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a
space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional
Information.
(c) Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to be
made available under this Form promptly upon written or oral
request.
STATEMENT PURSUANT TO RULE 6c-7
GECA offered Contracts to participants in the Texas Optional Retirement Program.
In connection therewith, GECA and the Separate Account rely on 17 C.F.R. Section
270.6c-7 and represent that the provisions of paragraphs (a)-(d) of the Rule
have been complied with.
SECTION 26(e)(2)(A) REPRESENTATION
GECA hereby represents that the fees and charges deducted under the Contracts,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by GECA.
<PAGE>
Organizational Chart
General Electric
Company
|
(100%)
|
General Electric
Capital Services, Inc.
|
(100%)
|
General Electric
Capital Corporation
|
(100%)
|
GE Financial Assurance
Holdings, Inc.
|
(100%)
|
GNA Corporation
|
(100%)
|
General Electric
Capital Assurance Company
|
(100%)
|
GE Capital Life
Assurance Company of New York
(52% owned by General Electric Capital
Assurance Company)
<PAGE>
Signatures
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf, in the County of Henrico, and the Commonwealth of Virginia
on this 4th day of January, 1999.
GNA VARIABLE INVESTMENT ACCOUNT
(Registrant)
By: General Electric Capital Assurance Company
By: /s/ Geoffrey S. Stiff
--------------------------------------------
Geoffrey S. Stiff, President
General Electric Capital Assurance Company
(Depositor)
By: /s/ Geoffrey S. Stiff
-------------------------------------------
Geoffrey S. Stiff
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Geoffrey S. Stiff Director, President and January 4, 1999
- ---------------------- Chief Executive Officer
Geoffrey S. Stiff
/s/ Charles A. Kaminski Director, Senior Vice President January 4, 1999
- -----------------------
Charles A. Kaminski
/s/ Victor C. Moses Director, Senior Vice President January 4, 1999
- -----------------------
Victor C. Moses
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
(1) Resolution of the Board of Directors of Incorporated herein by reference to
Great Northern Insured Annuity Exhibit (1) to registration statement
Corporation establishing the GNA under the Securities Act of 1933 of GNA
Variable Investment Account. Variable Investment Account, File No.
33-78810 filed May 11, 1994.
(2) Agreement and Plan of Merger by and Filed herewith.
between General Electric Capital
Assurance Company and Great Northern
Insured Annuity Corporation.
(4)(i) Underwriting Agreement between Great Incorporated herein by reference to
Northern Insured Annuity Corporation Exhibit (3)(i) to registration statement
(Depositor) and GNA Distributors, Inc. under the Securities Act of 1933 of GNA
(Underwriter). Variable Investment Account, File No.
33-78810 filed May 11, 1994.
(4)(ii) Form of broker-dealer agreement between Incorporated herein by reference to
Great Northern Insured Annuity Exhibit (3)(ii) to registration
Corporation, GNA Distributors, Inc. statement under the Securities Act of
(Underwriter), GNA Securities, Inc. and 1933 of GNA Variable Investment Account,
broker-dealers. File No. 33-78810 filed May 11, 1994.
(5)(i) Specimen Group Deferred Variable Annuity Previously filed as Exhibit (4)(i) to
and Modified Guaranteed Annuity Contract. Form N-4 filed September 15, 1994.
(5)(ii) Specimen Certificate under Group Previously filed as Exhibit (4)(ii) to
Deferred Variable Annuity and Form N-4 filed September 15, 1994.
Modified Guaranteed Annuity Contract.
(5)(iii) Endorsements to Contracts or Previously filed as Exhibit(4)(iii) to
Certificates. Form N-4 filed May 11, 1994.
(5)(iv) Addenda to Contracts or Certificates Filed herewith.
(6)(i) Application for Group Deferred Previously filed as Exhibit(5)(i) to
Variable Annuity and Modified Guaranteed Form N-4 filed May 11, 1994.
Annuity Contract.
(6)(ii) Application for Certificate under Group Previously filed as Exhibit (5)(ii) to
Deferred Variable Annuity and Form N-4 filed May 11, 1994.
Modified Guaranteed Annuity Contract.
(7)(i) Certificate of Incorporation of General Filed herewith.
Electric Capital Assurance Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
(7)(ii) By-laws of General Electric Capital Filed herewith.
Assurance Company.
(9) Service Agreement between Great Northern Previously filed as Exhibit (8) to Form
Insured Annuity Corporation and Delaware N-4 filed September 15, 1994.
Valley Financial Services, Inc.
(10) Opinion and consent of Ward E. Bobitz, Filed herewith.
Esq., Vice President and Assistant
Secretary, as to the legality of the
securities being registered.
(11)(i) Written consent of KPMG LLP. Filed herewith.
(14) Schedule of computation of each Filed herewith.
performance quotation provided in the
Registration Statement in response to
Item 21.
</TABLE>
Exhibit 2
AGREEMENT AND PLAN OF MERGER
BETWEEN
GREAT NORTHERN INSURED ANNUITY CORPORATION
AND
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
This Agreement and Plan of Merger (the "Agreement") is dated as of the 18th
day of May, 1998, by and between Great Northern Insured Annuity Corporation, a
Washington insurance corporation ("GNIAC"), and General Electric Capital
Assurance Company, a Delaware insurance corporation ("GECA" or the "Surviving
Corporation").
WHEREAS, GNIAC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington with an authorized
capital of 25,000 shares of $100.00 par value common stock ("GNIAC Common
Stock"), all of which are issued and outstanding and all of which are owned by
GECA; and
WHEREAS, GECA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with an authorized capital
consisting of 4,200,000 shares of Class A common stock, par value $ 1.00 per
share, of which 3,521,258 are issued and outstanding, 2,000,000 shares of Class
B common stock, par value $1.00 per share, of which 550,000 are issued and
outstanding, and 1,000,000 shares of preferred stock, par value $1.00 per share,
of which 300,000 are issued and outstanding and all of which are owned by GNA
Corporation ("GNA"), a Washington corporation; and
WHEREAS, Section 48.31.010 of the Insurance Code of Washington authorizes
the merger of a domestic insurer organized under the laws of Washington into an
insurer organized under the laws of another state and Section 4930 of the
Delaware Insurance Code authorizes the merger of a stock insurer organized under
the laws of another state into a stock insurer organized under the laws of the
State of Delaware; and
WHEREAS, GNIAC desires to merge into GECA. which will survive the merger,
in a transaction structured to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended; and
WHEREAS, the respective Boards of Directors of GECA and GNIAC deem it
advisable to combine the operations of GECA and GNIAC by merging GNIAC with and
into GECA;
NOW THEREFORE, the parties hereto, in consideration of the mutual
covenants, agreements and provisions hereinafter contained, do hereby agree upon
and prescribe the terms and conditions of such merger and the mode of carrying
it into effect, as follows:
1
<PAGE>
ARTICLE I
MERGER AND SURVIVING CORPORATION
1.1 The Merger. Upon the terms and subject to the conditions hereof and in
accordance with the provisions pertaining to the merging of domestic and foreign
corporations contained in the Washington Business Corporation Act and the
Delaware General Corporation Law, and subject to the receipt of all required
approvals of the Washington Department of Insurance and the Delaware Department
of Insurance, upon the filing of all required documents with the Delaware
Secretary of State and the Washington Secretary of State, at the Effective Time,
as defined in Section 4.1 below, GNIAC shall be merged with and into GECA (the
"Merger").
1.2 Surviving Corporation. GECA shall be the Surviving Corporation in the
Merger under the name General Electric Capital Assurance Company. At the
Effective Time, the separate existence of GNIAC shall cease.
ARTICLE II
TERMS, CONDITIONS AND EFFECTS OF MERGER
2.1 Certificate of Incorporation. The Amended and Restated Certificate of
Incorporation of GECA as in effect immediately prior to the Effective Time shall
be the Certificate of Incorporation of the Surviving Corporation and may be
amended from time to time after the Effective Time as provided by Delaware law.
2.2 Bylaws. The Bylaws of GECA as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, and shall not
be amended by the Merger.
2.3 Directors and Officers. The directors and officers of GECA immediately
prior to the Effective Time shall continue to be the directors and officers of
the Surviving Corporation until their respective successors shall have been
elected and qualified as provided by the Bylaws of the Surviving Corporation and
Delaware law.
2.4 Approval by Stockholders. This Agreement has been approved by GECA, as
the sole stockholder of GNIAC, and by GNA, as the sole stockholder of GECA.
2.5 Further Action. GNIAC hereby agrees, as and when requested by the
Surviving Corporation, to execute and deliver or cause to be executed and
delivered all such documents, deeds and instruments and to take or cause to be
taken such further or other action as the Surviving Corporation may deem
necessary or desirable in order to vest in and confirm to the Surviving
Corporation title to and possession of any property of GNIAC acquired or to be
acquired by reason of or as a result of the Merger and otherwise to evidence or
carry out the intent and purposes hereof.
2
<PAGE>
2.6 Effects of the Merger. (a) At the Effective Time, all the property,
rights, privileges, franchises, patents, trademarks, licenses, registrations,
choses in action, and other assets of every kind and description of GNIAC shall,
to the extent permitted by law, transfer to, vest in and devolve upon the
Surviving Corporation without further act or deed.
(b) All liens upon the property of GNIAC and all rights of creditors of
GNIAC shall be preserved unimpaired as the liens upon the property and
obligations of the Surviving Corporation, including, without limitation, the
rights of insurance policyholders and certificate holders, and all debts,
liabilities and duties of GNIAC shall become the debts, liabilities and duties
of the Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
(c) All appointments heretofore made, and in effect as of the Effective
Time, by GNIAC of persons to act as its licensed agents are hereby ratified and
accepted as its own by the Surviving Corporation, effective as of the Effective
Time. The Surviving Corporation shall be bound by the acts of said agents in the
same manner and to the same degree as was GNIAC.
ARTICLE III
TREATMENT OF SHARES
3.1 GECA Common Stock. Each issued and outstanding share of GECA shall not
be affected by the Merger, shall continue to be outstanding at and after the
Effective Time without any change and shall continue as a share of the Surviving
Corporation.
3.2 GNIAC Common Stock. At the Effective Time, all outstanding shares of
GNIAC shall be cancelled without consideration.
ARTICLE IV
EFFECTIVE TIME
4.1 Effective Time. The Merger shall become effective as of l2:01 a.m.,
January 1, 1999 (the "Effective Time").
3
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 Termination. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated at any time before the Effective
Time by the mutual consent of the Boards of Directors of GECA and GNIAC or by
the unilateral action of either of these Boards, if the terminating Board
determines, in its sole discretion, that the consummation of this Agreement is,
for any reason, inadvisable. Neither GNIAC nor GECA shall have any liability to
any other person by reason of the termination of this Agreement.
5.2 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without regard to principles
of conflict of laws.
5.3 Amendment. Anything herein or elsewhere to the contrary
notwithstanding, to the extent permitted by law, this Agreement may be amended,
supplemented or interpreted at any time by action taken by the respective Boards
of Directors of GECA and GNIAC, and in the case of an interpretation, the
actions of such Boards of Directors shall be binding.
5.4 Binding Agreement. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns.
5.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall be deemed one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers on this 18th day of May,
1998.
GREAT NORTHERN INSURED ANNUITY CORPORATION
By:
-------------------------------------
Attest:
---------------------------------
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
By:
-------------------------------------
Attest:
---------------------------------
5
Exhibit 5 (iv)
GREAT NORTHERN INSURED ANNUITY CORPORATION
ADDENDUM TO GROUP DEFERRED VARIABLE ANNUITY AND
MODIFIED GUARANTEED ANNUITY CONTRACT
Great Northern Insured Annuity Corporation ("GNA") has issued this Addendum as
part of contract [form number]. This Addendum supersedes any contrary provision
of the contract. Please read this Addendum carefully.
Section 4.3 of the contract is amended to read as follows:
4.3 Market Value Adjustment
The Market Value Adjustment may be either negative or positive. It will be
deducted from or added to (1) any transfer or withdrawal from a Fixed Guaranteed
Period prior to the end of that Guarantee Period, or (2) the amount annuitized
from a Fixed Guarantee Period if the Annuity Date is prior to the end of that
Guarantee Period.
If the Market Value Adjustment is negative, the amount to be deducted from the
withdrawal shall be the lesser of: (i) the amount determined by the formula
below, or (ii) the amount that when subtracted from the credited interest on a
Fixed Guarantee Period would reduce the credited interest on that Fixed
Guarantee Period to an effective annual rate of 3% determined from the date we
established the relevant Fixed Guarantee Period to the date of the transfer or
payment, as adjusted by transfers or withdrawals previously taken (including the
amount of any applicable surrender charge, transfer charge, or Market Value
Adjustment).
The Market Value Adjustment is determined by the following formula:
A x [ ((1+B divided by (1+C))n/365 - 1]
where: n = the remaining number of days in the Fixed Guaranteed Period;
A = the amount transferred, withdrawn or annuitized from the Fixed
Guarantee Period;
B = the guaranteed annual interest rate for the Fixed Guarantee Period;
and
C = the current guaranteed annual interest rate GNA is offering for a
Guarantee Period of a duration of years represented by n/365. When
n/365 is not a whole number, GNA determines C by straight-line
interpolation. If n/365 is less than 1, GNA will assume C is equal
to the rate for a one-year Guarantee Period.
This Addendum shall terminate when the contract is surrendered or the account
value is otherwise distributed.
Signed for GNA at Richmond, Virginia to be effective on December 31, 1998.
GREAT NORTHERN INSURED ANNUITY CORPORATION
-------------------------------- ---------------------------
President Secretary
Form No.6193-98-02
<PAGE>
GREAT NORTHERN INSURED ANNUITY CORPORATION
ADDENDUM TO GROUP DEFERRED VARIABLE ANNUITY AND MODIFIED GUARANTEED ANNUITY
CERTIFICATE
Great Northern Insured Annuity Corporation ("GNA" or "we") has issued this
Addendum as part of the certificate to which this is attached. This Addendum
supersedes any contrary provision of the certificate. Please read this Addendum
carefully.
Section 4.3 of the certificate is amended to read as follows:
4.3 Market Value Adjustment
The Market Value Adjustment may be either negative or positive. It will be
deducted from or added to (1) any transfer or withdrawal from a Fixed Guaranteed
Period prior to the end of that Guarantee Period, or (2) the amount annuitized
from a Fixed Guarantee Period if the Annuity Date is prior to the end of that
Guarantee Period.
If the Market Value Adjustment is negative, the amount to be deducted shall be
the lesser of: (i) the amount as determined by the formula below, or (ii) the
amount that when subtracted from the credited interest on a Fixed Guarantee
Period would reduce the credited interest on that Fixed Guarantee Period to an
effective annual rate of 3% determined from the date we established the relevant
Fixed Guarantee Period to the date of the transfer or payment, as adjusted by
transfers or withdrawals previously taken (including the amount of any
applicable surrender charge, transfer charge, or Market Value Adjustment).
The Market Value Adjustment is determined by the following formula:
A x [ ((1+B divided by (1+C))n/365 - 1]
where: n = the remaining number of days in the Fixed Guaranteed Period;
A = the amount transferred, withdrawn or annuitized from the Fixed
Guarantee Period;
B = the guaranteed annual interest rate for the Fixed Guarantee
Period; and
C = the current guaranteed annual interest rate GNA is offering for a
Guarantee Period of a duration of years represented by n/365. When
n/365 is not a whole number, GNA determines C by straight-line
interpolation. If n/365 is less than 1, GNA will assume C is equal
to the rate for a one-year Guarantee Period.
This Addendum shall terminate when the certificate is surrendered or the account
value is otherwise distributed.
Signed for GNA at Richmond, Virginia, to be effective on December 31, 1998.
GREAT NORTHERN INSURED ANNUITY CORPORATION
-------------------------------- ---------------------------
President Secretary
Form No. 6190-98-02
Exhibit 7(i)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
General Electric Capital Assurance Company, a corporation organized under
the laws of the state of Delaware on May 12, 1992, filing this Amended and
Restated Certificate of Incorporation, hereby certifies as follows:
1. The corporation was originally incorporated in the State of Washington
under the name, United Pacific Life Insurance Company, as a Washington domestic
insurance corporation. The corporation's original articles of incorporation were
filed with the Washington Secretary of State's office effective September 28,
1956.
2. The corporation was redomesticated from the State of Washington to the
State of Delaware effective May 12, 1992, the date of filing of its Certificate
of Incorporation, pursuant to Section 4946 of the Delaware Insurance Code (18
Del. C. ss. 4946) and all other applicable provisions of the Delaware and
Washington law.
3. The corporation's name was changed from United Pacific Life Insurance
Company to General Electric Capital Assurance Company effective April 1, 1994,
pursuant to the filing of its Amended and Restated Certificate of Incorporation
on January 27, 1994 in accordance with sections 242 and 245 of the General
Corporation Law of the State of Delaware.
<PAGE>
4. The corporation is the survivor of a merger between AMEX Life Assurance
Company ("AMEX Life") and the corporation effective June 30, 1996, whereby AMEX
Life (which at the time was a subsidiary of the corporation) was merged with and
into the corporation, following the approvals of the Delaware and California
Insurance Departments.
5. This Amended and Restated Certificate of Incorporation, which shall take
effect on October 1, 1997, has been adopted in accordance with Section 245 of
the General Corporation Law of the State of Delaware and, pursuant to Sections
242 and 245, restates and integrates and further amends the provisions of the
Certificate of Incorporation as follows:
FIRST: The name of the corporation is GENERAL ELECTRIC CAPITAL ASSURANCE
COMPANY.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of the corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: A. The objects for which this corporation is formed are to
conduct an insurance business and to make insurance as hereinafter set forth.
Said corporation shall be a stock corporation and shall do business as a stock
corporation. The kinds of insurance which this corporation will issue are as
follows:
<PAGE>
1. LIFE INSURANCE
The issuance of life insurance, being insurance on
human lives and insurances appertaining thereto or
connected therewith, shall include the granting of
annuities and endowment benefits; additional benefits in
event of death by accident; additional benefits in the
event of the total and permanent disability of the
insured; and optional methods of settlement proceeds.
2. HEALTH INSURANCE
Health insurance is insurance of human beings against
bodily injury, disablement or death by accident or
accidental means, or the expense thereof, or against
disablement or expense resulting from sickness, and
every insurance appertaining thereto.
B. Said corporation may issue insurance policies upon both the
participating plan and the non-participating plan. The Board of Directors of
said corporation may, from time to time, distribute equitably to the holders of
participating life insurance policies issued by said corporation such sums out
of the surplus funds of said corporation, as in its judgment seems proper, said
surplus funds being the excess of the insurer's assets over its liabilities,
including its capital stock as a liability. Dividends to participating policies
for other kinds of insurance shall be paid out of that part of such surplus
funds which is derived from any realized net profits from the insurer's
business.
FOURTH: The capital stock of this corporation shall consist of the following:
1. Four million two hundred thousand (4,200,000) shares of Class
A common stock of the par value of one dollar ($1.00) each
("Class A Common Stock"); and
2. Two million (2,000,000) shares of Class B common stock of the
par value of one dollar ($1.00) each ("Class B Common Stock",
together with the Class A Common Stock, the "Common Stock");
and
<PAGE>
3. One million (1,000,000) shares of preferred stock of the par
value of one dollar ($1.00) each, which shares shall be
issuable in one or more series with such rights, preferences
and privileges (including, but not limited to any designation,
class, series, voting power, preference, relative,
participating, optional or other special right, qualification,
limitation, restriction, dividend, time and price of
redemption and conversion right) as may be determined by the
directors in each instance, without further action by the
stockholders.
Each holder of Class A Common Stock shall have one vote on all matters
submitted to the stockholders for each share of Class A Common Stock standing in
the name of such holder on the books of the corporation. Except as provided by
law, the holders of Class B Common Stock shall have no voting rights.
No class or series of shares of the corporation shall be assessable nor have
any preemptive or subscription rights.
FIFTH: The duration of the existence of this corporation shall be
perpetual.
SIXTH: The principal place of business of this corporation shall be located
at Richmond, Henrico County, Virginia. The corporation intends to transact
business within the State of Delaware and within all the several states of the
United States, the District of Columbia, and in foreign countries.
The corporation's state of domicile is Delaware.
<PAGE>
SEVENTH: The power and authority to make, alter, amend or repeal the By-Laws
of this corporation shall be, and is, hereby expressly vested in the Board of
Directors of this corporation, subject to the power of the shareholders to amend
or repeal such By-Laws. The Board of Directors shall not make or alter any
By-Laws fixing their qualifications, classifications, terms of office or
compensation.
EIGHTH: The corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner from time to time
prescribed by the laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
BYLAWS
OF
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
(As amended and restated April 1, 1994)
ARTICLE I
SHAREHOLDERS MEETING
1. The annual meeting of shareholders at which the Directors are elected shall
be held at 11:00 a.m. on the fourth Wednesday in April at the principal office
of the corporation, or at such other time or place within or without the state
of Delaware as shall be designated by the Board of Directors.
2. Special meetings of shareholders shall be held at such time and place as
shall be stated in the notice of the special meeting for such purpose or
purposes as shall be stated in the notice of said meeting.
3. The record date for the determination of shareholders entitled to notice of
and to vote at each annual or special meeting of shareholders shall be the close
of business on the third Friday preceding each such meeting, provided, however,
that the Board of Directors may by resolution fix a different record date for
any particular meeting of shareholders, which shall not be more than the maximum
nor less than the minimum number of days before the date of such meeting as
required by law. A determination of shareholders entitled to notice of or vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the adjournment is for more than 30 days, or, if after the adjournment, a
new record date is fixed for the adjourned meeting in which case, a notice of
the adjourned meeting shall be given to each shareholder entitled to vote at the
meeting.
4. Every shareholder shall furnish in writing to the Secretary of the
corporation the post office address at which notice of shareholders' meetings
and any other notices or communications pertaining to the corporation's affairs
or business may be served upon or mailed to him; and every shareholder shall
forthwith advise the Secretary in writing of any change in address.
5. A majority of the shares entitled to vote, represented in person or by proxy,
constitutes a quorum at a meeting of shareholders, but in no event may a quorum
consist of less than one-third of the shares entitled to vote at the meeting;
and the affirmative vote of the majority of shares present at a meeting and
entitled to vote shall be the act of the shareholders.
<PAGE>
ARTICLE II
DIRECTORS
1. The business and affairs of the corporation shall be managed under the
direction of a Board of Directors, each of whom shall be elected at the annual
meeting of shareholders. The number of directors of the corporation shall be
determined by the shareholders, or in the case of a vacancy including those
created by an increase in the number of Directors, by a majority vote of the
Directors then in office, although less than a quorum, or by a sole remaining
Director, at a meeting of the Board of Directors, and shall hold office until
the next annual shareholders' meeting, or until a successor shall have been
elected and qualified. The term of a Director elected to fill a vacancy shall
expire at the next shareholders' meeting at which directors are elected.
2. The annual meeting of the Board of Directors shall be held immediately
following the adjournment of the annual meeting of shareholders. at the
principal office of the corporation or at such other place as may have been
designated for the holding of the annual meeting of shareholders pursuant to
Article I thereof. The Board of Directors may provide by resolution the time and
place, either within or without the state of Delaware, for the holding of
additional regular meetings.
3. Special meetings of the Board of Directors may be held at such times and
places, within or without the state of Delaware, upon the written or telegraphic
call of either the President, or the Chairman of the Board.
4. Each Director shall be given not less than two (2) days' notice of any
Directors' meeting, except than no notice shall be required of (i) a meeting
held at a time and place fixed by the Bylaws or by resolution of the Board, or
(ii) a meeting at which the entire Board is present, or (iii) the reconvention
of a meeting pursuant to adjournment if the time and place thereof are announced
at the meeting at which the adjournment is taken.
5. A majority of the total number of Directors fixed by these Bylaws shall
constitute a quorum for the transaction of business and the vote of the majority
of Directors present at a meeting of the Board at which a quorum is present
shall be the act of the Board.
<PAGE>
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
1. The Board of Directors may, by one or more resolutions passed by a majority
of the whole Board, designate from among its members one or more committees,
each committee to consist of one or more Directors of the corporation; each such
committee, to the extent provided in such resolutions and riot prohibited by
law, shall have and may exercise between meetings of the Board of Directors, all
of the authority of the Board of Directors; provided that the Board of Directors
shall not have authority to establish an executive committee without the written
consent of all shareholders. The Board may designate one (1) or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
2. Meetings of any committee designated by the Board of Directors may be held at
any time and at any place upon call of the President, the Chairman of the Board
or the chairman of any committee. Notice, which need not state the purpose of
the meeting, shall be given orally, in writing or by telegraph not less than
twenty-four hours prior to the time of the holding of said meeting, except that
if a meeting is held at a time and place fixed in a resolution of a committee or
the Board of Directors, no notice shall be required.
3. A majority of the members of a committee shall constitute a quorum for the
transaction of business and the act of a majority of the members of a committee
present at a committee meeting shall be the act of the committee.
ARTICLE IV
OFFICERS
1. The officers of the corporation shall include those elected by the Board of
Directors and those appointed by the President. The officers of the corporation
to be elected by the Board of Directors shall be: a Chairman of the Board of
Directors; a President; an Executive Vice President; one or more Senior Vice
Presidents; one or more Vice Presidents; a Secretary; and a Treasurer. The
officers of the corporation which may from time to time be appointed by the
President shall be such additional officers and assistant officers of this
corporation as the President may determine.
2. At its annual meeting, the Board of Directors shall elect such of the
officers of this corporation as are to be elected by it and each such officer
shall hold office until the next such annual meeting or until a successor shall
have been duly elected and qualified or until death, resignation, retirement or
removal by the Board of Directors. A vacancy in any such office may be filled
for the unexpired portion of the term at any meeting of the Board of Directors.
Such of the officers of this corporation as are appointed by the President shall
serve for such periods of time as the President may determine or until a
successor shall have been appointed and qualified or until death, resignation,
retirement or removal from office.
<PAGE>
3. Any Director or officer may resign at any time. Such resignation shall be
made in writing and delivered to and filed with the Secretary, except that a
resignation of the Secretary shall be delivered to and filed with the President.
A resignation so made shall be effective upon its delivery unless some other
time be fixed in the resignation, and then from the date so fixed.
4. The Board of Directors may appoint and remove at will such agents and
committees as the business of the corporation shall require, each of whom shall
exercise such powers and perform such duties as may from time to time be
prescribed or assigned by the President, the Board of Directors or by other
provisions of these Bylaws.
ARTICLE V
POWERS AND DUTEES OF OFFICERS
1. The Chairman of the Board of Directors shall, when present, preside at all
meetings of the Board of Directors, and of the shareholders and shall perform
such other duties as may be assigned by the Board of Directors or by the
President.
2. The President shall be the chief executive officer of the corporation and
shall be vested with general authority and control of its affairs, and over the
officers, agents and employees of the corporation, subject to the Board of
Directors. He shall, in the absence of the Chairman of the Board, preside at all
meetings of the Board and the shareholders, and shall perform all the duties
devolving upon him by law as the chief executive officer of the corporation. He
shall from time to time report to the Board of Directors any information and
recommendations concerning the business or affairs of the corporation which may
be proper or needed, and shall see that all orders and resolutions of the Board
of Directors be carried into effect, and shall perform such other duties and
services, not inconsistent with law or these Bylaws, as pertain to this office
of as are required by the Board of Directors.
3.(a) The Executive Vice President and the Senior or other Vice Presidents shall
have and exercise such powers and discharge such duties as may from time to time
be conferred upon and delegated to them respectively, by the President, or by
these Bylaws, or by the Board of Directors.
(b). In the absence of the President or in the case of his inability to act, the
Executive Vice President, or in the absence of the Executive Vice President or
in the case of his inability to act, the Senior or other Vice Presidents in
order of seniority shall be vested with all the powers and shall perform all the
duties of said President during his absence or inability to act, or until his
successor shall have been elected.
<PAGE>
4.(a) The Treasurer shall attend to the collection, receipt and disbursement of
all moneys belonging to the corporation; have authority to endorse, on behalf of
the corporation, all checks, notes, drafts, war-rants and orders; have custody
over all securities of the corporation; and have such additional powers and such
other duties as he may from time to time be assigned or directed to perform by
these Bylaws or by the Board of Directors or by the President.
(b) The Assistant Treasurers, in the order of their seniority, shall have all of
the powers and shall perform the duties of the Treasurer in case of the absence
of the Treasurer or his inability to act, and have such other powers and duties
as they may from time to time be assigned or directed to perform.
5.(a) The Secretary shall have the care and custody of the corporate and stock
books and the corporate seal of the corporation; attend all meetings of the
shareholders, and, when possible, all meetings of the Board of Directors; record
all votes and the minutes of all proceedings in books kept for that purpose;
sign such instruments on behalf of the corporation as he may be authorized by
the Board of Directors or by law to do; countersign, attest and affix the
corporate seal to all certificates and instruments where such countersigning or
such sealing and attestation are necessary to the true and proper execution
thereof; see that proper notice is given of all meetings of the shareholders of
which notice is required to be given; and have such additional powers and duties
as he may from time to time be assigned or directed to perform by these Bylaws,
by the Board of Directors or the President.
(b). The Assistant Secretaries, in order of their seniority, shall have all of
the powers and shall perform the duties of the Secretary in case of the absence
of the Secretary or his inability to act, and have such other powers and duties
as they may from time to time be assigned or directed to perform.
ARTICLE VI
CERTIFICATES FOR SHARES
1. All certificates for shares of the corporation shall be in such form as shall
be determined by resolution of the Board of Directors, shall be numbered in the
order of their issue, shall be dated, shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary, provided, that where
any such certificate is manually countersigned by a Registrar, other then the
corporation or its employee, the signatures of the President, Executive Vice
President, Senior or other Vice President, Secretary, or Assistant Secretary,
and the Transfer Agent, upon such certificates may be facsimiles. In case any
officer or officers who shall have signed or whose facsimile signature or
signatures shall have been used on any such certificate or certificates shall
cease to be such officer or officers of the corporation, whether because of
death, resignation, or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered by the corporation as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures were used thereon had not ceased to be such officer or officers of
the corporation.
<PAGE>
2. Transfer of fractional shares shall not be made upon the records or books of
the corporation, nor shall certificates for fractional shares be issued by the
corporation.
3. The corporation may issue a new certificate in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed. The Board of
Directors shall require the owner of the lost destroyed or mutilated
certificate, or his legal representative to give the corporation a bond in such
sum and with such surety or sureties as it may direct, to indemnify the
corporation against any claim that shall be made against it on account of the
alleged loss or destruction of such certificate.
4. The Board of Directors may make such additional rules and regulations, not
contrary to law or these Bylaws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of the corporation.
ARTICLE VII
CONTRACTS
The Board of Directors may authorize any officer or officers, agent or agents,
to enter into any contract or to execute and deliver any instrument in the name
and on behalf of the corporation, and such authority may be general or confined
to specific instances; and unless so authorized by the Board of Directors or by
these Bylaws, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or undertaking, or to pledge its credit or
to render it liable for any purpose or on any account.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January and
end at midnight on the last day of December of each year.
<PAGE>
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form and
inscribed with the words:
(SEAL)
"GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
CORPORATE SEAL
STATE OF DELAWARE
1956"
ARTICLE X
NOTICES AND WAIVERS
1. Whenever notice is required under these Bylaws or by statute, and such notice
is given by mail, the time of giving such notice shall be deemed to be the time
when the same is placed in the United States mail, postage prepaid, and
addressed to the party to be notified, at his last known address.
2. Any shareholder, officer or Director may waive at any time any notice
required to be given under these Bylaws, either directly upon the face of the
records, or by separate writing and delivered to the corporation for inclusion
in the minutes or filing with the corporate records.
ARTICLE XI
INDEMNIFICATION
1. Any person may, in accordance with paragraphs 3 and 4, be indemnified by this
corporation against any liability and reasonable expense incurred bv him in
correction with any action in which he may be involved as a party or otherwise
by reason of his having been a Director, officer, or employee.
<PAGE>
2. Definitions
(a) A "person" includes the legal representative or heir of a deceased or
incompetent person.
(b) "Liability" includes fines and penalties, and amounts paid or incurred in
settlement of any action or in satisfaction of a judgment, except in judgment in
favor of this corporation, a wholly owned subsidiary or other enterprise.
(c) Expense shall be deemed "reasonable" to the extent the Board of Directors
approves the purpose and the amount thereof.
(d) "Director, officer, or employee" include person or persons who hold such
positions in this corporation or in a wholly owned subsidiary, or hold, at the
written request of an officer of this corporation, an equivalent position in
another enterprise. The rights granted by the Article shall apply whether or not
he continues to be a Director, officer, or employee at the time such liability
or expense is incur-red and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(e) "Action" includes any claim, suit, proceeding, or appeal whether brought by
or in the right of this corporation, a wholly owned subsidiary or the other
enterprise or otherwise and of whatever nature, whether civil, criminal,
administrative or investigative, and includes threatened action of such nature.
3. In the case of an action brought by or in the right of this corporation, a
wholly owned subsidiary or the other enterprise, as the case may be, to procure
a judgment in its favor,
(a) a person who has been successful on the merits shall be indemnified as of
right;
(b) no person who has been adjudged to be liable for negligence or misconduct in
the performance of his duty to this corporation, a wholly owned subsidiary or
the other enterprise, as the case may be, shall be indemnified; and
(c) any other person who was a party to such action other than a person
described in 3(a) or 3(b) shall be indemnified, if the Board of Directors,
acting by a quorum consisting of Directors not having an interest in the action,
determines that such person has not been guilty of negligence or misconduct in
the performance of his duty to this corporation, a wholly owned subsidiary or
the other enterprise, as the case may be.
4. In the case of an action other than the one described in paragraph 3,
(a) a person who has been successful on the merits shall be indemnified as of
right; and
<PAGE>
(b) any other person who was a party to such action other than a person
described in 4(a) shall be indemnified, if the Board of Directors, acting by a
quorum consisting of Directors not having any interest in the action, determines
(i) that such person acted in good faith for a purpose which he reasonably
believed to be in the best interests of this corporation, a wholly owned
subsidiary or the other enterprise, as the case may be, and
(ii) in any criminal action or proceeding, that such person had no reasonable
cause to believe that his conduct was unlawful.
The termination of any action by judgment, order, settlement (with or without
court approval), conviction or upon plea of guilty or of nolo contenders, or its
equivalent, shall not of itself create a presumption that such person did not
meet the standards of conduct set forth in this paragraph 4.
5. If the Board of Directors is unable to approve indemnification pursuant to
paragraphs 3 or 4 hereof because there is not a quorum of Directors who do not
have an interest in the action out of which the claim of indemnification arose,
the remaining Directors, regardless of the number, shall designate independent
legal counsel to review the conduct of the persons claiming indemnification. If
independent legal counsel determines that a person meets the applicable
standards of conduct as set forth in paragraphs 3 and 4, such person shall be
indemnified as of right.
6. Expenses incurred with respect to any action of the character described in
paragraph 1 may be advanced by this corporation prior to the final disposition
thereof upon receipt of an undertaking by or on behalf of the Director, officer,
or employee to repay such amount unless he shall ultimately be indemnified under
this Article.
7. The rights of indemnification provided in this Article shall be in addition
to any rights to which any such person may otherwise be entitled under any
Bylaw, agreement, statute, vote of shareholders or disinterested Directors or
otherwise at the time of incurring or becoming subject to such liability and
expense.
8. The provisions of the Article shall be applicable to actions made or
commenced after the adoption hereof, whether arising from acts or omissions to
act occurring before or after the adoption hereof.
<PAGE>
ARTICLE XII
AMENDMENTS
1. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted
by the affirmative vote of a majority of the Board of Directors at any regular
or special meeting of the board.
Exhibit 10
Opinion and consent of
Ward E. Bobitz, Esq.,
Vice President and Assistant Secretary
<PAGE>
January 4, 1999
Board of Directors
General Electric Capital Assurance Company
6604 West Broad Street
Richmond, Virginia 23230
Re: GNA Variable Investment Account
Registration Statement on Form N-4
File Nos. 333-______ and 811-8506
Gentlemen:
I have acted as counsel to the Company in connection with the filing with the
Securities and Exchange Commission of the above-referenced Registration
Statement on Form N-4 for the Group and Individual Deferred Variable Annuity and
Modified Guaranteed Annuity Contracts (the "Contracts") to be issued by the
Company and its separate account, GNA Variable Investment Account. I have made
such examination of the law and have examined such records and documents as in
my judgment are necessary or appropriate to enable me to render the following
opinion:
1. General Electric Capital Assurance Company is a duly organized, validly
existing stock life insurance company of the State of Delaware.
2. GNA Variable Investment Account is a separate investment account of
General Electric Capital Assurance Company duly created and validly
existing pursuant to the Washington insurance laws and regulations
thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Contracts have been followed, and, when such Contracts are issued in
accordance with the prospectuses contained in the Registration
Statements, and upon compliance with applicable law, such contracts
will be legally issued and binding obligations of the Company in
accordance with their terms.
4. The portion of the assets to be held in the GNA Variable Investment
Account equal to the reserves and other liabilities under contracts
participating therein is not chargeable with liabilities arising out of
any other business the Company may conduct.
I hereby consent to the use of this letter, or a copy hereof, as an exhibit to
the Registration Statement, and the reference to me under the caption "Legal
Matters" in the prospectuses contained in the registration statements.
Very truly yours,
/s/ Ward E. Bobitz
Ward E. Bobitz
Vice President and
Assistant Secretary
Exhibit 11(i)
[KPMG LLP Letterhead]
Independent Auditors' Consent
The Board of Directors
General Electric Capital Assurance Company
and
Contractholders
GNA Variable Investment Account:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report on the statutory financial statements of General Electric Capital
Assurance Company dated April 24, 1998, contains explanatory paragraphs that
state the following:
o We did not audit the 1996 statutory financial statements of First
Colony Life Insurance Company (FCL), an 80% owned subsidiary of the
Company. The Company's investment in FCL as of December 31, 1996 was
$518.1 million, the amount of the contribution of the investment
in FCL by the Company's parent on December 31, 1996. The 1996
statutory financial statements of FCL were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for FCL, is based solely on the report
of the other auditors; and
o As described more fully in note 1 to the statutory financial
statements, the Company prepared the financial statements using
accounting practices prescribed or permitted by the State of Delaware
Department of Insurance, which practices differ from generally accepted
accounting principles. The effects on the financial statements of the
variances between the statutory basis of accounting and generally
accepted accounting principles also are described in note 1.
/s/ KPMG LLP
Richmond, VA
January 4, 1999
Exhibit 14
Schedule of Computation of Each Performance Quotation
Provided in the Registration Statement
<PAGE>
Schedule for Computation of Each Performance Quotation
Provided in the Registration Statement
1. The Average Annual Total Returns quoted in the Statement of Additional
Information were calculated as follows:
o Non-Standardized Average Annual Total Returns are calculated by taking the
ending Accumulated Unit Value for the period divided by the beginning
Accumulated Unit Value for the period minus the Certificate Maintenance
Charge minus 1. This can be characterized by the following formula:
AUV(1)/AUV(0) - CMC - 1
o Standardized Average Annual Total Returns are calculated by subtracting the
Surrender Charge from the Non-Standardized Average Annual Total Return
figure. This can be characterized by the following formula:
AUV(1)/AUV(0) - CMC - 1 - SC
Where: AUV(1) = Accumulated Unit Value at the end of the period.
AUV(0) = Accumulated Unit Value at the beginning of the period.
CMC = Certificate Maintenance Charge
.649 x $40/44,740
SC = Surrender Charge
WC x (1 - {0.1[AUV(1)/AUV(0) - CMC]})
Where WC = Withdrawal Charge
2. The Current Yield and Effective Current Yield quoted in the Statement of
Additional Information were calculated as follows:
o Current Yield is calculated by dividing the sum of the daily net income rate
over a seven day period by the beginning Accumulated Unit Value for the
period, all multiplied by the ratio of 365 days over 7 days. This can be
characterized by the following formula:
Sum of Daily Income Rate for 7 days / AUV(0) x (365/7)
o Current Effective Yield is calculated by adding 1 to the sum of the daily
net income rate over a seven day period divided by the beginning Accumulated
Unit Value for the period, all to the power of the ratio of 365 days over 7
days minus 1. This can be characterized by the following formula:
{(1 + [Sum of Daily Income Rate for 7 days / AUV(0)])
all to the power of (365/7)} - 1
Where AUV(0) = Accumulated Unit Value at the beginning of the period.
