As Filed With the Securities and Exchange Commission on September 14, 2001
Registration No. 333-32908
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Post-Effective Amendment No. 2
FORM S-6
For Registration Under the Securities Act of 1933 of
Securities of Unit Investment Trust Registered on Form N-8B-2
GE Capital Life Separate Account III
(Exact Name of Registrant)
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GE Capital Life Assurance Company of New York
(Name of Depositor)
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125 Park Avenue, 6th floor New York, NY 10017-5529
(Complete address of Depositor's Principal Executive Offices)
Cheryl Whaley
President
GE Capital Life Assurance Company of New York
125 Park Avenue, 6th Floor
New York, NY 10017-5529
(Name and complete address of Agent for Service)
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Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Ave., NW
Washington, D.C. 20004-2415
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It is proposed that this filing will become effective:
[_]immediately upon filing pursuant to paragraph (b) of Rule 485
[X]on September 14, 2001 pursuant to paragraph (b) of Rule 485
[_]60 days after filing pursuant to paragraph (b) of Rule 485
[_]on pursuant to paragraph (a) of Rule 485
Title of the Securities being Registered: Flexible Premium Variable Life
Policies
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GE Capital Life Separate Account III
Prospectus For The
Flexible Premium Joint and
Last Survivor Variable Life Insurance Policy
Policy Form NY 1253 12/99
Issued by:
GE Capital Life Assurance Company of New York
125 Park Avenue, 6th Floor
New York, New York 10017-5529
Telephone: (212) 672-4400
Variable Life Servicing Center:
6610 West Broad Street
Richmond, VA 23230
Telephone: (800) 313-5282
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This prospectus describes a flexible premium variable joint and last survivor
life insurance policy (the "Policy") offered by GE Capital Life Assurance
Company of New York ("we," "us," "our," the "Company", or "GE Capital Life").
It is underwritten on an individual basis. The Policy provides life insurance
protection, premium flexibility, and the ability to change Death Benefits.
The Policy provides insurance on the lives of two Insureds. We will pay Death
Proceeds only on the death of the Last Insured. The amount of the Death
Proceeds will depend in part on the Death Benefit Option the Owner ("you" or
"your") selects. You can elect one of two Death Benefit Options under the
Policy. Under Option A, the Death Benefit will equal the greater of (1) the
Specified Amount plus the Policy's Account Value, or (2) the Account Value
multiplied by the applicable corridor percentage. Under Option B, the Death
Benefit will equal the greater of (1) the Specified Amount, or (2) the Account
Value multiplied by the applicable corridor percentage. We guarantee that your
Death Benefit will at least equal the Specified Amount so long as your Policy
is in force.
You direct your premiums to the Investment Subdivisions of Separate Account
III. Each Investment Subdivision invests exclusively in the shares of a
portfolio of a Fund. We list the Funds, and their currently available
portfolios, below.
The Alger American Fund:
Alger American Growth Portfolio, Alger American Small Capitalization
Portfolio
Federated Insurance Series:
Federated American Leaders Fund II, Federated High Income Bond Fund II,
Federated Utility Fund II
Fidelity Variable Insurance Products Fund (VIP):
VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP Overseas Portfolio
Fidelity Variable Insurance Products Fund II (VIP II):
VIP II Asset Manager Portfolio, VIP II Contrafund(R) Portfolio
Fidelity Variable Insurance Products Fund III (VIP III):
VIP III Growth & Income Portfolio, VIP III Growth Opportunities Portfolio
GE Investments Funds, Inc.:
Income Fund, International Equity Fund, Mid-Cap Value Equity Fund, Money
Market Fund, Premier Growth Equity Fund, Real Estate Securities Fund, S&P
500(R) Index Fund, Total Return Fund, U.S. Equity Fund
Goldman Sachs Variable Insurance Trust (VIT):
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid Cap Value Fund
Janus Aspen Series:
Aggressive Growth Portfolio, Balanced Portfolio, Capital Appreciation
Portfolio, Flexible Income Portfolio, Global Life Sciences Portfolio, Global
Technology Portfolio, Growth Portfolio, International Growth Portfolio,
Worldwide Growth Portfolio
Oppenheimer Variable Account Funds:
Oppenheimer Aggressive Growth Fund/VA, Oppenheimer Bond Fund/VA, Oppenheimer
Capital Appreciation Fund/VA, Oppenheimer High Income Fund/VA, Oppenheimer
Multiple Strategies Fund/VA
Salomon Brothers Variable Series Funds Inc:
Salomon Investors Fund, Salomon Strategic Bond Fund, Salomon Total Return
Fund
Not all of these portfolios may be available.
Your Policy provides for a Surrender Value. The amount of your Surrender Value
will depend upon the investment performance of the portfolio(s) you select. You
bear the investment risk of investing in Separate Account III.
You may cancel your Policy during the free-look period. Please note that
replacing your existing insurance coverage with the Policy might not be to your
advantage.
The Securities and Exchange Commission has not approved these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
Neither the U.S. Government nor any governmental agency insures or guarantees
your investment in the policy.
This prospectus contains information about Separate Account III that you should
know before investing. Please read this prospectus carefully before investing
and keep it for future reference.
The date of this prospectus is July , 2001.
Table of Contents
Definitions ................................................................ 1
Policy Summary.............................................................. 4
Portfolio Annual Expense Table.............................................. 8
Other Policies............................................................. 10
Risk Summary................................................................ 11
GE Capital Life Assurance Company of New York............................... 13
Separate Account III........................................................ 14
Changes to Separate Account III............................................ 14
The Portfolios.............................................................. 16
Investment Subdivisions.................................................... 16
Your Right to Vote Portfolio Shares........................................ 24
Charges and Deductions...................................................... 26
Premium Charge............................................................. 26
Mortality and Expense Risk Charge.......................................... 26
Monthly Deduction.......................................................... 27
Cost of Insurance.......................................................... 28
Surrender Charge........................................................... 29
Partial Surrender Processing Fee........................................... 30
Transfer Charge............................................................ 30
Other Charges.............................................................. 30
Reduction of Charges for Group Sales....................................... 31
The Policy.................................................................. 32
Applying for a Policy...................................................... 32
Owner...................................................................... 32
Split Option Rider......................................................... 32
Beneficiary................................................................ 33
Changing the Owner or Beneficiary.......................................... 33
Canceling a Policy......................................................... 33
Premiums.................................................................... 34
General.................................................................... 34
Tax Free Exchanges (1035 Exchanges)........................................ 34
Periodic Premium Plan...................................................... 34
Minimum Premium Payment.................................................... 35
Allocating Premiums........................................................ 35
How Your Account Value Varies............................................... 36
Account Value.............................................................. 36
Surrender Value............................................................ 36
i
Investment Subdivision Values.............................................. 36
Unit Values................................................................ 36
Net Investment Factor...................................................... 37
Transfers................................................................... 38
General.................................................................... 38
Dollar-Cost Averaging...................................................... 38
Portfolio Rebalancing...................................................... 39
Transfers by Third Parties................................................. 40
Death Benefits.............................................................. 41
Amount of Death Proceeds................................................... 41
Four Year Term Rider....................................................... 41
Death Benefit Options...................................................... 42
Changing the Death Benefit Option.......................................... 43
Changing the Specified Amount.............................................. 43
Surrenders and Partial Surrenders........................................... 45
Surrenders................................................................. 45
Partial Surrenders......................................................... 45
Effect of Partial Surrenders on Account Value and Death Proceeds........... 45
Loans....................................................................... 46
General.................................................................... 46
Preferred Policy Debt...................................................... 46
Interest Rate Charged...................................................... 46
Repayment of Policy Debt................................................... 47
Effect of Policy Loans..................................................... 47
Termination................................................................. 48
Premium to Prevent Termination............................................. 48
Your Policy Will Remain in Effect During the Grace Period.................. 48
Reinstatement.............................................................. 48
Payments and Telephone Transactions......................................... 49
Requesting Payments........................................................ 49
Telephone Transactions..................................................... 50
Tax Considerations.......................................................... 51
Federal Tax Matters........................................................ 51
Introduction............................................................... 51
Tax Status of the Policy................................................... 51
Tax Treatment of Policies -- General....................................... 52
Special Rules for Modified Endowment Contracts (MECs)...................... 54
Income Tax Withholding..................................................... 55
Tax Status of the Company.................................................. 55
Changes in the Law and Other Considerations................................ 55
ii
Other Policy Information.................................................... 56
Optional Payment Plans..................................................... 56
Dividends.................................................................. 57
Incontestability........................................................... 57
Suicide Exclusion.......................................................... 57
Misstatement of Age or Gender.............................................. 58
Written Notice............................................................. 58
Trustee.................................................................... 58
Other Changes.............................................................. 58
Reports.................................................................... 58
Change of Owner............................................................ 59
Supplemental Benefits...................................................... 59
Using the Policy as Collateral............................................. 59
Exchanges.................................................................. 60
Reinsurance................................................................ 60
Legal Proceedings.......................................................... 60
Additional Information...................................................... 61
Sale of the Policies....................................................... 61
Legal Matters.............................................................. 62
Experts.................................................................... 62
Actuarial Matters.......................................................... 62
Financial Statements....................................................... 62
Executive Officers and Directors........................................... 62
Other Information.......................................................... 64
Hypothetical Illustrations.................................................. 65
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not be lawfully made.
iii
Definitions
We have tried to make this prospectus as understandable as possible. However,
in explaining how the Policy works, we have had to use certain terms that have
special meanings. We define these terms below.
Account Value -- The total amount under the Policy. Account Value equals the
amount in Separate Account III and in the General Account.
Age -- The age of each Insured at his or her birthday nearest the Policy Date
or a Policy anniversary.
Attained Age -- For each Insured, an Insured's Age on the Policy Date plus the
number of full years since the Policy Date.
Beneficiary -- The person or entity you designate to receive the Death Proceeds
payable at the death of the Last Insured.
Continuation Amount -- A cumulative amount set forth on the Policy data pages
for each month of the Continuation Period representing the minimum Net Total
Premium required to keep the Policy in force during the Continuation Period.
Continuation Period -- The five Policy years from the Policy Date during which
the Policy will not lapse if the Net Total Premium is at least equal to the
Continuation Amount for the number of Policy Months that the Policy has been in
force.
Death Benefit -- The amount determined under the Death Benefit Option in effect
as of the date of death of the Last Insured.
Death Proceeds -- The total amount payable to the Beneficiary upon the death of
the Last Insured.
Fund -- Any open-end management investment company or unit investment trust in
which Separate Account III invests.
General Account -- The assets of GE Capital Life other than those allocated to
Separate Account III or any of our other separate accounts.
Home Office -- Our offices at 125 Park Avenue, 6th Floor, New York, New York
10017-5529, (212) 672-4400.
Insured(s) -- The person(s) whose lives are insured under the Policy.
Investment Subdivision -- A subdivision of Separate Account III, the assets of
which invest exclusively in a corresponding portfolio of a Fund. Not all
Investment Subdivisions may be available.
1
Last Insured -- The last Insured to die.
Maturity Date -- The date your Policy terminates and we pay any Account Value
less outstanding Policy Debt if any Insured is living. This date is shown in
your Policy and is the Policy anniversary nearest the younger Insured's 100th
birthday.
Monthly Anniversary Day -- The same day in each month as your Policy Date.
Net Premium -- The portion of each premium you allocate to one or more
Investment Subdivisions. It is equal to the premium paid times the Net Premium
Factor.
Net Premium Factor -- The factor we use in determining the Net Premium which
reflects a deduction from each premium paid.
Net Total Premium -- On any date, Net Total Premium equals the total of all
premiums paid to that date less (a) divided by (b), where:
(a) is any outstanding Policy Debt, plus the sum of any partial surrenders
to date; and
(b) is the Net Premium Factor.
Optional Payment Plan -- A plan under which any part of Death Proceeds,
Surrender Value proceeds, or benefits at maturity can be used to provide a
series of periodic payments to you or a Beneficiary.
Owner -- The person (or persons) who owns (or own) the Policy. "You" or "your"
refers to the Owner or Joint Owners. You may also name Contingent Owners.
Planned Periodic Premium -- A level premium amount scheduled for payment at
fixed intervals over a specified period of time.
Policy -- The Policy with any attached application(s), any riders, and
endorsements.
Policy Date -- The date as of which we issue the Policy and the date as of
which the Policy becomes effective. We measure Policy years and anniversaries
from the Policy Date. The Policy Date is shown on the Policy data pages. If the
Policy Date would otherwise fall on the 29th, 30th, or 31st day of a month, the
Policy Date will be the 28th.
Policy Debt -- The amount of outstanding loans plus accrued interest. We deduct
Policy Debt from proceeds payable at the death of the Last Insured, on
maturity, or at the time of surrender.
Policy Month -- A one-month period beginning on a Monthly Anniversary Day and
ending on the day immediately preceding the next Monthly Anniversary Day.
2
Separate Account III -- GE Capital Life Separate Account III, the segregated
asset account of GE Capital Life Assurance Company of New York to which you
allocate Net Premiums.
Specified Amount -- An amount we use in determining the insurance coverage.
Surrender Value -- The amount we pay you when you surrender the Policy. It is
equal to Account Value minus any Policy Debt and minus any applicable surrender
charge.
Unit Value -- A unit of measure we use to calculate the Account Value for each
Investment Subdivision.
Valuation Day -- For each Investment Subdivision, each day on which the New
York Stock Exchange is open for regular trading except for days that the
Investment Subdivision's corresponding Fund does not value its shares. The term
"date" may be used throughout this prospectus in connection with calculations
of Account Value; in those instances, the term "date" has the same meaning as
Valuation Day.
Valuation Period -- The period that starts at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the New York Stock Exchange on the next succeeding Valuation
Day.
Variable Life Servicing Center -- The office for which all inquires regarding
the Policy should be made: 6610 W. Broad Street, Richmond, VA 23230, (800) 313-
5282. The term "we" may be used throughout this prospectus in connection with
calculations of Account Value; in those instances, the term "we" has the same
meaning as Variable Life Servicing Center.
3
Policy Summary
PREMIUMS
. You select a premium payment plan. You are not required to pay premiums
according to the plan, but may vary frequency and amount, within limits, and
can skip planned premiums. See Periodic Premium Plan.
. Premium amounts depend on each Insured's Age, gender, rating class, the
Specified Amount selected, and any supplemental benefit riders. See
Premiums.
. You may make unscheduled premium payments, within limits. See Premiums.
. Under certain circumstances, you may have to pay extra premiums to prevent
termination. See Premium to Prevent Termination.
DEDUCTIONS FROM PREMIUMS
. If the initial Specified Amount is $500,000 or more, we currently deduct a 3
1/2% premium charge (5% maximum) from each premium before we place it in an
Investment Subdivision. If the initial Specified Amount is at least $250,000
but less than $500,000, we currently deduct a 6 1/2% premium charge (8%
maximum). We currently do not deduct the maximum premium charge but reserve
the right to do so. We refer to the premium minus the premium charge as a
Net Premium. We do not assess a premium charge against the policy loan
portion of a premium received from the rollover of a life insurance policy.
See Premium Charge.
ALLOCATION OF NET PREMIUMS
. You allocate your Net Premiums among up to ten of the Investment
Subdivisions of Separate Account III at any given time. Until (1) the date
we approve the application, (2) the date we receive all necessary forms
(including any subsequent amendments to your application), and (3) the date
we receive the entire initial premium, we will place any premiums you pay in
a non-interest bearing account. After we issue your Policy, we will allocate
your Net Premiums to the Investment Subdivisions you designate. See
Allocating Premiums.
. The Investment Subdivisions invest in corresponding portfolios of the
following Funds:
The Alger American Fund Fidelity Variable Insurance Products
Alger American Growth Fund II (VIP II)
Portfolio VIP II Asset Manager
Alger American Small Portfolio
Capitalization VIP II Contrafund(R)
Portfolio
Fidelity Variable Insurance Products
Fund III (VIP III)
Federated Insurance VIP III Growth & Income
Series Portfolio
Federated American VIP III Growth
Leaders Fund II Opportunities Portfolio
Federated High Income
Bond Fund II
Federated Utility Fund
II
Fidelity Variable
Insurance Products Fund
(VIP)
VIP Equity-Income
Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
4
GE Investments Funds, Janus Aspen Series
Inc. Aggressive Growth
Income Fund Portfolio
International Equity Balanced Portfolio
Fund Capital Appreciation
Mid-Cap Value Equity Portfolio
Fund Flexible Income
Money Market Fund Portfolio
Premier Growth Equity Global Life Sciences
Fund Portfolio
Real Estate Global Technology
Securities Fund Portfolio
S&P 500(R) Index Fund Growth Portfolio
Total Return Fund International Growth
U.S. Equity Fund Portfolio
Worldwide Growth
Portfolio
Oppenheimer Variable
Goldman Sachs Account Funds
Variable Insurance Oppenheimer
Trust (VIT) Aggressive Growth
Goldman Sachs Growth Fund/VA
and Income Fund Oppenheimer Bond
Goldman Sachs Mid Cap Fund/VA
Value Fund Oppenheimer Capital
Appreciation Fund/VA
Oppenheimer High
Income Fund/VA
Oppenheimer Multiple
Strategies Fund/VA
Salomon Brothers
Variable Series Funds
Inc
Salomon Investors
Fund
Salomon Strategic
Bond Fund
Salomon Total Return
Fund
See Investment Subdivisions.
Not all of these portfolios may be available in all markets.
DEDUCTIONS FROM ASSETS
. Each Fund deducts management fees and other expenses from its assets. For
the year ended December 31, 2000, the minimum total annual expenses (as a
percentage of average net assets) was .32% and the maximum total annual
expenses (as a percentage of average net assets) was 1.20%. See Portfolio
Annual Expenses.
. We deduct a daily mortality and expense risk charge at a current effective
annual rate of 0.70% (maximum effective annual rate of 0.70%) from assets in
the Investment Subdivisions.
. We make a monthly deduction from your Account Value for (1) the cost of
insurance, (2) a policy charge of $5, (3) for the first 10 Policy years, an
initial expense charge based on each Insured's issue Age of up to $.20 per
$1,000 of initial Specified Amount, (4) for 10 Policy years after an
increase in Specified Amount, an additional expense charge based on each
Insured's issue Age of up to $.20 per $1,000 of the increase, and (5)
supplemental benefit charges. See Monthly Deduction.
. For information concerning compensation paid for sale of the Policies, see
Sale of the Policies.
5
ACCOUNT VALUE
. Account Value equals the total amount in Separate Account III and the
General Account.
. Account Value serves as the starting point for calculating certain values
under a Policy, such as the Surrender Value and the Death Proceeds. Account
Value varies from day to day to reflect the investment experience of the
Investment Subdivisions, charges deducted and other Policy transactions
(such as Policy loans, transfers and partial surrenders). See How Your
Account Value Varies.
. You can transfer Account Value among the Investment Subdivisions (subject to
certain restrictions). A $10 transfer charge applies to each transfer made
after the first transfer in a calendar month. See Transfers for rules and
limits. Policy loans reduce the amount available for allocations and
transfers.
. There is no minimum guaranteed Account Value. During the Continuation
Period, the Policy will lapse if the Surrender Value is too low to cover the
monthly deduction and the Net Total Premium is less than the Continuation
Amount. After the Continuation Period, the Policy will lapse if the
Surrender Value is too low to cover the monthly deduction. See Premium to
Prevent Termination.
. For information concerning compensation paid for sale of the Policies, see
Sale of the Policies.
CASH BENEFITS
. You may take a Policy loan for up to 90% of the difference between Account
Value and any surrender charges, minus any Policy Debt. See Loans.
. You may partially surrender your Policy up to a maximum amount. The minimum
partial surrender amount is $500, and a processing fee equal to the lesser
of $25 or 2% of the amount of the partial surrender will apply to each
partial surrender. If you select Death Benefit Option B, you may only make
partial surrenders after the first Policy year. See Partial Surrenders.
. You can surrender your Policy at any time before the death of the Last
Insured for its Surrender Value (Account Value minus Policy Debt and minus
any applicable surrender charge). A surrender charge will apply during the
first 11 Policy years, and for 11 Policy years after an increase in the
Specified Amount (except for increases in the Specified Amount that result
from a change in Death Benefit Option). The surrender charge will not exceed
$50 per $1,000 of Specified Amount. See Surrenders and Surrender Charge.
. You may choose from a variety of payment options. See Requesting Payments.
DEATH BENEFITS
. The minimum Specified Amount available is $250,000.
. We will pay Death Proceeds only upon the death of the Last Insured.
6
. You may choose from two Death Benefit Options: Option A (greater of
Specified Amount plus Account Value, or the applicable corridor percentage
multiplied by Account Value); or Option B (greater of Specified Amount, or
the applicable corridor percentage multiplied by Account Value). We
determine the Specified Amount and Account Value for this purpose as of the
date of death of the Last Insured. See Death Benefits.
. Death Proceeds are payable as a lump sum or under a variety of options. See
Requesting Payments and Optional Payment Plans.
. You may change the Specified Amount and the Death Benefit Option. See
Changing the Specified Amount and Changing the Death Benefit Option for
rules and limits.
. During the Continuation Period, the Policy will remain in force regardless
of the sufficiency of Surrender Value so long as the Net Total Premium is at
least equal to the Continuation Amount. See Premium to Prevent Termination.
7
Portfolio Annual Expense Table
This table describes the portfolio fees and expenses. These fees and expenses
are shown as a percentage of net assets for the year ended December 31, 2000.
The prospectus for each Fund contains more detail concerning a portfolio's fees
and expenses.
Annual expenses of the portfolios of the Funds for the year ended December 31,
2000 (as a percentage of each portfolio's average net assets):
Total Annual
Expenses
Management Fees Other (after fee
(after fee Service Expenses (after waivers and
waivers as 12b-1 Share reimbursements reimbursements
Portfolios applicable) Fees Fees as applicable) as applicable)
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The Alger American Fund
Alger American Growth Portfolio .75% -- % -- % .04% .79%
Alger American Small Capitalization Portfolio .85 -- -- .05 .90
Federated Insurance Series/1/
Federated American Leaders Fund II .75 -- -- .12 .87
Federated High Income Bond Fund II .60 -- -- .16 .76
Federated Utility Fund II .75 -- -- .16 .91
Fidelity Variable Insurance Products Fund*/2/
VIP Equity-Income Portfolio .48 -- -- .08 .56
VIP Growth Portfolio .57 -- -- .08 .65
VIP Overseas Portfolio .72 -- -- .17 .89
Fidelity Variable Insurance Products Fund II*/3/
VIP II Asset Manager Portfolio .53 -- -- .08 .61
VIP II Contrafund Portfolio .57 -- -- .09 .66
Fidelity Variable Insurance Products Fund III*/4/
VIP III Growth & Income Portfolio .48 -- -- .10 .58
VIP III Growth Opportunities Portfolio .58 -- -- .10 .68
GE Investments Funds, Inc./5/
Income Fund .50 -- -- .06 .56
International Equity Fund 1.00 -- -- .06 1.06
Mid-Cap Value Equity Fund .65 -- -- .05 .70
Money Market Fund .28 -- -- .04 .32
Premier Growth Equity Fund .65 -- -- .02 .67
Real Estate Securities Fund .85 -- -- .07 .92
S&P 500 Index Fund .35 -- -- .04 .39
Total Return Fund .50 -- -- .04 .54
U.S. Equity Fund .55 -- -- .04 .59
Goldman Sachs Variable Insurance Trust/6/
Goldman Sachs Growth and Income Fund .75 -- -- .25 1.00
Goldman Sachs Mid Cap Value Fund .80 -- -- .25 1.05
Janus Aspen Series/7/
Aggressive Growth Portfolio -- Institutional
Shares .65 -- -- .01 .66
Balanced Portfolio -- Institutional Shares .65 -- -- .01 .66
Capital Appreciation Portfolio -- Institutional
Shares .65 -- -- .02 .67
Flexible Income Portfolio -- Institutional
Shares .65 -- -- .11 .76
Global Life Sciences Portfolio -- Service
Shares .65 .25 -- .30 1.20
Global Technology Portfolio -- Service Shares .65 .25 -- .04 .94
8
Total Annual
Expenses
Management Fees Other (after fee
(after fee Service Expenses (after waivers and
waivers as 12b-1 Share reimbursements reimbursements
Portfolio applicable) Fees Fees as applicable) as applicable)
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio -- Institutional Shares .65 -- -- .02 .67
International Growth Portfolio --
Institutional Shares .65 -- -- .06 .71
Worldwide Growth Portfolio -- Institutional
Shares .65 -- -- .04 .69
Oppenheimer Variable Account Funds
Oppenheimer Aggressive Growth Fund/VA .62 -- -- .02 .64
Oppenheimer Bond Fund/VA .72 -- -- .04 .76
Oppenheimer Capital Appreciation Fund/VA .64 -- -- .03 .67
Oppenheimer High Income Fund/VA .74 -- -- .05 .79
Oppenheimer Multiple Strategies Fund/VA .72 .04 .76
Salomon Brothers Variable Series Funds Inc/8/
Salomon Investors Fund .70 -- -- .21 .91
Salomon Strategic Bond Fund .36 -- -- .64 1.00
Salomon Total Return Fund .46 -- -- .54 1.00
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* The fees and expenses reported for the Variable Insurance Products Fund
(VIP), Variable Insurance Products Fund II (VIP II) and Variable Insurance
Products Fund III (VIP III) are prior to any fee waiver and/or
reimbursement is applicable.
/1/Federated has adopted a shareholder services fee arrangement which allows
for the payments or accrual of shareholder service fees of up to .25%. The
Fund elected not to accrue or pay a shareholder services fee for the year
ending December 31, 2000. The Fund has no present intention of paying or
accruing a shareholder services fee during the fiscal year ending December
31, 2001.
/2/Actual annual operating expenses were lower because a portion of the
brokerage commissions that the Fund paid was used to reduce Fund expenses.
In addition, the Fund, or FMR on behalf of the Fund, has entered into
arrangements with the custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. After
taking these arrangements into account, the total annual expenses of the
VIP Equity-Income Portfolio during 2000 would have been .55%; the total
annual expenses of the VIP Overseas Portfolio would have been .87%; the
total annual expenses of the VIP Growth would have been .64%. See the
accompanying fund prospectus for details.
/3/Actual annual operating expenses were lower because a portion of the
brokerage commissions that the Fund paid was used to reduce Fund expenses.
In addition, the Fund, or FMR on behalf of the Fund, has entered into
arrangements with the custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. After
taking these arrangements into account, the total annual expenses of the
VIP II Contrafund Portfolio during 2000 would have been .63%. See the
accompanying fund prospectus for details.
/4/Actual annual operating expenses were lower because a portion of the
brokerage commissions that the Fund paid was used to reduce Fund expenses.
In addition, the Fund, or FMR on behalf of the Fund, has entered into
arrangements with the custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. After
taking these arrangements into account, the total annual expenses of the
VIP III Growth & Income Portfolio during 2000 would have been .57%; the
total annual expenses of the VIP III Growth Opportunities Portfolio would
have been .66%. See the accompanying fund prospectus for details.
9
/5/GE Asset Management Incorporated ("GEAM") has voluntarily agreed to waive a
portion of its management fee for the Money Market Fund. Absent this
waiver, the total annual expenses of the Fund would have been .45%
consisting of .41% in management fees and .04% in other expenses. Also,
GEAM voluntarily limited other expenses for the GE Premier Growth Equity
Fund from January 1 through April 30, 2000. Absent the waiver the total
annual expenses of the Fund would have been 0.68%, consisting of 0.65% in
management fees and 0.03% in other expenses.
/6/Goldman Sachs Asset Management has voluntarily agreed to reduce or limit
certain other expenses (excluding management fees, taxes, interest,
brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.25% of each Fund's
respective average daily net assets. The investment advisor may modify or
discontinue any of the limitations. Absent reimbursements, the total annual
expenses of the Growth and Income Fund would have been 1.22%, consisting of
.75% management fees and .47% other expenses; the total annual expenses of
the Mid Cap Value Fund would have been 1.22%, consisting of .80% management
fees and .42% other expenses.
/7/The 12b-1 fee deducted for the Janus Aspen Series (Service Shares) covers
certain distribution and shareholder support services provided by the
companies selling variable contracts investing in the Janus Aspen Series
portfolios. The 12b-1 fee assessed against the shares of the Janus Aspen
Series (Service Shares) held for the Policies will be remitted to Capital
Brokerage Corporation, the principal underwriter for the Policies.
Expenses are based upon expenses for the year ended December 31, 2000,
restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Capital Appreciation, Growth, International Growth and
Worldwide Growth Portfolios.
/8/Salomon voluntarily waived certain fees, without these waivers the total
annual expenses of the Strategic Bond Fund would have been 1.39%,
consisting of .75% management fees and .64% other expenses; the total
annual expenses of the Total Return Fund would have been 1.34%, consisting
of .80% management fees and .54% other fees.
The expense information regarding the Funds was provided by those Funds. We
have not independently verified this information. We cannot guarantee that the
reimbursements and fee waivers provided by certain of the Funds will continue.
OTHER POLICIES
We may offer other variable life insurance policies which also invest in the
same (or many of the same) portfolios of the Funds. These policies may have
different charges that could affect the value of the Investment Subdivisions
and may offer different benefits more suitable to your needs. To obtain more
information about these policies, contact your agent, or call (800) 313-5282.
10
Risk Summary
INVESTMENT RISK
Your Account Value is subject to the risk that investment performance will be
unfavorable and that your Account Value will decrease. Because we continue to
deduct charges from Account Value, if investment results are sufficiently
unfavorable and/or you stop making premium payments at or above the minimum
requirements, the Surrender Value of your Policy may fall to zero. In that
case, the Policy will terminate without value and insurance coverage will no
longer be in effect, unless you make an additional payment sufficient to
prevent a termination during the 61-day grace period. However, your Policy will
not lapse during the Continuation Period, even if your Surrender Value is too
low to cover the monthly deductions, so long as the Net Total Premium is at
least equal to the Continuation Amount. On the other hand, if investment
experience is sufficiently favorable and you have kept the Policy in force for
a substantial time, you may be able to draw upon Account Value, through partial
surrenders and Policy loans.
RISK OF TERMINATION
If the Surrender Value of your Policy is too low to pay the Monthly Deduction
when due (and, during the Continuation Period, the Net Total Premium is less
than the Continuation Amount), the Policy will be in default and a grace period
will begin. There is a risk that if partial surrenders, loans, and monthly
deductions reduce your Surrender Value to too low an amount and/or if the
investment experience of your selected Investment Subdivisions is unfavorable,
then your Policy could lapse. In that case, you will have a 61-day grace period
to make a sufficient payment. If you do not make a sufficient payment before
the grace period ends, your Policy will terminate without value, insurance
coverage will no longer be in effect, and you will receive no benefits. After
termination, you may reinstate your Policy within three years subject to
certain conditions.
TAX RISK
We intend for the Policy to satisfy the definition of a "life insurance
contract" under section 7702 of the Internal Revenue Code of 1986, as amended
(the "Code"). In general, earnings under the Policy will not be taxed until a
distribution is made from the Policy. In addition, death benefits generally
will be excludable from income. In the case of a Policy that is considered a
"modified endowment contract," special rules apply and a 10% penalty tax may be
imposed on distributions, including loans. See Special Rules for Modified
Endowment Contracts. You should consult a qualified tax advisor in all tax
matters involving your Policy.
LIMITS ON PARTIAL SURRENDERS
The Policy permits you to take partial surrenders. However, if you selected
Death Benefit Option B, you may only make partial surrenders after the first
Policy year.
11
The minimum partial surrender amount is $500, and we will assess a processing
fee on the surrender. There is also a limit on the maximum amount you may
partially surrender.
Partial surrenders will reduce your Account Value, Death Proceeds, and
Specified Amount (if you elected Death Benefit Option B). Federal income taxes
and a penalty tax may apply to partial surrenders.
EFFECTS OF POLICY LOANS
A Policy loan, whether or not repaid, will affect Account Value over time
because we subtract the amount of the loan from the Investment Subdivisions as
collateral. We then credit a fixed interest rate to the loan collateral. As a
result, the loan collateral does not participate in the investment results of
the Investment Subdivisions. The longer the loan is outstanding, the greater
the effect is likely to be. Depending on the investment results of the
Investment Subdivisions, the effect could be favorable or unfavorable.
A Policy loan also reduces the Death Proceeds. A Policy loan could make it more
likely that a Policy would terminate. There is a risk if the loan reduces your
Surrender Value to too low an amount and investment experience is unfavorable,
that the Policy will lapse, resulting in adverse tax consequences. You must
submit a sufficient payment during the grace period to avoid the Policy's
termination without value and the end of insurance coverage.
COMPARISON WITH OTHER INSURANCE POLICIES
The Policy is similar in many ways to universal life insurance. As with
universal life insurance:
. the Owner pays premiums for insurance coverage on the Insureds;
. the Policy provides for the accumulation of Surrender Value that is payable
if the Owner surrenders the Policy during the Insureds' lifetimes;
. and the Surrender Value may be substantially lower than the premiums paid.
However, the Policy differs from universal life insurance in that it permits
you to place your premium in the Investment Subdivisions. The amount and
duration of life insurance protection and of the Policy's Account Value will
vary with the investment performance of the Investment Subdivisions you select.
You bear the investment risk with respect to the amounts allocated to the
Investment Subdivisions.
The Surrender Value of your Policy may decrease if the investment performance
of the Investment Subdivisions to which you allocate Account Value is
sufficiently adverse. If the Surrender Value becomes insufficient to cover
charges when due and the Continuation Period is not in effect, the Policy will
terminate without value after a grace period.
12
GE Capital Life Assurance
Company of New York
We are a stock life insurance company that was incorporated in New York on
February 23, 1988. We are ultimately a wholly-owned indirect subsidiary of
General Electric Capital Corporation ("GE Capital"), a New York corporation
that is a diversified financial services company whose subsidiaries consist of
specialty insurance, equipment management, and commercial and consumer
financing businesses. General Electric Capital Corporation is owned by General
Electric Capital Services, Inc. which in turn is owned by General Electric
Company. GE Capital's ultimate parent, General Electric Company, founded more
than one hundred years ago by Thomas Edison, is the world's largest
manufacturer of jet engines, engineering plastics, medical diagnostic
equipment, and large electric power generation equipment.
We are licensed in New York and Delaware and specialize in writing individual
fixed-rate deferred annuities, fixed payout immediate annuities, and variable
deferred annuities.
We are subject to regulation by the Superintendent of Insurance of the State of
New York. We submit annual statements on our operation and finances to the
New York Insurance Department.
We are a charter member of the Insurance Marketplace Standards Association
("IMSA"). We may use the IMSA membership logo and language in our
advertisements, as outlined in IMSA's Marketing and Graphics Guidelines.
Companies that belong to IMSA subscribe to a set of ethical standards covering
various aspects of sales and service for individually sold life insurance and
annuities.
13
Separate Account III
We established GE Capital Life Separate Account III as a separate investment
account on March 20, 2000. Separate Account III currently has forty Investment
Subdivisions available under the Policy. Each Investment Subdivision invests
exclusively in shares representing an interest in a separate corresponding
portfolio of one of the ten Funds described below.
The assets of Separate Account III belong to us. Nonetheless, we do not charge
the assets in Separate Account III attributable to the Policies with
liabilities arising out of any other business, which we may conduct. The assets
of Separate Account III shall, however, be available to cover the liabilities
of our General Account to the extent that the assets of the Separate Account
exceed its liabilities arising under the Policies supported by it. Income,
gains and losses, whether or not realized from the assets of Separate Account
III shall be credited to or charged against Separate Account III without regard
to the income, gains, or losses arising out of any other business we may
conduct.
We registered Separate Account III with the SEC as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Separate Account III
meets the definition of a separate account under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of Separate Account III by the SEC. You assume
the full investment risk for all amounts you allocate to Separate Account III.
CHANGES TO SEPARATE ACCOUNT III
Separate Account III may include other Investment Subdivisions that are not
available under the Policy. We may substitute another investment subdivision or
insurance company separate account under the Policy if, in our judgment,
investment in an Investment Subdivision should no longer be possible or becomes
inappropriate to the purposes of the Policies, or if investment in another
investment subdivision or insurance company separate account is in the best
interest of Owners. The new Investment Subdivisions may be limited to certain
classes of Policies, and the new portfolios may have higher fees and charges
than the portfolios they replaced. No substitution or elimination may take
place without prior notice to Owners and prior approval of the SEC and
insurance regulatory authorities, to the extent required by the 1940 Act and
applicable law.
We may also, where permitted by law:
. create new separate accounts;
. transfer assets of Separate Account III, which we determine to be associated
with the class of Policies to which this Policy belongs, to another separate
account;
. add new Investment Subdivisions to or remove Investment Subdivisions from
Separate Account III, or combine Investment Subdivisions;
. remove existing Funds;
14
. substitute new Funds for any existing Fund which we determine is no longer
appropriate in light of the purposes of the Separate Account;
. deregister Separate Account III under the 1940 Act in the event such
registration is no longer required; and
. operate Separate Account III under the direction of a committee or in another
form.
Changes in Investment Policy and Exchange Rights. If you object to a material
change in the investment policy of Separate Account III or any Investment
Subdivision, you have the right to exchange this Policy for a fixed benefit
policy. No evidence of insurability will be required. We will notify you of the
options available and the procedures to follow if you decide to make an
exchange. You must make an exchange within 60 days after the change in
investment policy becomes effective or 60 days after the receipt of the notice
of the options available, whichever is later. There will always be one policy
available for exchange.
15
The Portfolios
You decide the Investment Subdivisions to which you direct Net Premiums. You
may change your premium allocation without penalty or charges. There is a
separate Investment Subdivision which corresponds to each portfolio of a Fund
offered in this Policy.
Each Fund is registered with the Securities and Exchange Commission as an open-
end management investment company under the 1940 Act. The assets of each
portfolio are separate from other portfolios of a Fund and each portfolio has
separate investment objectives and policies. As a result, each portfolio
operates as a separate portfolio and the investment performance of one
portfolio has no effect on the investment performance of any other portfolio.
Before choosing an Investment Subdivision to allocate your Net Premiums and
Account Value, carefully read the prospectus for each Fund, along with this
Prospectus. We summarize the investment objectives of each portfolio below.
There is no assurance that any of the portfolios will meet these objectives.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios 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, or if the other portfolio has a similar
name.
INVESTMENT SUBDIVISION
We offer you a choice from among 40 Investment Subdivisions, each of which
invests in an underlying portfolio of one of the Funds. You may allocate Net
Premiums in up to ten Investment Subdivisions at any one time.
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- ------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
Alger American Growth Seeks long-term capital Fred Alger
Portfolio appreciation by focusing on Management, Inc.
growing companies that
generally have broad product
lines, markets, financial
resources and depth of
management. Under normal
circumstances, the portfolio
invests primarily in the
equity securities of large
companies. The portfolio
considers a large company to
have a market capitalization
of $1 billion or greater.
- ------------------------------------------------------------------------------
16
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- -----------------------------------------------------------------------------
Alger American Small Seeks long-term capital Fred Alger
Capitalization Portfolio appreciation by focusing on Management, Inc.
small, fast-growing companies
that offer innovative
products, services or
technologies to a rapidly
expanding marketplace. Under
normal circumstances, the
portfolio invests primarily in
the equity securities of small
capitalization companies. A
small capitalization company
is one that has a market
capitalization within the
range of the Russell 2000
Growth Index or the S&P(R)
Small Cap 600 Index.
- -----------------------------------------------------------------------------
FEDERATED INSURANCE SERIES
Federated American Seeks long-term growth of Federated
Leaders Fund II capital with a secondary Investment
objective of providing income. Management Company
Seeks to achieve its objective
by investing, under normal
circumstances, at least 65% of
its total assets in common
stock of "blue chip"
companies.
- -----------------------------------------------------------------------------
Federated High Income Seeks high current income. Federated
Bond Fund II Seeks to achieve its objective Investment
by investing primarily in a Management Company
diversified portfolio of
professionally managed fixed-
income securities. The fixed
income securities in which the
fund intends to invest are
lower-rated corporate debt
obligations, commonly referred
to as "junk bonds." The risks
of these securities and their
high yield potential are
described in the prospectus
for the Federated Insurance
Series, which should be read
carefully before investing.
- -----------------------------------------------------------------------------
Federated Utility Fund II Seeks high current income and Federated
moderate capital appreciation Investment
by investing primarily in Management Company
equity securities of utility (sub-adviser:
companies. Federated Global
Investment
Management Corp.)
- -----------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP)
VIP Equity-Income Seeks reasonable income and Fidelity Management
Portfolio will consider the potential & Research Company
for capital appreciation. The (subadvised by FMR
fund also seeks a yield, which Co., Inc.)
exceeds the composite yield on
the securities comprising the
S&P 500 by investing primarily
in income-producing equity
securities and by investing in
domestic and foreign issuers.
- -----------------------------------------------------------------------------
VIP Growth Portfolio Seeks capital appreciation by Fidelity Management
investing primarily in common & Research Company
stocks of companies believed (subadvised by FMR
to have above-average growth Co., Inc.)
potential.
- -----------------------------------------------------------------------------
17
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- -------------------------------------------------------------------------------
VIP Overseas Portfolio Seeks long-term growth of Fidelity Management
capital by investing at least & Research Company
65% of total assets in foreign (subadvised by
securities, primarily in Fidelity Management
common stocks. & Research (U.K.)
Inc., Fidelity
Management &
Research (Far East)
Inc., Fidelity
International
Investments
Advisors, Fidelity
International
Investment Advisors
(U.K.) Limited,
Fidelity
Investments Japan
Limited and FMR
Co., Inc.)
- -------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II Asset Manager Seeks high total return with Fidelity Management
Portfolio reduced risk over the long- & Research Company
term by allocating assets (subadvised by
among stocks, bonds and short- Fidelity Management
term and money market & Research (U.K.)
instruments. Inc., Fidelity
Management &
Research (Far East)
Inc., Fidelity
Investments Japan
Limited, Fidelity
Investments Money
Management, Inc.
and FMR Co., Inc.)
- -------------------------------------------------------------------------------
VIP II Contrafund Seeks long-term capital Fidelity Management
Portfolio appreciation by investing & Research Company
mainly in common stocks and in (subadvised by
securities of companies whose Fidelity Management
value is believed to have not & Research (U.K.)
been fully recognized by the Inc., Fidelity
public. This fund invests in Management &
domestic and foreign issuers. Research (Far East)
This fund also invests in Inc., Fidelity
"growth" stocks, "value" Investments Japan
stocks, or both. Limited and FMR
Co., Inc.)
- -------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
VIP III Growth & Income Seeks high total return Fidelity Management
Portfolio through a combination of & Research Company
current income and capital (subadvised by
appreciation by investing a Fidelity Management
majority of assets in common & Research (U.K.)
stocks with a focus on those Inc., Fidelity
that pay current dividends and Management &
show potential for capital Research (Far East)
appreciation. Inc., Fidelity
Investments Japan
Limited and FMR
Co., Inc.)
- -------------------------------------------------------------------------------
18
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- -----------------------------------------------------------------------------
VIP III Growth Seeks to provide capital Fidelity Management
Opportunities Portfolio growth by investing primarily & Research Company
in common stock and other (subadvised by
types of securities, including Fidelity Management
bonds, which may be lower- & Research (U.K.)
quality debt securities. Inc., Fidelity
Management &
Research (Far East)
Inc., Fidelity
Investments Japan
Limited and FMR
Co., Inc.)
- -----------------------------------------------------------------------------
GE INVESTMENTS FUNDS, INC.
Income Fund Objective of providing maximum GE Asset Management
income consistent with prudent Incorporated
investment management and
preservation of capital by
investing primarily in income-
bearing debt securities and
other income bearing
instruments.
- -----------------------------------------------------------------------------
International Equity Fund Objective of providing long- GE Asset Management
term growth of capital by Incorporated
investing primarily in foreign
equity and equity-related
securities which the adviser
believes have long-term
potential for capital growth.
- -----------------------------------------------------------------------------
Mid-Cap Value Equity Fund Objective of providing long GE Asset Management
term growth of capital by Incorporated
investing primarily in common
stock and other equity
securities of companies that
the investment adviser
believes are undervalued by
the marketplace at the time of
purchase and that offer the
potential for above-average
growth of capital. Although
the current portfolio reflects
investments primarily within
the mid cap range, the fund is
not restricted to investments
within any particular
capitalization and may in the
future invest a majority of
its assets in another
capitalization range.
- -----------------------------------------------------------------------------
Money Market Fund Objective of providing highest GE Asset Management
level of current income as is Incorporated
consistent with high liquidity
and safety of principal by
investing in various types of
good quality money market
securities.
- -----------------------------------------------------------------------------
Premier Growth Equity Objective of providing long- GE Asset Management
Fund term growth of capital as well Incorporated
as future (rather than
current) income by investing
primarily in growth-oriented
equity securities.
- -----------------------------------------------------------------------------
19
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- -------------------------------------------------------------------------------
Real Estate Securities Objective of providing maximum GE Asset Management
Fund total return through current Incorporated
income and capital (Subadvised by
appreciation by investing Seneca Capital
primarily in securities of Management, L.L.C.)
U.S. issuers that are
principally engaged in or
related to the real estate
industry including those that
own significant real estate
assets. The portfolio will not
invest directly in real
estate.
- -------------------------------------------------------------------------------
S&P 500(R) Index Fund/1/ Objective of providing capital GE Asset Management
appreciation and accumulation Incorporated
of income that corresponds to (Subadvised by
the investment return of the State Street Global
Standard & Poor's 500 Advisors)
Composite Stock Price Index
through investment in common
stocks comprising the Index.
- -------------------------------------------------------------------------------
Total Return Fund Objective of providing the GE Asset Management
highest total return, composed Incorporated
of current income and capital
appreciation, as is consistent
with prudent investment risk
by investing in common stock,
bonds and money market
instruments, the proportion of
each being continuously
determined by the investment
adviser.
- -------------------------------------------------------------------------------
U.S. Equity Fund Objective of providing long- GE Asset Management
term growth of capital through Incorporated
investments primarily in
equity securities of U. S.
companies.
- -------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
Goldman Sachs Growth and Seeks long-term capital growth Goldman Sachs Asset
Income Fund and growth of income, Management
primarily through equity
securities that are considered
to have favorable prospects
for capital appreciation
and/or dividend-paying
ability.
- -------------------------------------------------------------------------------
Goldman Sachs Mid Cap Seeks long-term capital Goldman Sachs Asset
Value Fund appreciation, primarily Management
through equity securities of
companies with public stock
market capitalizations (based
upon shares available for
trading on an unrestricted
basis) within the range of the
market capitalization of
companies constituting the
Russell Midcap Value Index at
the time of investment
(currently between $300
million and $15 billion).
- -------------------------------------------------------------------------------
/1/"Standard & Poor's," "S&P," and "S&P 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by GE Asset Management
Incorporated. The S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no
representation or warranty, express or implied, regarding the advisability
of investing in this Fund or the Policy.
20
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- ----------------------------------------------------------------------------
JANUS ASPEN SERIES
Aggressive Growth Non-diversified/2/ portfolio Janus Capital
Portfolio pursuing long-term growth of Corporation
capital. Pursues this
objective by normally
investing at least 50% of its
assets in equity securities
issued by medium-sized
companies.
- ----------------------------------------------------------------------------
Balanced Portfolio Seeks long term growth of Janus Capital
capital. Pursues this Corporation
objective consistent with the
preservation of capital and
balanced by current income.
Normally invests 40-60% of its
assets in securities selected
primarily for their growth
potential and 40-60% of its
assets in securities selected
primarily for their income
potential.
- ----------------------------------------------------------------------------
Capital Appreciation Non-diversified/2/ portfolio Janus Capital
Portfolio pursuing long- term growth of Corporation
capital. Pursues this
objective by investing
primarily in common stocks of
companies of any size.
- ----------------------------------------------------------------------------
Flexible Income Portfolio Seeks maximum total return Janus Capital
consistent with preservation Corporation
of capital. Total return is
expected to result from a
combination of income and
capital appreciation. The
portfolio pursues its
objective primarily by
investing in any type of
income-producing securities.
This portfolio may have
substantial holdings of lower-
rated debt securities or
"junk" bonds. The risks of
investing in junk bonds are
described in the prospectus
for Janus Aspen Series, which
should be read carefully
before investing.
- ----------------------------------------------------------------------------
Global Life Sciences Non-diversified/1/ portfolio Janus Capital
Portfolio seeking long-term growth of Corporation
capital. The portfolio pursues
this objective by investing at
least 65% of its total assets
in securities of U.S. and
foreign companies that the
portfolio manager believes
have a life science
orientation. The portfolio
normally invests at least 25%
of its total assets, in the
aggregate, in the following
industry groups: health care;
pharmaceuticals; agriculture;
cosmetics/personal care; and
biotechnology.
- ----------------------------------------------------------------------------
/2/A non-diversified portfolio is a portfolio that may hold a larger position
in a smaller number of securities than a diversified portfolio. This means
that a single security's increase or decrease in value may have a greater
impact on the return and net asset value of a non-diversified portfolio
than a diversified portfolio.
21
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- ------------------------------------------------------------------------------
Global Technology Non-diversified/2/ portfolio Janus Capital
Portfolio seeking long-term growth of Corporation
capital. The portfolio pursues
this objective by investing at
least 65% of its total assets
in securities of U.S. and
foreign companies that the
portfolio manager believes
will benefit significantly
from advances or improvements
in technology.
- ------------------------------------------------------------------------------
Growth Portfolio Seeks long-term capital growth Janus Capital
consistent with the Corporation
preservation of capital and
pursues its objective by
investing in common stocks of
companies of any size.
Emphasizes larger, more
established issuers.
- ------------------------------------------------------------------------------
International Growth Seeks long-term growth of Janus Capital
Portfolio capital. Pursues this Corporation
objective primarily through
investments in common stocks
of issuers located outside the
United States. The portfolio
normally invests at least 65%
of its total assets in
securities of issuers from at
least five different
countries, excluding the
United States.
- ------------------------------------------------------------------------------
Worldwide Growth Seeks long-term capital growth Janus Capital
Portfolio in a manner consistent with Corporation
the preservation of capital.
Pursues this objective by
investing in a diversified
portfolio of common stocks of
foreign and domestic issuers
of all sizes. Normally invests
in at least five different
countries including the United
States.
- ------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Aggressive Seeks to achieve capital OppenheimerFunds,
Growth Fund/VA appreciation investing mainly Inc.
in common stocks of companies
in the United States believed
by the fund's investment
manager, OppenheimerFunds
Inc., to have significant
growth potential.
- ------------------------------------------------------------------------------
Oppenheimer Bond Fund/VA Seeks high level of current OppenheimerFunds,
income and capital Inc.
appreciation when consistent
with its primary objective of
high income. Under normal
conditions this fund will
invest at least 65% of its
total assets in investment
grade debt securities.
- ------------------------------------------------------------------------------
22
Adviser (and Sub-
Adviser, as
Investment Subdivision Investment Objective applicable)
- ----------------------------------------------------------------------------
Oppenheimer Capital Seeks capital appreciation OppenheimerFunds,
Appreciation Fund/VA from investments in securities Inc.
of well-known and established
companies. Such securities
generally have a history of
earnings and dividends and are
issued by seasoned companies
(having an operating history
of at least five years,
including predecessors).
- ----------------------------------------------------------------------------
Oppenheimer High Income Seeks high current income from OppenheimerFunds,
Fund/VA investments in high yield Inc.
fixed income securities,
including unrated securities
or high-risk securities in
lower rating categories. These
securities may be considered
speculative. This fund may
have substantial holdings of
lower-rated debt securities or
"junk" bonds. The risks of
investing in junk bonds are
described in the prospectus
for the Oppenheimer Variable
Account Funds, which should be
read carefully before
investing.
- ----------------------------------------------------------------------------
Oppenheimer Multiple Seeks total investment return OppenheimerFunds,
Strategies Fund/VA (which includes current income Inc.
and capital appreciation in
the values of its shares) from
investments in common stocks
and other equity securities,
bonds and other debt
securities, and "money market"
securities.
- ----------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
Salomon Investors Fund Seeks long-term growth of Salomon Brothers
capital with current income as Asset Management
a secondary objective, Inc
primarily through investments
in common stocks of well-known
companies.
- ----------------------------------------------------------------------------
Salomon Strategic Bond Seeks high level of current Salomon Brothers
Fund income with capital Asset Management
appreciation as a secondary Inc
objective, through a globally
diverse portfolio of fixed-
income investments, including
lower-rated fixed income
securities commonly known as
junk bonds.
- ----------------------------------------------------------------------------
Salomon Total Return Fund Seeks to obtain above-average Salomon Brothers
income by primarily investing Asset Management
in a broad variety of Inc
securities, including stocks,
fixed-income securities and
short-term obligations.
- ----------------------------------------------------------------------------
Not all of these Investment Subdivisions may be available.
We will purchase shares of the portfolios at net asset value and direct them to
the appropriate Investment Subdivisions of Separate Account III. We will redeem
sufficient shares of the appropriate portfolios at net asset value to pay
surrender/partial surrender proceeds or for other purposes described in the
Policy. We automatically reinvest all dividends and capital gain distributions
of the portfolios in shares of the
23
distributing portfolios at their net asset value on the date of distribution.
In other words, we do not pay portfolio dividends or portfolio distributions
out to Owners as additional units, but instead reflect them in Unit Values.
Shares of the portfolios of the Funds are not sold directly to the general
public. They are sold to us, and they may also be sold to other insurance
companies that issue variable annuity and variable life insurance policies. In
addition, they may be sold to retirement plans.
When a Fund sells shares in any of its portfolios both to variable annuity and
to variable life insurance separate accounts, it engages in mixed funding. When
a Fund sells shares in any of its portfolios to separate accounts of
unaffiliated life insurance companies, it engages in shared funding.
Each Fund may engage in mixed and shared funding. Therefore, due to differences
in redemption rates or tax treatment, or other considerations, the interests of
various shareholders participating in a Fund could conflict. A Fund's Board of
Directors will monitor for the existence of any material conflicts, and
determine what action, if any, should be taken. See the Prospectuses for the
Funds.
We have entered into agreements with either the investment adviser or
distributor of each of the Funds under which the adviser or distributor pays us
a fee ordinarily based upon an annual average percentage of the average
aggregate net amount we have invested on behalf of Separate Account III and
other separate accounts. These percentages differ, and some investment advisers
or distributors pay us a greater percentage than other advisors or
distributors. The amounts we receive under these agreements may be significant.
These agreements reflect administrative services we provide. In addition, our
affiliate, Capital Brokerage Corporation, the principal underwriter for the
Policies, will receive 12b-1 fees deducted from certain portfolio assets for
providing distribution and shareholder support services to those portfolios.
Because the 12b-1 fees are paid out of a portfolio's assets on an ongoing
basis, over time they will increase the cost of an investment in portfolio
shares.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
As required by law, we will vote the portfolio shares held in Separate Account
III at meetings of the shareholders of the Funds. The voting will be done
according to the instructions of Owners who have interests in any Investment
Subdivisions which invest in the portfolios of the Funds. If the 1940 Act or
any regulation under it should be amended, and if as a result we determine that
we are permitted to vote the portfolios' shares in our own right, we may elect
to do so.
We will determine the number of votes which you have the right to cast by
applying your percentage interest in an Investment Subdivision to the total
number of votes attributable to the Investment Subdivision. In determining the
number of votes, we will recognize fractional shares.
24
We will vote portfolio shares of a class held in an Investment Subdivision for
which we received no timely instructions in proportion to the voting
instructions which we received for all Policies participating in that
Investment Subdivision. We will apply voting instructions to abstain on any
item to be voted on a pro-rata basis to reduce the number of votes eligible to
be cast.
Whenever a Fund calls a shareholders meeting, each person having a voting
interest in an Investment Subdivision will receive proxy material, reports and
other materials relating to the portfolio. Since each portfolio may engage in
shared funding, other persons or entities besides the Company may vote
portfolio shares.
25
Charges and Deductions
This section describes the charges and deductions we make under the Policy to
compensate us for the services and benefits we provide, costs and expenses we
incur, and risks we assume. The services and benefits we provide include:
. the partial surrender, surrender, Policy loan and death benefits under the
Policy;
. investment options, including Net Premium allocations, dollar-cost averaging
and portfolio rebalancing programs;
. administration of various elective options under the Policy; and
. the distribution of various reports to Owners.
The costs and expenses we incur include:
. those associated with underwriting applications, increases in Specified
Amount, and riders;
. various overhead and other expenses associated with providing the services
and benefits provided by the Policy;
. sales and marketing expenses including compensation paid in connection with
the sale of the Policies; and
. other costs of doing business, such as Federal, state and local premium and
other taxes and fees.
The risks we assume include:
. that the Insureds may live for a shorter period of time than estimated,
resulting in the payment of greater death benefits than expected; and
. that the costs of providing the services and benefits under the Policies will
exceed the charges deducted.
We may profit from any charges deducted, such as the mortality and expense risk
charge. We use any such profits for any purpose, including payment of
distribution expenses.
PREMIUM CHARGE
If the initial Specified Amount is $500,000 or more, we currently deduct a 3
1/2% charge (5% maximum) from each premium before placing the resulting Net
Premium in the Investment Subdivisions. If the initial Specified Amount is at
least $250,000 but less than $500,000, we currently deduct a 6 1/2% premium
charge (8% maximum). We currently do not deduct the maximum premium charge but
reserve the right to do so. We do not assess the premium charge against the
policy loan portion of a premium received from the rollover of a life insurance
policy.
MORTALITY AND EXPENSE RISK CHARGE
We currently deduct a daily charge from assets in the Investment Subdivisions
attributable to the Policies at an effective annual rate of 0.70% of net
assets. We will not increase this charge for the duration of your Policy. This
charge is factored into the net investment factor.
26
The mortality risk we assume is the risk that the Insureds may live for a
shorter period of time than estimated and, therefore, a greater amount of Death
Benefit proceeds than expected will be payable. The expense risk we assume is
that expenses incurred in issuing and administering the Policies will be
greater than estimated and, therefore, will exceed the expense charge limits
set by the Policy.
MONTHLY DEDUCTION
We make a monthly deduction on the Policy Date and each Monthly Anniversary Day
from Account Value. The monthly deduction for each Policy consists of:
. the cost of insurance charge (discussed below);
. a policy charge of $5;
. an initial expense charge deducted for the first 10 Policy years based on the
Insureds' issue Ages according to the chart below:
Charge (per $1,000
Issue Age of Specified Amount)
------------------------------------------------------------------
20 to 44 $.08
45 to 59 $.13
60 to 85 $.20
________________________________________________________________
For joint Insureds, we will: (1) calculate the charge for each Insured, (2)
take an average of the two expense charges, and (3) deduct the average charge.
. an additional expense charge deducted for 10 years following an increase in
the Specified Amount based on the Insured's Issue Age according to the chart
below:
Charge (per $1,000
Issue Age of Specified Amount)
------------------------------------------------------------------
20 to 44 $.08
45 to 59 $.13
60 to 85 $.20
________________________________________________________________
For joint Insureds, we will: (1) calculate the charge for each Insured, (2)
take an average of the two expense charges, and (3) deduct the average charge.
The additional expense charge will become effective on the Monthly Anniversary
Day following the increase in Specified Amount.
. and any charges for additional benefits added by riders to the Policy (see
Supplemental Benefits).
We will allocate the monthly deduction for a Policy Month among the Investment
Subdivisions of Separate Account III in the same proportion that your Policy's
Account Value in each Investment Subdivision bears to the total Account Value
in all Investment Subdivisions at the beginning of the Policy Month.
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COST OF INSURANCE
The cost of insurance is a significant charge under your Policy because it is
the primary charge for the Death Benefit we provide you. We determine the cost
of insurance in a manner that reflects the anticipated mortality of both
Insureds and the fact that the Death Benefit is not payable until the death of
the Last Insured. Because the cost of insurance depends on a number of factors
(Age, gender, Policy duration, and rating class), the cost will vary from
Policy to Policy and from Monthly Anniversary Day to Monthly Anniversary Day.
The cost of insurance rates generally increase as the Insureds' Attained Age
increases.
We calculate the cost of insurance on each Monthly Anniversary Day based on the
net amount at risk. We determine the net amount at risk by the following
formula:
Death Benefit
--------------- -- Account Value
1.0032737
To determine the cost of insurance for a particular Policy Month, we divide the
net amount at risk by 1000 and multiply that result by the applicable cost of
insurance rate. If Death Benefit Option B is in effect, and the Specified
Amount has increased, we first consider the Account Value part of the initial
Specified Amount. If the Account Value is more than the initial Specified
Amount, we will consider it part of the increased Specified Amounts resulting
from increases in the order of the increases. Account Value, as used in this
paragraph, means the Account Value at the beginning of the month before the
Monthly Anniversary Day.
The cost of insurance rates for the Policy are based on each Insured's issue
Age, gender, Policy duration, and applicable rating class. We currently place
Insureds in the following rating classes when we issue the Policy, based on our
underwriting: a male or female rating class; and a nicotine use or no nicotine
use rating class. In addition, some Insureds may qualify for a preferred
rating. The original rating classes apply to the initial Specified Amount. If
you apply for an increase in Specified Amount, you will have to submit evidence
satisfactory to us that each Insured is insurable at the same rating class used
at the time we issued the Policy. The death of the first Insured to die will
not affect the cost of insurance scale for the second Insured.
We may change the cost of insurance rates from time to time at our sole
discretion, but we guarantee that the rates we charge will never exceed the
maximum rates shown in your Policy. These rates are based on the Commissioners'
1980 Standard Ordinary Mortality Tables. Modifications to cost of insurance
rates are made for rating classes other than standard. The rates we currently
charge are, at most ages, lower than the maximum permitted under the Policies
and depend on our expectation of future experience with respect to mortality,
interest, expenses, persistency, and
28
taxes. A change in rates will apply to all persons of the same age, gender, and
rating class and whose Policies have been in effect for the same length of
time. We will review our rates no more frequently than once per year or less
frequently than every five years.
SURRENDER CHARGE
If you fully surrender your Policy during the surrender charge period, we will
deduct a surrender charge. We calculate the schedule of surrender charges that
applies to a Policy by multiplying surrender charge factors times the Specified
Amount, divided by $1,000. We determine the factors per $1,000 of Specified
Amount and vary them by issue Age, gender, and rating class of each Insured and
by the number of months since the Policy Date. The surrender charge remains
level for the first Policy year and then decreases uniformly each Policy month
to zero in the last month of Policy year 11. We will deduct the surrender
charge before we pay the Surrender Value. The surrender charge will not exceed
$50 per $1,000 of Specified Amount.
The chart below illustrates the surrender charge factor for the first Policy
year per $1,000 of Specified Amount for Policies which are issued on a male no
nicotine use and female no nicotine use standard rating class basis. These
calculations assume both Insureds are the same issue Age.
Factor per $1,000
Issue Age of Specified Amount
------------------------------------------------------------------
25/25 $12
35/35 $14
45/45 $18
55/55 $24
65/65 $35
75/75 $41
85/85 $34
________________________________________________________________
If you increase the Specified Amount (other than as a result of a change from
Death Benefit Option A to Death Benefit Option B), you will be subject to an
additional surrender charge for another 11 Policy years following the increase.
We will base the amount of the additional surrender charge on the initial scale
of per $1,000 surrender charge factors calculated at the time of issue.
If you decrease the Specified Amount during the period that surrender charges
apply (other than as a result of partial surrenders or a change from Death
Benefit Option B to Death Benefit Option A), you will be assessed a portion of
the surrender charges to which the Policy is subject. We will deduct the amount
of the surrender charge from your Account Value, and will allocate the charge
among each Investment Subdivision in the same proportion that the Policy's
Account Value in each
29
Investment Subdivision bears to the Account Value in all Investment
Subdivisions. We will base the amount of surrender charge:
(1) first on any surrender charge in effect on the most recent increase and the
amount of reduction to this increase caused by the decrease;
(2) then on any surrender charge in effect on the next most recent increases
successively and the amount of any reduction to each of these increases
caused by the decrease; and
(3) finally on the surrender charge in effect on coverage provided under the
original application and any reduction to this amount caused by the
decrease.
Whenever we deduct a portion of the surrender charges because you decreased the
Specified Amount, we reduce the Policy's remaining surrender charges to reflect
the assessments made.
The total surrender charge for any given Policy Month is the sum of:
. the surrender charge that applies to the initial Specified Amount, adjusted
for any decrease in Specified Amount; plus
. the surrender charges that apply to any increases in Specified Amount,
adjusted for any decrease in Specified Amount.
We disclose the surrender charges on the data pages to your Policy.
We do not assess a surrender charge for partial surrenders, but do assess a
processing fee.
PARTIAL SURRENDER PROCESSING FEE
We deduct a partial surrender processing fee on partial surrenders you make.
The fee equals the lesser of $25 or 2% of the amount surrendered.
TRANSFER CHARGE
We assess a $10 transfer charge for each transfer after the first transfer you
make in any calendar month. This charge is at cost with no profit to us. We
take this charge from the amount you transfer. For purposes of assessing this
charge, we consider each transfer request one transfer, regardless of the
number of Investment Subdivisions affected by the transfer. Multiple transfers
within the same Valuation Period are also considered one transfer for this
purpose.
OTHER CHARGES
If you request a projection of illustrative future life insurance under the
Policy and Policy values, we reserve the right to charge a maximum fee of $25
for the cost of preparing the projection.
There are deductions from and expenses paid out of the assets of each portfolio
that are more fully described in each Fund's prospectus.
30
REDUCTION OF CHARGES FOR GROUP SALES
We may reduce charges and/or deductions for sales of the Policies to a trustee,
employer or similar entity representing a group or to members of the group
where such sales result in savings of sales or administrative expenses. We will
base these discounts on the following:
1. The size of the group. Generally, the sales expenses for each individual
owner for a larger group are less than for a smaller group because more
Policies can be implemented with fewer sales contacts and less
administrative cost.
2. The total amount of premium payments to be received from a group. Per Policy
sales and other expenses are generally proportionately less on larger
premium payments than on smaller ones.
3. The purpose for which the Policies are purchased. Certain types of plans are
more likely to be stable than others. Such stability reduces the number of
sales contacts and administrative and other services required, reduces sales
administration and results in fewer Policy terminations. As a result, our
sales and other expenses are reduced.
4. The nature of the group for which the Policies are purchased. Certain types
of employee and professional groups are more likely to continue Policy
participation for longer periods than are other groups with more mobile
membership. If fewer Policies are terminated in a given group, our sales and
other expenses are reduced.
5. Other circumstances. There may be other circumstances of which we are not
presently aware, which could result in reduced sales expenses.
If, after we consider the factors listed above, we determine that a group
purchase would result in reduced sales expenses, we may reduce the charges
and/or deductions for each group. Reductions in these charges and/or deductions
will not be unfairly discriminatory against any person, including the affected
Owners and all other owners of policies funded by Separate Account III.
We may also reduce charges and/or deductions for sales of the Policies to
registered representatives who sell the Policies to the extent we realize
savings of sales and administrative expenses. Any such reduction in charges
and/or deductions will be consistent with the standards we use in determining
the reduction in charges and/or deductions for other group arrangements.
31
The Policy
APPLYING FOR A POLICY
To purchase a Policy, you and your registered representative must complete an
application and submit it to us at our Variable Life Servicing Center. You also
must pay an initial premium of a sufficient amount. See Premiums, below. You
can submit your initial premium with your application or at a later date. (If
you submit your initial premium with your application, please remember that we
will place your premium in a non-interest bearing account for a certain amount
of time. See Allocating Premiums.) Coverage generally becomes effective as of
the Policy Date.
Generally, we will issue a Policy covering Insureds from Age 20 up to Age 85 if
evidence of insurability satisfies our underwriting rules. Required evidence of
insurability may include, among other things, medical examinations of the
Insureds. We may reject an application for any lawful reason and in a manner
that does not unfairly discriminate against similarly situated purchasers.
If you do not pay the full first premium with your application, the insurance
will become effective on the effective date. This date is the date that you pay
your premium and that we deliver your Policy. All persons proposed for
insurance must be insurable on the Policy Date.
If you pay the full first premium with your application, we may give you a
conditional receipt. This means that, subject to our underwriting requirements
and subject to a maximum limitation, your insurance will become effective on
the effective date we specified in the conditional receipt, provided the
Insureds are found to be, on the effective date, insurable at standard premium
rates for the plan and amount of insurance requested in the application. This
effective date will be the latest of (i) the date of completion of the
application, (ii) the date of completion of all medical exams and tests we
require, and (iii) the policy date you requested when that date is later than
the date you completed your application.
OWNER
You have rights in the Policy during the Insureds' lifetimes. If you die before
the Insureds and there is no contingent Owner, ownership will pass to your
estate.
We will treat Joint Owners as having equal undivided interests in the Policy.
All Owners must together exercise any ownership rights in the Policy.
SPLIT OPTION RIDER
The Policy Split Option Rider is automatically added to your Policy. This rider
allows you to surrender this Policy in exchange for an individual policy on the
life of one Insured or separate individual policies on the lives of each
Insured. The maximum amount of insurance available at the time the rider is
exercised on either Insured is equal to one-half the base Policy Specified
Amount. There is no additional charge for
32
this rider, but we will require evidence of insurability when you exercise this
option. See Tax Considerations. For further information about this rider,
including information on the terms to which the exchange is subject, please see
your Policy.
BENEFICIARY
You designate the primary Beneficiaries and contingent Beneficiaries when you
apply for the Policy. You may name one or more primary Beneficiaries or
contingent Beneficiaries. We will pay the proceeds in equal shares to the
survivors in the appropriate Beneficiary class, unless you request otherwise.
Unless an optional payment plan is chosen, we will pay the Death Proceeds in a
lump sum to the primary Beneficiary(ies). If the primary Beneficiary(ies) dies
before the Insureds, we will pay the proceeds to the contingent
Beneficiary(ies). If there is no surviving Beneficiary(ies) we will pay the
proceeds to you or your estate.
CHANGING THE OWNER OR BENEFICIARY
During either Insured's life, you may change the Owner. If you reserved the
right, you also may change the Beneficiary during either Insured's life. An
irrevocable Beneficiary may only be changed with the consent of that
irrevocable Beneficiary. To change the Owner or Beneficiary, please write our
Variable Life Servicing Center. The request and the change must be in a form
satisfactory to us and we must actually receive the request. The change will
take effect as of the date you signed the request.
CANCELING A POLICY
You may cancel a Policy during the "free-look period" by returning it to us at
our Variable Life Servicing Center or to the agent who sold it. The free-look
period expires 10 days after you receive the Policy. The free-look period is
longer if required by state law. If you decide to cancel the Policy during the
free-look period, we will treat the Policy as if it had never been issued.
Within seven calendar days after we receive the returned Policy, we will refund
you the greater of:
. the total amount of monthly deductions made against Account Value and any
charges deducted from premiums paid (excluding portfolio fees and charges)
plus the Net Premiums allocated to Separate Account III adjusted by
investment gains or losses; or
. the total of all premiums paid.
33
Premiums
GENERAL
The premium amounts sufficient to fund a Policy depend on a number of factors,
such as the Age, gender, and rating class of the proposed Insureds, the desired
Specified Amount, any supplemental benefits, and investment performance of the
Investment Subdivisions. We will usually credit your initial premium payment to
the Policy on the later of the date we approve your application and the date we
receive your payment. We will credit any subsequent premium payment to the
Policy on the Valuation Day we receive it at our Variable Life Servicing
Center. After you pay the initial premium, you may make unscheduled premium
payments in any amount and at any time subject to certain restrictions.
The total premiums you pay may not exceed guideline premium limitations for
life insurance set forth in the Code and shown in your Policy. We may reject
any premium, or any portion of a premium, that would result in the Policy being
disqualified as life insurance under the Code. We will refund any rejected
premium along with any interest it accrued. For your convenience, we will
monitor Policies and will attempt to notify you on a timely basis if your
Policy is in jeopardy of becoming a Modified Endowment Contract ("MEC") under
the Code. See Tax Considerations.
We reserve the right to limit the number and amount of any unscheduled premium
payment.
TAX FREE EXCHANGES (1035 EXCHANGES)
We will accept as part of your initial premium money from one contract that
qualified for a tax free exchange under Section 1035 of the Code. If you
contemplate such an exchange, you should consult a competent tax advisor to
learn the potential tax effects of such a transaction. Replacing your existing
coverage with this Policy may not be to your advantage. We will accept 1035
exchanges even if there is an outstanding loan on the other policy, so long as
the outstanding loan is no more than 75% of the rollover premium. We may allow
a higher percentage.
PERIODIC PREMIUM PLAN
When you apply for a Policy, you may select a periodic premium payment plan.
Under this plan, you may choose to receive a premium notice either annually,
semi-annually, or quarterly. You can also arrange for annual, semi-annual,
quarterly or monthly premium payments paid via automatic deduction from your
bank account or any other similar account we accept. You are not required to
pay premiums in accordance with this premium plan; you can pay more or less
than planned or skip a planned premium payment entirely. You can change the
amount of planned premiums and payment arrangements, or switch between
frequencies, whenever you want by providing satisfactory instructions to our
Variable Life Servicing Center. This change will be effective upon our receipt
of the instructions. Depending on the Account Value
34
at the time of an increase in the Specified Amount and the amount of the
increase requested, a change in your periodic premium payments may be
advisable. See Changing the Specified Amount.
MINIMUM PREMIUM PAYMENT
Generally the minimum modal premium payment we will accept is $25 (please keep
in mind that you may have to pay a higher amount to keep the Policy in force).
Even if you pay the minimum premium amount, your Policy may lapse. See Premium
to Prevent Termination. For purposes of the minimum premium payment
requirements, we deem any payment to be a planned periodic premium if we
receive it within 30 days (before or after) of the scheduled date for a planned
periodic premium payment and the percentage difference between the planned
amount and the actual payment amount is not more than 10%. We will deem all
other premium payments to be unscheduled premium payments. Unless you direct us
otherwise, we apply unscheduled premium payments first to repay any Policy
Debt.
ALLOCATING PREMIUMS
When you apply for a Policy, you specify the percentage of your Net Premium we
allocate to each Investment Subdivision. You may only direct your Net Premiums
and Account Value to ten Investment Subdivisions at any given time. You can
change the allocation percentages at any time by writing or calling our
Variable Life Servicing Center. The change will apply to all premiums we
receive with or after we receive your instructions. Net Premium allocations
must be in percentages totaling 100%, and each allocation percentage must be a
whole number.
Until we approve your application, receive all necessary forms including any
subsequent amendments to the application, and receive the entire initial
premium, we will place any premiums you pay into a non-interest bearing
account. After we issue your Policy, we will allocate your Net Premium directly
to the Investment Subdivisions you chose.
35
How Your Account Value Varies
ACCOUNT VALUE
The Account Value is the entire amount we hold under your Policy for you. The
Account Value serves as a starting point for calculating certain values under a
Policy. It is the sum of the total amount under the Policy in each Investment
Subdivision and the amount held in the General Account to secure Policy Debt.
See Loan Benefits. We determine Account Value first on your Policy Date (or on
the date we receive your initial premium, if later) and after that on each
Valuation Day. Your Account Value will vary to reflect the performance of the
Investment Subdivisions to which you have allocated amounts and also will vary
to reflect Policy Debt, charges for the monthly deduction, mortality and
expense risk charges, transfers, partial surrenders, Policy loan interest, and
Policy loan repayments. Your Account Value may be more or less than the
premiums you paid and you bear the investment risk with respect to the amounts
in the Investment Subdivisions.
SURRENDER VALUE
The Surrender Value on a Valuation Day is the Account Value reduced by both any
surrender charge that we would deduct if you surrendered the Policy that day
and any Policy Debt.
INVESTMENT SUBDIVISION VALUES
On any Valuation Day, the value of an Investment Subdivision equals the number
of Investment Subdivision units we credit to the Policy multiplied by the Unit
Value for that day. When you make allocations to an Investment Subdivision,
either by Net Premium allocation, transfer of Account Value, transfer of loan
interest from the General Account, or repayment of a Policy loan, we credit
your Policy with units in that Investment Subdivision. We determine the number
of units by dividing the amount allocated, transferred or repaid to the
Investment Subdivision by the Investment Subdivision's Unit Value for the
Valuation Day when we effect the allocation, transfer or repayment.
The number of units we credit to a Policy will decrease whenever we take the
allocated portion of the monthly deduction, you take a Policy loan or a partial
surrender from the Investment Subdivision, you transfer an amount from the
Investment Subdivision, you take a partial surrender from the Investment
Subdivision, or you surrender the Policy.
UNIT VALUES
We arbitrarily set the Unit Value for each Investment Subdivision at $10 when
we established the Investment Subdivision. After that, an Investment
Subdivision's Unit Value varies to reflect the investment experience of the
underlying portfolio, and may increase or decrease from one Valuation Day to
the next. We determine Unit Value,
36
after an Investment Subdivision's operations begin, by multiplying the net
investment factor for that Valuation Period by the Unit Value for the
immediately preceding Valuation Period.
NET INVESTMENT FACTOR
The net investment factor for a Valuation Period is (a) divided by (b), minus
(c), where:
(a) is the result of:
1. the value of the assets at the end of the preceding Valuation Period;
plus
2. the investment income and capital gains, realized or unrealized, credited
to those assets at the end of the Valuation Period for which the net
investment factor is being determined; minus
3. the capital losses, realized or unrealized, charged against those assets
during the Valuation Period; minus
4. any amount charged against Separate Account III for taxes, or any amount
we set aside during the Valuation Period as a provision for taxes
attributable to the operation or maintenance of Separate Account III; and
(b) is the value of the assets in the Investment Subdivision at the end of the
preceding Valuation Period; and
(c) is a charge no greater than .0019246% for each day in the Valuation Period.
This corresponds to .70% per year.
37
Transfers
GENERAL
You may transfer all or a portion of your Account Value between and among the
Investment Subdivisions subject to certain conditions. Transfer requests may be
made in writing or in any other form acceptable to us. A transfer will take
effect as of the end of the Valuation Period during which we receive your
request at our Variable Life Servicing Center.
We may place limitations on multiple transfer requests made at different times
during the same Valuation Period involving the same Investment Subdivisions.
We may defer transfers under the same conditions that we may delay paying
proceeds. See Requesting Payments. Currently, there is no limit on the number
of transfers among the Investment Subdivisions, but we reserve the right to
limit the number of transfers to twelve each calendar year. We reserve the
right to modify, restrict, suspend or eliminate the transfer privileges,
including telephone transfer privileges, at any time, for any reason. There is
a charge after the first transfer made in a calendar month. See Transfer
Charge.
We reserve the right to refuse to execute any transfer:
1. If any of the Investment Subdivisions that would be affected by the transfer
is unable to purchase or redeem shares of the Fund in which the Investment
Subdivisions invests; or
2. If the transfer is a result of more that one trade involving the same
Investment Subdivisions within a 30 day period; or
3. If necessary for the Policy to be treated as a life insurance policy under
the Internal Revenue Code of 1986, as amended; or
4. If the transfer would adversely affect accumulation unit values. This may
occur if the transfer would affect one percent or more of the relevant
Fund's total assets.
We also may not honor transfers made by third parties. (See Transfers by Third
Parties.)
When thinking about a transfer of Account Value, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that you will make a transfer at an inopportune time.
DOLLAR-COST AVERAGING
The dollar-cost averaging program permits you to systematically transfer on a
monthly or quarterly basis a set dollar amount from the Investment Subdivision
investing in the Money Market portfolio of the GE Investments Funds (the "Money
Market Investment Subdivision") to any combination of other Investment
Subdivisions (as long as the total number of Investment Subdivisions used does
not exceed the maximum number allowed under the Policy). The dollar-cost
averaging method of
38
investment is designed to reduce the risk of making purchases only when the
price of units is high, but you should carefully consider your financial
ability to continue the program over a long enough period of time to purchase
units when their value is low as well as when it is high. Dollar-cost averaging
does not assure a profit or protect against a loss.
You may participate in the dollar-cost averaging program by completing a
dollar-cost averaging agreement or calling our Variable Life Servicing Center.
To use the dollar-cost averaging program, you must transfer at least $100 from
the Money Market Investment Subdivision to any other Investment Subdivision. If
any transfer would leave less than $100 in the Money Market Investment
Subdivision, we will transfer the entire amount. Once elected, dollar-cost
averaging remains in effect from the date we receive your request until the
value of the Money Market Investment Subdivision is depleted, or until you
cancel the program by written request or by telephone if we have your telephone
authorization on file. The dollar-cost averaging program will start 30 days
after we receive your premium payment and instructions, unless you specify an
earlier date.
There is no additional charge for dollar-cost averaging, and we do not consider
a transfer under this program a transfer for purposes of assessing a transfer
charge, nor for calculating any limit on the maximum number of transfers we may
impose for a calendar year. We reserve the right to discontinue or modify the
dollar-cost averaging program at any time and for any reason.
PORTFOLIO REBALANCING
Once you allocate your money among the Investment Subdivisions, the performance
of each Investment Subdivision may cause your allocation to shift. You may
instruct us to automatically rebalance (on a quarterly, semi-annual or annual
basis) your Account Value to return to the percentages specified in your
allocation instructions. You may elect to participate in the portfolio
rebalancing program at any time by completing the portfolio rebalancing
agreement. Your percentage allocations must be in whole percentages. Subsequent
changes to your percentage allocations may be made at any time by writing or
calling our Variable Life Servicing Center. Once elected, portfolio rebalancing
remains in effect from the date we receive your request until you instruct us
to discontinue portfolio rebalancing. There is no additional charge for using
portfolio rebalancing, and we do not consider a portfolio rebalancing transfer
a transfer for purposes of assessing a transfer charge, nor for calculating any
limit on the maximum number of transfers we may impose for a calendar year. We
reserve the right to discontinue or modify the portfolio rebalancing program at
any time and for any reason. Portfolio rebalancing does not guarantee a profit
or protect against a loss. We also reserve the right to exclude Investment
Subdivisions from portfolio rebalancing.
39
TRANSFERS BY THIRD PARTIES
As a general rule and as a convenience to you, we allow you to give a third
party the right to effect transfers on your behalf. However, when the same
third party makes transfers for many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers can disrupt
the orderly management of the portfolios underlying the Policy, can result in
higher costs to Owners, and are generally not compatible with the long-range
goals of Owners. We believe that such simultaneous transfers effected by such
third parties are not in the best interests of all shareholders of the
portfolios underlying the Policies, and the managements of those portfolios
share this position.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties who make transfers on behalf of
multiple Owners, we may not honor such transfers. Also, we will institute
procedures to assure that the transfer requests that we receive have, in fact,
been made by the Owners in whose names they are submitted. These procedures
will not, however, prevent you from making your own transfer requests.
40
Death Benefits
As long as the Policy remains in force, we will process a claim for Death
Proceeds upon receipt at our Variable Life Servicing Center of: (i) the Policy;
(ii) satisfactory proof that both Insureds died while the Policy was in effect;
and (iii) proof of interest of the claimant. See Requesting Payments. We will
pay the Death Proceeds to the Beneficiary. No Death Proceeds are available at
the death of the first Insured to die.
AMOUNT OF DEATH PROCEEDS
The amount of Death Proceeds will depend on:
. the Death Benefit determined under the Death Benefit Option in effect on the
date of death of the Last Insured;
. the use of the Account Value;
. any partial surrenders;
. any Policy Debt;
. any additional insurance provided by rider;
. any increase or decrease in existing coverage;
. either Insured's suicide during the first two Policy Years or during the
first two Policy Years following an increase in existing coverage; and
. a misstatement of either Insured's Age or gender.
FOUR YEAR TERM RIDER
The Four Year Term Rider, if selected, protects your estate from the IRS's
"contemplation of death" rules. To avoid inclusion of Policy Death Proceeds in
your estate, the Insureds cannot possess any incidence of ownership in the
Policy (i.e., the Policy must be owned by a trust or other third party).
However, certain situations may call for the Insureds to initially own the
Policy when estate planning documents are drawn. After ownership of the Policy
has been relinquished, the Insureds must live three years for the Death
Proceeds to avoid estate tax inclusion. The Four Year Term Rider provides an
extra amount of insurance for the first four Policy years to cover the
additional estate tax triggered if the second death occurs within the first
three years. We will pay the amount payable under the rider at the death of the
Last Insured. You may only elect the Four Year Term Rider at the time we issue
the Policy. There is an extra charge for this rider that will be included in
your monthly deduction. See Tax Considerations. Please see your Policy for
additional information.
Additional rules and limits apply to this supplemental benefit. Please ask your
authorized GE Capital Life agent for further information or contact our
Variable Life Servicing Center.
41
DEATH BENEFIT OPTIONS
There are two Death Benefit Options available under the Policy. Under Option A,
the Death Benefit equals the greater of:
. the Specified Amount plus the Account Value; or
. the applicable corridor percentage of the Account Value as determined using
the table of percentages shown below.
Under Option B, the Death Benefit equals the greater of:
. the Specified Amount; or
. the applicable corridor percentage of the Account Value as determined using
the table percentages shown below.
Under both options, we determine the Specified Amount and Account Value as of
the Valuation Day of death of the Last Insured. The corridor percentage is 250%
until the younger Insured attains Age 40 and declines after that as the younger
Insured's Attained Age increases. If the younger Insured was the first to die,
the corridor percentage will depend on the Attained Age that he or she would
have been if still living. If the table of percentages currently in effect
becomes inconsistent with any Federal income tax laws and/or regulations, we
reserve the right to change the table.
Table of Percentages of Account Value
Younger Younger Younger
Insured's Corridor Insured's Corridor Insured's Corridor
Attained Age Percentage Attained Age Percentage Attained Age Percentage
- ------------------------------------------------------------------------
0-40 250% 54 157% 68 117%
41 243% 55 150% 69 116%
42 236% 56 146% 70 115%
43 229% 57 142% 71 113%
44 222% 58 138% 72 111%
45 215% 59 134% 73 109%
46 209% 60 130% 74 107%
47 203% 61 128% 75-90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94+ 101%
52 171% 66 119%
53 164% 67 118%
- ------------------------------------------------------------------------
Under Death Benefit Option A, the Death Benefit will vary directly with the
investment performance of the Account Value. Under Death Benefit Option B, the
Death Benefit ordinarily will not change until the applicable percentage amount
of the Account Value exceeds the Specified Amount or you change the Specified
Amount.
42
CHANGING THE DEATH BENEFIT OPTION
You select the Death Benefit Option when you apply for the Policy. However, you
may change the Option on your Policy at any time by writing to our Variable
Life Servicing Center. The effective date of the change will be the Monthly
Anniversary Day after we receive the request for the change. We will send you
revised Policy data pages reflecting the new Option and the effective date of
the change. If you request a change from Death Benefit Option A to Death
Benefit Option B, we will increase the Specified Amount by the Account Value on
the effective date of the increase. If you request a change from Death Benefit
Option B to Death Benefit Option A, we will decrease the Specified Amount after
the change by the Account Value on the effective date of the change. A change
in the Death Benefit Option will affect the cost of insurance charges.
CHANGING THE SPECIFIED AMOUNT
After a Policy has been in effect for one year, you may increase or decrease
the Specified Amount. However, we permit changes in the Specified Amount that
are a result of a Death Benefit Option Change any time. To make a change, you
must send a written request and the Policy to our Variable Life Servicing
Center. Any change in the Specified Amount may affect the cost of insurance
rate and the net amount at risk, both of which may change your cost of
insurance. See Monthly Deduction and Cost of Insurance. Depending on the
Account Value at the time of an increase in the Specified Amount and the amount
of the increase requested, it may be advisable to change your periodic payments
upon an increase in the Specified Amount.
Any change in the Specified Amount will affect the maximum premium limitation.
If a decrease in the Specified Amount causes the premiums to exceed new lower
limitations required by Federal tax law, we will withdraw the excess from
Account Value and refund it to you so that the Policy will continue to meet
these requirements. We will withdraw the Account Value that we refund from each
Investment Subdivision in the same proportion that the Account Value in that
Investment Subdivision bears to the total Account Value in all Investment
Subdivisions under the Policy at the time of the withdrawal (i.e., on a pro-
rata basis).
Any decrease in the Specified Amount will become effective on the Monthly
Anniversary Day after the date we receive the request. The decrease will first
apply to coverage provided by the most recent increase, then to the next most
recent increases successively, then to the coverage under the original
application. During the Continuation Period, we will not allow a decrease
unless the Account Value less any Policy Debt is greater than the surrender
charge. The Specified Amount following a decrease can never be less than the
minimum Specified Amount for the Policy when we issued it. A decrease may cause
us to assess a surrender charge.
43
While both Insureds are living, you may apply for an increase in Specified
Amount by completing a supplemental application. You will have to submit
evidence satisfactory to us that each Insured is insurable at the same or
better rating class used when the Policy was issued. An increase in Specified
Amount (other than as a result of a change from Death Benefit Option A to Death
Benefit Option B) will subject you to additional surrender charges. See
Surrender Charge. Any approved increase will become effective on the date shown
in the supplemental Policy data page. Please note that an increase will not
become effective if the Policy's Surrender Value is too low to cover the
monthly deduction for the Policy Month following the increase.
If there is an increase in the Specified Amount, you will incur a monthly
expense charge of up to $.20 per $1,000 of increase depending on the issue age
of each Insured. We currently vary this charge based on the issue Age of each
Insured, and we currently deduct this charge only during the first ten Policy
years following the increase. This charge will be included in the monthly
deduction. See Monthly Deduction and Surrender Charge.
An increase in the Specified Amount will increase the Continuation Amounts.
A change in your Specified Amount may have Federal tax consequences. See Tax
Considerations.
44
Surrenders and Partial Surrenders
SURRENDERS
You may cancel and surrender your Policy at any time before the death of the
Last Insured and before the Maturity Date. The Policy will terminate on the
Valuation Day we receive your request at our Variable Life Servicing Center,
and you will not be able to reinstate it.
We will pay you the Surrender Value in a lump sum unless you make other
arrangements. You will incur a surrender charge if you surrender your Policy
during the first 11 Policy years, or during 11 Policy years after an increase
in Specified Amount (except for an increase in Specified Amount due to a change
in the Death Benefit Option). See Surrender Charge. A surrender may have
adverse tax consequences. See Tax Considerations.
PARTIAL SURRENDERS
You may make partial surrenders under your Policy at any time before the death
of the Last Insured and before the Maturity Date if you elected Death Benefit
Option A. If you elected Death Benefit Option B, you only may make partial
surrenders after the first Policy year and before the earlier of (i) the death
of the Last Insured and (ii) the Maturity Date. The minimum partial surrender
amount is $500. The maximum partial surrender amount is the lesser of:
. the Surrender Value less $500; and
. the available loan amount (which is equal to 90% of the difference between
Account Value and any surrender charges, minus any Policy Debt).
We will assess a processing fee for each partial surrender. See Partial
Surrender Processing Fee. The amount of the partial surrender will equal the
amount you requested to surrender plus the processing fee.
When you request a partial surrender, you can direct how we deduct the
surrender from your Account Value. If you provide no directions, we will deduct
the partial surrender proportionately from the Investment Subdivisions in which
you are invested.
EFFECT OF PARTIAL SURRENDERS ON ACCOUNT VALUE AND DEATH PROCEEDS
A partial surrender will reduce both the Account Value and the Death Proceeds
by the amount of the partial surrender. Under Death Benefit Option B, the
Specified Amount will also decrease by the amount of the partial surrender.
45
Loans
GENERAL
You may borrow up to the following amount:
. 90% of the difference between your Account Value at the end of the Valuation
Period during which we received your loan request and any surrender charges
on the date of the loan;
. less any outstanding Policy Debt.
You may request Policy loans by writing our Variable Life Servicing Center.
When we make a loan, we transfer an amount equal to the loan proceeds from your
Account Value in Separate Account III to our General Account and hold it as
"collateral" for the loan. If you do not direct an allocation for this
transfer, we will make it on a pro-rata basis from each Investment Subdivision
in which you have invested. We will credit interest at an annual rate of at
least 4% to the collateral.
You may repay a loan in part or in full at any time during either Insured's
life while your Policy is in effect. When you repay a loan, we transfer an
amount equal to the repayment from our General Account to Separate Account III
and allocate it as you direct when you repay the loan. If you provide no
directions, we will allocate the amount according to your standing instructions
for Net Premium allocations.
PREFERRED POLICY DEBT
We will designate a portion of Policy loans taken or existing on or after the
preferred loan availability date (as shown on the Policy data pages) as
preferred Policy Debt. In Policy years 11 and later, preferred Policy Debt will
be at least as large as the Account Value (less any surrender charge that
applies) minus the total premiums paid.
We redetermine the amount of preferred Policy Debt each Policy Month. We
reserve the right to change this practice in our sole discretion.
We currently credit interest at an annual rate of 4% to that portion of Account
Value transferred to the General Account which equals preferred Policy Debt.
INTEREST RATE CHARGED
We will charge interest daily on any outstanding non-preferred Policy loan at
an effective annual rate of 6%, and for an outstanding preferred Policy loan,
we charge interest daily at an effective annual rate of 4%. Interest is due and
payable at the end of each Policy year while a Policy loan is outstanding. If,
on any Policy anniversary, you have not paid interest accrued since the last
Policy anniversary, we add the amount of the interest to the loan and this
becomes part of your outstanding Policy Debt. We transfer the interest due from
each Investment Subdivision on a pro-rata basis.
46
REPAYMENT OF POLICY DEBT
You may repay all or part of your Policy Debt at any time while either Insured
is living and the Policy is in force. We will treat any payments by you other
than planned periodic premiums first as the repayment of any outstanding Policy
Debt. We will treat the portion of the payment in excess of any outstanding
Policy Debt as an unscheduled premium payment. We will first apply any
repayment to reduce the portion of Policy Debt that is not preferred Policy
Debt.
You must send loan repayments to our Variable Life Servicing Center. We will
credit the repayments as of the Valuation Day we receive them. We do not treat
a Policy loan repayment as a premium payment, and a loan repayment is not
subject to the premium charge.
EFFECT OF POLICY LOANS
A Policy loan affects the Policy, because we reduce the Death Proceeds and
Surrender Value under the Policy by the amount of any outstanding loan plus
interest you owe on the loan. Repaying the loan causes the Death Proceeds and
Surrender Value to increase by the amount of the repayment. As long as a loan
is outstanding, we hold an amount equal to the loan as collateral. This amount
is not affected by Separate Account III's investment performance. Amounts
transferred from Separate Account III as collateral will affect the Account
Value because we credit such amounts with an interest rate we declare rather
than a rate of return reflecting the investment performance of Separate Account
III.
There are risks involved in taking a Policy loan, a few of which include the
potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. See Tax Considerations.
We will notify you if the sum of your loans plus any interest you owe on the
loans is more than the Account Value less applicable surrender charges, or if
during the Continuation Period, the sum of your loans plus any interest you owe
on the loans is more than the Account Value less any applicable surrender
charges, and the Net Total Premium is less than the Continuation Amount. If you
do not submit a sufficient payment within 61 days from the date of the notice,
your Policy may terminate.
47
Termination
PREMIUM TO PREVENT TERMINATION
Generally, if on a Monthly Anniversary Day, the Surrender Value of your Policy
is too low to cover the monthly deduction, your Policy will be in default and a
grace period will begin. In that case, we will mail you notice of the
additional premium necessary to prevent your Policy from terminating. You will
have a 61-day grace period from the date we mail the notice to make the
required premium payment.
However, your Policy will not lapse during the Continuation Period, even if
your Surrender Value is too low to cover the monthly deduction, so long as the
Net Total Premium is at least equal to the Continuation Amount. At the end of
the Continuation Period, you may, however, have to make an additional premium
payment to keep the Policy in force. In any event, your Policy will terminate
on the Maturity Date.
YOUR POLICY WILL REMAIN IN EFFECT DURING THE GRACE PERIOD
If the death of the Last Insured occurs during the grace period before you pay
the required premium, the Death Proceeds will still be payable to the
Beneficiary, although we will reduce the amount of the Death Proceeds by the
amount of premium that would have been required to keep the Policy in force. If
you have not paid the required premium before the grace period ends, your
Policy will terminate. It will have no value and no benefits will be payable.
However, you may reinstate your Policy under certain circumstances.
REINSTATEMENT
If you have not surrendered your Policy, you may reinstate your Policy within
three years after termination, subject to compliance with certain conditions,
including the payment of a necessary premium. You must also submit evidence of
insurability satisfactory to us that each Insured is insurable at the same
rating class used at Policy issue to determine the guaranteed maximum cost of
insurance rate scale. See your Policy for further information.
Any termination and subsequent reinstatement of the Policy will reduce the
Continuation Amounts.
48
Payments and Telephone Transactions
REQUESTING PAYMENTS
You may send your written requests for payment to our Variable Life Servicing
Center or give them to one of our authorized agents. We will ordinarily pay any
Death Proceeds, loan proceeds or surrender or partial surrender proceeds in a
lump sum within seven days after receipt at our Variable Life Servicing Center
of the documents required for such a payment. Other than the Death Proceeds,
which we determine as of the Valuation Day of death of the Last Insured, the
amount we pay is as of the end of the Valuation Period during which our
Variable Life Servicing Center receives all required documents. We may pay your
Death Proceeds in a lump sum or under an Optional Payment Plan. See Optional
Payment Plans.
In most cases, when death benefit payments are paid in a lump sum, we will pay
the death benefit payments by establishing an interest bearing account, called
the "Secure Access Account," for the Beneficiary, in the amount of the death
benefit payments payable. We will send the Beneficiary a checkbook within 7
days after we receive all the required documents, and the Beneficiary will have
immediate access to the account simply by writing a check for all or any part
of the amount of the death benefit payments payable. The Secure Access Account
is part of our General Account. It is not a bank account and it is not insured
by the FDIC or any other government agency. As part of our General Account, it
is subject to the claims of our creditors. We receive a benefit from all
amounts left in the Secure Access Account.
Any Death Proceeds that we pay in one lump sum will include interest from the
date of death of the Last Insured to the date of payment. We will pay interest
at a rate we set, or a rate set by law if greater. The minimum interest rate
which we may pay is 3.0%. We will not pay interest beyond one year or any
longer time set by law. We will reduce Death Proceeds by any outstanding Policy
Debt and any due and unpaid charges and will increase Death Proceeds by any
benefits added by rider.
We may delay making a payment or processing a transfer request if:
. the disposal or valuation of Separate Account III's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists; or
. the SEC by order permits postponement of payment to protect our Policy
Owners.
We also may defer making payments attributable to a check that has not cleared
the bank on which it is drawn.
49
TELEPHONE TRANSACTIONS
You may make certain requests under your Policy by calling us provided we
received your prior written authorization at our Variable Life Servicing
Center. Such requests include but are not necessarily limited to requests for
transfers and changes in premium allocations, dollar-cost averaging, and
portfolio rebalancing.
By completing the telephone authorization form, you agree that we will not be
liable for any loss, liability, cost or expense when we follow the telephone
instructions we receive. If we later determine that you did not make a
telephone request, or the request was made without your authorization, you will
bear any loss that resulted from such unauthorized transaction. We will employ
reasonable procedures to confirm that instructions we receive are genuine. Such
procedures may include, among others,
. requiring you or a third party you authorized to provide some form of
personal identification before we act on the telephone instructions,
. confirming the telephone transaction in writing to you or a third party you
authorized, and/or
. tape recording telephone instructions.
If we do not follow reasonable procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. We reserve the right to limit or
prohibit telephone transactions.
To request a telephone transaction, please call us at 1-800-313-5282.
50
Tax Considerations
FEDERAL TAX MATTERS
Introduction
This part of the Prospectus discusses the Federal income tax treatment of the
Policy. The Federal income tax treatment of the Policy is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances.
This discussion is general and is not intended as tax advice. It does not
address all of the Federal income tax rules that may affect you and your
Policy. This discussion also does not address Federal estate or gift tax
consequences, or state or local tax consequences, associated with a Policy. As
a result, you should always consult a tax advisor about the application of tax
rules to your individual situation.
TAX STATUS OF THE POLICY
Federal income tax law generally grants favorable treatment to life insurance:
the proceeds paid on the death of the Last Insured are excluded from the gross
income of the Beneficiary, and the Owner is not taxed on increases in the
Account Value unless amounts are distributed while an Insured is alive. For
this treatment to apply to your Policy, the premiums paid for your Policy must
not exceed a limit established by the tax law. An increase or decrease in the
Policy's Specified Amount may change this premium limit. Also, due to the
coverage of more than one Insured under the Policy, there is some uncertainty
about how this limit should be calculated. As a result, we may need to return a
portion of your premiums (with earnings) and impose higher cost of insurance
charges in the future.
We will monitor the premiums paid for your Policy to keep them within the tax
law's limit. However, for your Policy to receive favorable tax treatment as
life insurance, two other requirements must be met:
. The investments of Separate Account III must be "adequately diversified" in
accordance with Internal Revenue Service ("IRS") regulations; and
. your right to choose particular investments for a Policy must be limited.
Investments in Separate Account III must be diversified: The IRS has issued
regulations that prescribe standards for determining whether the investments of
Separate Account III, including the assets of the Funds in which Separate
Account III invests, are "adequately diversified." If Separate Account III
fails to comply with these diversification standards, you could be required to
pay tax currently on the excess of the Account Value over the premiums paid for
the Policy.
Although we do not control the investments of all of the Funds (the Company
only indirectly controls those of GE Investments Funds, Inc., through an
affiliated company), we expect that the Funds will comply with the IRS
regulations so that Separate Account III will be considered "adequately
diversified."
51
Restrictions on the extent to which you can direct the investment of Account
Values: Federal income tax law limits your right to choose particular
investments for the Policy. The U.S. Treasury Department stated in 1986 that it
expected to issue guidance clarifying those limits, but it has not yet done so.
Thus, the nature of the limits is currently uncertain. As a result, your right
to allocate Account Values among the Funds may exceed those limits. If so, you
would be treated as the owner of a portion of the assets of Separate Account
III and thus subject to current taxation on the income and gains from those
assets.
The Company does not know what limits may be set forth in any guidance that the
Treasury Department may issue, or whether any such limits will apply to
existing Policies. The Company therefore reserves the right to modify the
Policy without your consent to attempt to prevent the tax law from considering
you to own a portion of the assets of Separate Account III.
No guarantees regarding tax treatment: The Company makes no guarantees
regarding the tax treatment of any Policy or of any transaction involving a
Policy. However, the remainder of this discussion assumes that your Policy will
be treated as a life insurance contract for Federal income tax purposes and
that the tax law will not impose tax on any increase in your Account Value
until there is a distribution from your Policy.
TAX TREATMENT OF POLICIES--GENERAL
Death Proceeds and Account Value Increases: A Policy's treatment as life
insurance for Federal income tax purposes generally has the following results:
. Death Proceeds are excludable from the gross income of the Beneficiary.
. You are not taxed on increases in the Account Value unless amounts are
distributed from the Policy while an Insured is alive.
. The taxation of amounts distributed while an Insured is alive depends upon
whether your Policy is a "modified endowment contract." The term "modified
endowment contract," or "MEC," is defined below.
Partial and full surrenders and maturity proceeds: A partial surrender occurs
when you receive less than the total amount of the Policy's Surrender Value;
receipt of the entire Surrender Value is a full surrender. If your Policy is
not a MEC, you will generally pay tax on the amount of a partial or full
surrender only to the extent it exceeds your "investment in the contract."
Maturity proceeds will be taxable to the extent the amount received plus Policy
Debt exceeds the investment in the contract. You will be taxed on this amount
at ordinary income tax rates, not at lower capital gains tax rates. Your
"investment in the contract" generally equals the total of the premiums paid
for your Policy plus the amount of any loan that was includible in your income,
reduced by any amounts you previously received from the Policy that you did not
include in your income.
52
Special rule for certain cash distributions in the first 15 Policy
years: During the first 15 Policy years after your Policy is issued, if we
distribute cash to you and reduce the Death Benefit (e.g., by decreasing the
Policy's Specified Amount), you may be required to pay tax on all or part of
the cash payment, even if it is less than your investment in the contract. This
also may occur if we distribute cash to you up to two years before the proceeds
are reduced, or if the cash payment is made in anticipation of the reduction.
However, you will not be required to pay tax on more than the amount by which
your Account Value exceeds your investment in the contract.
Considerations where an Insured lives past age 100: If an Insured survives
beyond the end of the mortality table used to measure charges under the Policy,
which ends at age 100, the IRS may seek to deny the tax-free treatment of the
Death Proceeds and instead to tax you on the amount by which your Account Value
exceeds your investment in the contract. Because we believe the Policy
continues to meet the Federal tax definition of life insurance beyond age 100,
we have no current plans to withhold or report taxes in this situation.
Loans: If your Policy is not a MEC, a loan received under a Policy (i.e.,
Policy Debt) normally will be treated as your indebtedness. Hence, so long as
the Policy remains in force, you will generally not be taxed on any part of a
Policy loan. However, it is possible that you could have additional income for
tax purposes if any of your Policy loan consists of Preferred Policy Debt. If
your Policy terminates (by a full surrender or by a lapse) while an Insured is
alive, you will be taxed on the amount (if any) by which the preferred Policy
Debt plus any amount received in cash exceeds your investment in the contract.
Generally, interest paid on Policy Debt or other indebtedness related to the
Policy will not be tax deductible, except in the case of certain indebtedness
under a Policy covering a "key person." A tax advisor should be consulted
before taking any Policy loan.
Loss of interest deduction where policies are held by or for the benefit of
corporations, trusts, etc.: If an entity (such as a corporation or a trust, not
an individual) purchases a Policy or is the beneficiary of a Policy a portion
of the interest on indebtedness unrelated to the Policy may not be deductible
by the entity. However, this rule does not apply to a Policy owned by an entity
engaged in a trade or business which covers the life of only one individual who
is:
. a 20% owner of the entity, or
. an officer, director, or employee of the trade or business,
at the time first covered by the Policy. This rule also does not apply to a
Policy owned by an entity engaged in a trade or business which covers the joint
lives of the 20%
53
owner of the entity and the owner's spouse at the time first covered by the
Policy. Entities that are considering purchasing the Policy, or that will be
Beneficiaries under a Policy, should consult a tax advisor.
Optional Payment Plans: If Death Proceeds under the Policy are paid under one
of the Optional Payment Plans, the Beneficiary will be taxed on a portion of
each payment (at ordinary income tax rates). The Company will notify the
Beneficiary annually of the taxable amount of each payment. However, if the
Death Proceeds are held by the Company under Optional Payment Plan 4 (interest
income), the Beneficiary will be taxed on the interest income as it is
credited.
Changes and Exchanges: The right to change Owners (see "Change of Owner") and
changes reducing future amounts of Death Proceeds may have tax consequences
depending upon the circumstances of each change. The exchange of one life
insurance contract for another life insurance contract generally is not taxed
(unless cash is distributed or a loan is reduced or forgiven). However, in the
case of the Policy, the other life insurance contract involved in the exchange
must also cover the same two Insureds. The exercise of a Policy Split Option
Rider may result in the taxation of the Policy as if there were a full
surrender.
SPECIAL RULES FOR MODIFIED ENDOWMENT CONTRACTS (MECs)
Definition of a "Modified Endowment Contract:" Special rules apply to a Policy
classified as a MEC. A Policy will be classified as a MEC if either of the
following is true:
. If premiums are paid more rapidly than allowed by a "7-pay test" under the
tax law. At your request, we will let you know the amount of premium that may
be paid for your Policy in any year that will avoid MEC treatment under the
7-pay test.
. If the Policy is received in exchange for another policy that is a MEC.
Due to the coverage of more than one Insured under the Policy, there are
special considerations in applying the 7-pay test. For example, a reduction in
the Death Benefit at any time, such as may occur upon a partial surrender, may
cause the Policy to be a MEC, resulting in the tax treatment described below
applying. Also and more generally, the manner of applying the 7-pay is somewhat
uncertain in the case of contracts covering more than one Insured.
Tax Treatment Of MECs: If a Policy is classified as a MEC, the following
special rules apply:
. A partial surrender will be taxable to you to the extent that the Account
Value exceeds your investment in the contract.
. A loan from the Policy (together with any unpaid interest included in Policy
Debt), and the amount of any assignment or pledge of the Policy, will be
taxed in the same manner as a partial surrender.
54
. A penalty tax of 10% will be imposed on the amount of any full or partial
surrender, loan and unpaid loan interest included in Policy Debt, assignment,
or pledge on which
you must pay tax. However, the penalty tax does not apply to a distribution
made:
(1) after you attain age 59 1/2,
(2) because you have become disabled, within the meaning of the tax law, or
(3) in substantially equal periodic payments (not less frequently than
annually) made over your life or life expectancy (or over the joint lives
or life expectancies of you and your beneficiary, within the meaning of
the tax law).
Special Rules If You Own More Than One MEC: All MECs that we (or any of our
affiliates) issue to you within the same calendar year will be combined to
determine the amount of any distribution from the Policy that will be taxable
to you.
Interpretative issues: The tax law's rules relating to MECs are complex and
open to considerable variation in interpretation. You should consult your tax
advisor before making any decisions regarding changes in coverage under or
distributions from your Policy.
INCOME TAX WITHHOLDING
We may be required to withhold and pay to the IRS a part of the taxable portion
of each distribution made under a Policy. However, in many cases, the recipient
may elect not to have any amounts withheld. You are responsible for payment of
all taxes and early distribution penalties, regardless of whether you request
that no taxes be withheld or if we do not withhold a sufficient amount of
taxes. At the time you request a distribution from the Policy, we will send you
forms that explain the withholding requirements.
TAX STATUS OF THE COMPANY
Under existing Federal income tax law, we do not expect to incur any Federal
income tax liability on the income or gains in Separate Account III. Based upon
this expectation, we do not impose a charge for Federal income taxes. If
Federal income tax law changes and we are required to pay taxes on some or all
of the income and gains earned by Separate Account III, we may impose a charge
for those taxes.
We may also incur state and local taxes, in addition to premium taxes for which
a deduction from premiums is currently made. At present, these taxes are not
significant. If there is a material change in state or local tax laws, we may
impose a charge for any taxes attributable to Separate Account III.
CHANGES IN THE LAW AND OTHER CONSIDERATIONS
This discussion is based on our understanding of the Federal income tax law
existing on the date of this Prospectus. Congress, the IRS, and the courts may
modify these laws at any time, and may do so retroactively. Any person
concerned about the tax implications of ownership of a Policy should consult a
tax advisor.
55
Other Policy Information
OPTIONAL PAYMENT PLANS
The Policy currently offers the following five Optional Payment Plans as
alternatives to the payment of Death Proceeds, Surrender Value, or your Account
Value on the Maturity Date in a lump sum (see Requesting Payments):
Plan 1 -- Income For A Fixed Period. We will make equal periodic payments for
a fixed period not longer than 30 years. Payments can be annual, semi-annual,
quarterly, or monthly. If the payee dies before the end of the fixed period, we
will discount the amount of the remaining guaranteed payments to the date of
the payee's death at a yearly rate of 3%. We will pay the discounted amount in
one sum to the payee's estate unless otherwise provided. Discounted means we
will deduct the amount of interest each remaining payment would have included
had it not been paid out earlty.
Plan 2 -- Life Income. We will make equal monthly payments for a guaranteed
minimum period. If the payee lives longer than the minimum period, payments
will continue for his or her life. The minimum period can be 10, 15, or 20
years. If the payee dies before the end of the guaranteed period, we will
discount the amount of remaining payments for the minimum period at the same
interest rate used to calculate the monthly income. We will pay the discounted
amount in one sum to the payee's estate unless otherwise provided.
Plan 3 -- Income of a Definite Amount. We will make equal periodic payments of
a definite amount. Payments can be annual, semi-annual, quarterly, or monthly.
The amount paid each year must be at least $120 for each $1,000 of proceeds.
Payments will continue until the proceeds are exhausted. The last payment will
equal the amount of any unpaid proceeds. If the payee dies, we will pay the
amount of the remaining proceeds with earned interest in one sum to the payee's
estate unless otherwise provided.
Plan 4 -- Interest Income. We will make periodic payments of interest earned
from the proceeds left with us. Payments can be annual, semi-annual, quarterly
or monthly and will begin at the end of the first period chosen. If the payee
dies, we will pay the amount of remaining proceeds and any earned but unpaid
interest in one sum to the payee's estate unless otherwise provided.
Plan 5 -- Joint Life and Survivor Income. We will make equal monthly payments
to two payees for a guaranteed minimum of 10 years. Each payee must be at least
35 years old when payments begin. Payments will continue as long as either
payee is living. If both payees die before the end of the minimum period, we
will discount the amount of the remaining payments for the 10 year period at
the same interest rate used to calculate the monthly income. We will pay the
discounted amount in one sum to the survivor's estate unless otherwise
provided.
You may select an Optional Payment Plan during either Insured's life in your
application or by writing our Variable Life Servicing Center. We will transfer
any
56
amount left with us for payment under an Optional Payment Plan to our General
Account. Payments under an Optional Payment Plan will not vary with the
investment performance of Separate Account III because they are forms of fixed-
benefit annuities. Amounts allocated to an Optional Payment Plan will earn
interest of at least 3% compounded annually. Certain conditions and
restrictions apply to payments received under an Optional Payment Plan. For
further information, please review your Policy or contact one of our authorized
agents.
DIVIDENDS
The Policy is non-participating. We will not pay dividends on the Policy.
INCONTESTABILITY
The Policy limits our right to contest the Policy as issued, as increased, or
as reinstated, except for material misstatements contained in the application,
a supplemental application, or a reinstatement application, after it has been
in force during the lifetimes of at least one of the Insureds for a minimum
period, generally for two years from the Policy Date, effective date of the
increase, or the date of reinstatement. We can only contest the Policy, an
increase in Specified Amount, and/or a reinstatement of the Policy if a copy of
the application was attached to the Policy when issued or delivered, or was
made a part of the Policy when a change in coverage or Policy reinstatement
went into effect. This provision does not apply to riders that provide
disability benefits.
SUICIDE EXCLUSION
If either Insured commits suicide within two years of the Policy Date, we will
limit the amount of proceeds we pay under the Policy to all premiums paid, less
outstanding Policy Debt and less amounts paid upon partial surrender of the
Policy. We also will provide a single life policy to the surviving Insured. The
single life policy will have the same Policy Date as this Policy. The rating
class of the single life policy will be the rating class of the surviving
Insured under this Policy. We may require increased premiums under the single
life policy. The policy or policies we offer will be one offered by us or by an
affiliate.
If the first Insured to die commits suicide more than two years after the
Policy Date but within two years after the effective date of an increase in the
Specified Amount, we will reduce the Specified Amount to the amount in effect
before the increase. We will refund any monthly deductions made with respect to
the increase in a lump sum to the Owner.
If the Last Insured commits suicide more than two years after the Policy Date
and within two years after an increase in the Specified Amount became
effective, we will reduce the Specified Amount to the amount in effect before
the increase. The
57
amount payable with respect to the increase will equal the monthly deductions
that were made for that increase. The amount payable will be treated as Death
Proceeds and paid to the Beneficiary under the same conditions as the initial
Specified Amount.
MISSTATEMENT OF AGE OR GENDER
We will adjust the Death Benefit if you misstated either Insured's Age or
gender in your application. See your Policy for details.
WRITTEN NOTICE
You should send any written notice to us at our Variable Life Servicing Center.
The notice should include the Policy number and each Insured's full name. We
will send any notice to the address shown in the application unless an
appropriate address change form has been filed with us.
TRUSTEE
If you name a trustee as the Owner or Beneficiary of the Policy and the trustee
subsequently exercises ownership rights or claims benefits thereunder, we will
have no obligation to verify that a trust is in effect or that the trustee is
acting within the scope of his or her authority. Payment of Policy benefits to
the trustee will release us from all obligations under the Policy to the extent
of the payment. When we make a payment to the trustee, we will have no
obligation to ensure that such payment is applied according to the terms of the
trust agreement.
OTHER CHANGES
At any time, we may make such changes in the Policy as are necessary to assure
compliance at all times with the definition of life insurance prescribed by the
Code.
Also, we may make changes:
. to make the Policy, our operations, or the operation of Separate Account III
conform with any law or regulation issued by any government agency to which
they are subject; or
. to reflect a change in the operation of Separate Account III, if allowed by
the Policy.
Only an authorized officer of GE Capital Life has the right to change the
Policy. No agent has the authority to change the Policy or waive any of its
terms. The President or a Vice President of GE Capital Life must sign all
endorsements, amendments, or riders to be valid.
REPORTS
We maintain records and accounts of all transactions involving the Policy,
Separate Account III and Policy Debt. Within 30 days after each Policy
anniversary, we will send you a report showing information about your Policy.
The report will show:
58
. the Specified Amount;
. the Account Value in each Investment Subdivision;
. the Surrender Value;
. the Policy Debt; and
. the premiums paid and charges made during the Policy year.
We also will send you an annual and a semi-annual report for each portfolio
underlying an Investment Subdivision to which you have allocated Account Value,
as required by the 1940 Act. In addition, when you pay premiums (other than by
pre-authorized checking account deduction), or if you take out a Policy loan,
make transfers or make partial surrenders, you will receive a written
confirmation of these transactions.
CHANGE OF OWNER
You may change the Owner of the Policy by sending a written request on a form
satisfactory to us to our Variable Life Servicing Center while either Insured
is alive and the Policy is in force. The change will take effect the date you
sign the written request, but the change will not affect any action we have
taken before we receive the written request. A change of Owner does not change
the Beneficiary designation.
SUPPLEMENTAL BENEFITS
There are several supplemental benefits available that you may add to your
Policy. These benefits may not be available to all Owners. Examples of these
benefits include:
. benefit which allows you to surrender this Policy in exchange for an
individual policy(ies) on one of the Insured(s) or for separate individual
policies on the life of each Insured. (no charge for this rider) (see The
Policy -- Split Option Rider);
. term insurance that helps protect your estate from the IRS's "contemplation
of death" rule by providing an additional amount of insurance for the first
4 policy years (additional charge, see Charges and Deductions, Monthly
Deductions) (see Death Benefits -- Four Year Term Rider).
Additional rules and limits apply to these supplemental benefits. Please ask
your authorized GE Capital Life agent for further information or contact our
Variable Life Servicing Center.
USING THE POLICY AS COLLATERAL
You can assign the Policy as collateral security. You must notify us in writing
on a form satisfactory to us if you assign the Policy. Any payments we made
before the assignment will not be affected. We are not responsible for the
validity of an assignment. An assignment may affect your rights and the rights
of the Beneficiary.
59
EXCHANGES
During the first 24 Policy Months, you have the right to exchange this Policy
for any other flexible adjustable joint and last survivor life Policy we or one
of our affiliates offer. We will not require evidence of insurability. If you
decide to make an exchange, we will notify you of the policies available for
exchange and the procedures to follow. You may elect to have the amount of the
new policy be either (a) or (b) where:
(a) is the Death Benefit on the date of the exchange, and
(b) is the Death Benefit minus Account Value on the date of exchange.
The new policy will have the same policy date, genders, issue ages and
equivalent rating classes as this Policy. The new policy will include such
riders and endorsements as were included in this Policy, if such riders and
endorsements are available with the new policy.
The exchange is subject to an equitable adjustment in payments and Account
Values to reflect variances, if any, in the payments and Account Values under
the existing Policy and the new policy.
REINSURANCE
We may reinsure a portion of the risks assumed under the Policies.
LEGAL PROCEEDINGS
GE Capital Life, like all other companies, is involved in lawsuits, including
class action lawsuits. In some class action and other lawsuits involving
insurance companies, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, GE Capital Life believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on it or Separate Account III.
60
Additional Information
SALES OF THE POLICIES
We have entered into an underwriting agreement with Capital Brokerage
Corporation (doing business in Indiana, Minnesota, New Mexico, and Texas as GE
Capital Brokerage Corporation) (the "Underwriter") for the distribution and
sale of the Policies. Pursuant to this agreement, the Underwriter serves as
principal underwriter for the Policies. The Underwriter is located at 6630 W.
Broad St., Richmond, Virginia 23230. The Underwriter was organized as a
corporation under the laws of the state of Washington in 1981 and is an
affiliate of ours. The Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as well as with the securities commissions in the states in which it operates,
and is a member of the National Association of Securities Dealers, Inc.
The Underwriter offers the Policies through its registered representatives who
are registered with the NASD and with the states in which they do business.
Registered representatives with the Underwriter are also licensed as insurance
agents in the states in which they do business and are appointed with us.
The Underwriter also enters into selling agreements with an affiliated broker-
dealer (Terra Securities Corporation) and independent broker-dealers to sell
the Policies. The registered representatives of these selling firms are
registered with the NASD and with the states in which they do business, are
licensed as insurance agents in the states in which they do business and are
appointed with us.
We pay sales commissions and other marketing related expenses to the
Underwriter for promotion and sales of the Policies by its registered
representatives as well as by selling firms. In the first Policy year, the
selling firm will receive a commission of up to approximately 55% of the first
year target premium (based on age, sex, Specified Amount, rating class and
other factors) plus up to approximately 3% of premiums paid in excess of the
first year target premium. In renewal years, the selling firm receives up to
approximately 3% of each premium paid. This commission may be returned to us if
the Policy is not continued through the first Policy year. We may on occassion
pay a higher commission for a short period of time as a special promotion. In
the case of sales by the Underwriter's registered representatives, a portion of
the sales commission is passed through the Underwriter to its registered
representative who sold the Policy. Because the Underwriter is our affiliate,
their registered representatives are eligible for various cash benefits, such
as bonuses, insurance benefits and financing arrangements, and non-cash
compensation programs that we offer, such as conferences, trips, prizes and
awards.
The Underwriter also receives 12b-1 fees from Janus Aspen Series.
In the case of sales by selling firms, the Underwriter passes through the
entire amount of the sales commission to the selling firm whose registered
representative sold the
61
Policy. The selling firm may retain a portion of the commission before it pays
the registered representative who sold the Policy.
We may also make payments for services that do not directly involve sales of
the Policies. These services may include the recruitment and training of
personnel, production of promotional literature, and similar services.
We intend to recover commissions, marketing, administrative and other expenses
and costs of Policy benefits through fees and charges imposed under the
Policies. Commissions paid on the Policies, including other incentives and
payments, are not charged directly to you or to the Account Value.
LEGAL MATTERS
The legal matters in connection with the Policy described in this Prospectus
have been passed on by Donita King, Senior Vice President, General Counsel &
Secretary of GE Capital Life. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on matters relating to the federal securities laws.
EXPERTS
The financial statements of GE Capital Life Assurance Company of New York as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, 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.
The report of KPMG LLP covering the December 31, 2000 financial statements of
the Company contains an explanatory paragraph that states that the balance
sheet of GE Capital Life Assurance Company of New York as of December 31, 2000
and the related statement of shareholder's interest for the year ended December
31, 2000 have been restated.
ACTUARIAL MATTERS
Actuarial matters included in this Prospectus have been examined by Paul Haley,
Vice President and Actuary of GE Capital Life, whose opinion we filed as an
exhibit to the registration statement.
FINANCIAL STATEMENTS
We did not include financial statements for GE Capital Life Separate Account
III in this prospectus because as of the date of this prospectus, Separate
Account III had not begun operation.
EXECUTIVE OFFICERS AND DIRECTORS
We are managed by a board of directors. The following table sets forth the
name, address and principal occupations during the past five years of each of
our executive officers and directors.
62
Positions and Offices with
Name Address Depositor
- ----------------------------------------------------------------------------
Pamela S. Schutz GE Financial Assurance Chairman, GE Capital Life
6610 W. Broad Street Assurance Company of New York
Richmond, VA 23230 since 5/98; President, GE Life
& Annuity since 5/98;
President of The Harvest Life
Insurance Company 9/97-12/98;
President, GE Capital Realty
Group 2/78-5/97. Senior Vice
President, Investments GE Life
& Annuity since 1999;
Director, GE Life & Annuity,
since 5/96; Director, GNA,
since 4/94.
Cheryl C. Whaley GE Capital Life Assurance President, Chief Executive
Company of New York Officer & Managing Officer, GE
125 Park Avenue, Capital Life Assurance Company
6th Floor of New York since 7/2000.
New York, NY 10017 Strategic Project Leader,
General Electric Company since
1995.
Marshall S. Belkin 345 Kear Street Director, GE Capital Life
Yorktown Heights, NY Assurance Company of New York;
10598 Attorney with Lieberman and
LeBovit (formerly Lieberman
Lebovit and Brofman).
Richard I. Byer Richartz Fliss Clark & Director, GE Capital Life
Pope Assurance Company of New York;
317 Madison Avenue Executive Vice President,
New York, NY 10017 Richartz Fliss Clark & Pope
since 1994; Director,
Workmen's Circle MultiCare
Center since 1997.
Thomas W. Casey GE Financial Assurance Vice President and Chief
6604 W. Broad St. Financial Officer GE Capital
Richmond, VA 23230 Life Assurance Company of New
York; Senior Vice President
and Chief Financial Officer,
GNA since 1996; Vice
President, GNA 1993-1996.
Stephen N. DeVos GNA Corporation Vice President and Investment
Two Union Square Officer, GE Capital Life
601 Union Street Assurance Company of New York;
Seattle, WA 98101 Vice President and Controller
of GNA since 1996; Technical
Adviser, GE Capital
Corporation 1994-1996.
Bernard M. Eiber 55 Northern Blvd. Director, GE Capital Life
Room 302 Assurance Company of New York;
Great Neck, NY 11021 Attorney, Law Firm of Bernard
Eiber since 1995.
Jerry S. Handler Handro Properties Director, GE Capital Life
151 West 40th St. Assurance Company of New York;
New York, NY 10018 President, Handro Management
Corporation and Manager
Partner of Handro Property LLC
since 1979.
Gerald A. Kaufman 33 Walt Whitman Rd., Director, GE Capital Life
Suite 233 Assurance Company of New York;
Huntrington Station, NY Director, American Mayflower
11746 Life Insurance Company of New
York since 1973.
Donita King GE Financial Assurance Senior Vice President, General
6610 W. Broad Street Counsel & Secretary, GE
Richmond, VA 23230 Capital Life Assurance Company
of New York; Senior Vice
President, General Counsel and
Secretary, GE Life & Annuity
since 3/99; Assistant General
Counsel, Prudential Insurance
Company of America, 3/89-3/99.
63
Positions and Offices with
Name Address Depositor
- ---------------------------------------------------------------------------
Leon E. Roday GE Financial Assurance Senior Vice President of GE
6604 West Broad St. Capital Life Assurance Company
Richmond, VA 23230 of New York; Senior Vice
President & Director, GE Life
& Annuity since 6/99; Senior
Vice President & Director, GE
Financial Assurance since
1996; LeBoeuf, Lamb, Greene &
MacRae, L.L.P. 1982-1996.
Thomas A. Skiff GE Financial Assurance Director, GE Capital Life
1650 Los Gamos Dr. Assurance Company of New York;
San Rafael, CA 94903 President, GE Financial
Assurance Long Term Care
Division.
Steven A. Smith First Colony Life Director, GE Capital Life
700 Main Street Assurance Company of New York;
Lynchburg, VA 24505 Senior Vice President and
Chief Actuary, First Colony
Life Insurance Company since
1977.
Geoffrey S. Stiff GE Financial Assurance Director, GE Capital Life
6610 W. Broad St. Assurance Company of New York;
Richmond, VA 23230 Senior Vice President, GE Life
& Annuity, since 3/99;
Director, GE Life & Annuity,
since 5/96; Vice President, GE
Life & Annuity 5/96-3/99;
Director of GNA since April,
1994; Senior Vice President,
Chief Financial Officer and
Treasurer of GNA since May,
1993; Senior Vice President,
Controller and Treasurer of
GNA Investors Trust since
1993.
- ---------------------------------------------------------------------------
OTHER INFORMATION
We have filed a Registration Statement with the SEC, under the Securities Act
of 1933 as amended, for the Policies being offered here. This Prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further
information about Separate Account III, the Company, and the Policies offered.
Statements in this Prospectus about the content of Policies and other legal
instruments are summaries. For the complete text of those Policies and
instruments, please refer to those documents as filed with the SEC and
available on the SEC's website at http://www.sec.gov.
64
Hypothetical Illustrations
To show you how the Policy works, we have included some hypothetical
illustrations for a Policy issued to a male Insured, age 55, and a female
Insured, age 55. These illustrations show how Account Values, Surrender Values,
and death benefits under the two Death Benefit options available under a Policy
vary over time assuming the following:
. The initial and planned premium of each illustration are allocated completely
to Separate Account III and remain there over the entire period:
. The Insureds both qualify for the Preferred No Nicotine Use classification;
. There are no partial surrenders and no supplemental benefits;
. There is no Policy Debt; and
. The portfolios earn gross (that is, before deductions for investment
management fees and other operating expenses of the portfolios) annual rates
of return of 0%, 6%, and 12%.
It is important to understand that the illustrations assume a level rate of
return for all years. The values of your Policy would be different from those
shown if the hypothetical returns averaged 0%, 6%, or 12% but fluctuated over
and under those averages for the years shown.
The illustrations reflect an average annual charge of .75% of the average daily
net assets of the portfolios for investment management fees and other operating
expenses. We calculated these fees based on an average of the expense ratios of
each of the portfolios (in some cases, we estimated those fees) for the latest
year of operations. The average daily charge for the portfolio expenses
reflects voluntary expense agreements between certain of the portfolios and
their investment managers. These expense agreements could terminate at any
time. See "Portfolio Annual Expense Table." If these agreements terminate, the
values shown on the following pages would be less.
The illustrations reflect a premium charge, the .70% mortality and expense risk
charge to Separate Account III, and the monthly deduction. The monthly
deduction is taken from the Policy Account Value each month. The monthly
deduction illustrated consists of the cost of insurance charge, the policy
charge of $5, and an expense charge of up to $0.20 per $1,000 of initial
Specified Amount. Our current charges and the maximum charges we have a
contractual right to charge are reflected in separate illustrations on the
following pages. See "Charges and Deductions." After deduction of estimated
portfolio expenses and the mortality and expense risk charge, the illustrated
gross annual investment rates of return of 0%, 6% and 12% correspond to
approximate net annual rates of return for the Investment Subdivisions of
- -1.45%, 4.55% and 10.55%, respectively.
65
All of the illustrations reflect the fact that no charges for Federal or state
income taxes are currently made against Separate Account III. To produce after
tax returns of 0%, 6%, or 12% if we were to make such charges in the future,
Separate Account III would have to earn a sufficient amount in excess of 0%,
6%, or 12% to cover any tax charges. The Surrender Values shown in the
illustrations reflect the fact that we deduct a Surrender Charge for the first
11 Policy years (and for 11 Policy years after you increase the Specified
Amount). See "Charges and Deductions."
Each illustration also has a column labeled "Premiums Accumulated at 5%
Interest Per Year." This column shows the amount that would accumulate if the
premium payments were invested to earn interest, after taxes, of 5% per year,
compounded annually.
Upon request, we will furnish you a personalized illustration based upon the
proposed Insureds' circumstances. Such illustrations will reflect the current
cost of insurance charges and the guaranteed maximum cost of insurance charges,
and may assume different hypothetical rates of return than those shown in the
following illustrations.
The investment rates of return we have chosen to use in the illustrations are
hypothetical only, and you should understand that they do not represent actual
past or future rates of return. The actual rates of return under a Policy may
be more or less than the hypothetical rates of return in the illustrations.
66
Flexible Premium Joint And Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $250,000
Female Issue Age 55 Preferred No Initial Premium and Planned
Nicotine Use
Death Benefit Option A Premium (Payable Annually) (1) $5,100
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Maximum Return with Maximum Return with Maximum
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End of At 5% ------------------------- ------------------------- -------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------
1 5,355 0 4,166 254,166 0 4,432 254,432 0 4,699 254,699
2 10,978 2,843 8,243 258,243 3,638 9,038 259,038 4,464 9,864 259,864
3 16,882 7,428 12,228 262,228 9,017 13,817 263,817 10,739 15,539 265,539
4 23,081 11,914 16,114 266,114 14,572 18,772 268,772 17,568 21,768 271,768
5 29,590 16,294 19,894 269,894 20,302 23,902 273,902 25,002 28,602 278,602
6 36,424 20,559 23,559 273,559 26,203 29,203 279,203 33,093 36,093 286,093
7 43,600 24,699 27,099 277,099 32,270 34,670 284,670 41,897 44,297 294,297
8 51,135 28,697 30,497 280,497 38,493 40,293 290,293 51,470 53,270 303,270
9 59,047 32,532 33,732 283,732 44,854 46,054 296,054 61,870 63,070 313,070
10 67,355 36,179 36,779 286,779 51,332 51,932 301,932 73,152 73,752 323,752
15 115,553 50,016 50,016 300,016 84,191 84,191 334,191 145,220 145,220 395,220
20 177,068 51,967 51,967 301,967 112,699 112,699 362,699 249,826 249,826 499,826
25 255,579 28,973 28,973 278,973 119,975 119,975 369,975 390,288 390,288 640,288
30 355,780 * * * 72,551 72,551 322,551 557,993 557,993 807,993
35 483,665 * * * * * * 714,883 714,883 964,883
- -------------------------------------------------------------------------------------------------
* Premium in addition to the planned premium is required to keep the Policy
in effect.
(1) The values illustrated assume that the planned premium of $5,100 is paid at
the beginning of each Policy year. Values will be different if premiums are
paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the
assumed hypothetical gross annual investment return were earned, the values
and benefits of an actual Policy with the listed specifications could never
be less than those shown, and in some cases may be greater than those
shown.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
67
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $250,000
Female Issue Age 55 Preferred No
Nicotine Use Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $ 5,100
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Current Return with Current Return with Current Charges
Accumulated Charges (2)(3) Charges (2)(3) (2)(3)
End of At 5% ------------------------- ------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -----------------------------------------------------------------------------------------------------
1 5,355 0 4,428 254,428 0 4,705 254,705 0 4,983 254,983
2 10,978 3,383 8,783 258,783 4,216 9,616 259,616 5,082 10,482 260,482
3 16,882 8,265 13,065 263,065 9,940 14,740 264,740 11,751 16,551 266,551
4 23,081 13,073 17,273 267,273 15,884 20,084 270,084 19,047 23,247 273,247
5 29,590 17,805 21,405 271,405 22,056 25,656 275,656 27,033 30,633 280,633
6 36,424 22,459 25,459 275,459 28,463 31,463 281,463 35,780 38,780 288,780
7 43,600 27,033 29,433 279,433 35,111 37,511 287,511 45,363 47,763 297,763
8 51,135 31,521 33,321 283,321 42,007 43,807 293,807 55,865 57,665 307,665
9 59,047 35,920 37,120 287,120 49,154 50,354 300,354 67,376 68,576 318,576
10 67,355 40,221 40,821 290,821 56,556 57,156 307,156 79,993 80,593 330,593
15 115,553 58,267 58,267 308,267 95,845 95,845 345,845 162,361 162,361 412,361
20 177,068 70,887 70,887 320,887 140,078 140,078 390,078 292,721 292,721 542,721
25 255,579 74,097 74,097 324,097 185,597 185,597 435,597 496,886 496,886 746,886
30 355,780 60,495 60,495 310,495 223,496 223,496 473,496 812,464 812,464 1,062,464
35 483,665 18,328 18,328 268,328 236,927 236,927 486,927 1,295,118 1,295,118 1,545,118
- -----------------------------------------------------------------------------------------------------
(1) The values illustrated assume that the planned premium of $5,100 is paid at
the beginning of each Policy year. Values will be different if premiums are
paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Capital Life anticipates
deducting these charges for the forseeable future, these charges are not
guaranteed and could be raised at the discretion of GE Capital Life.
Accordingly, even if the assumed hypothetical gross annual investment
return were earned, the values and benefits under an actual Policy with the
listed specifications may be less than those shown if the cost of insurance
or other charges were increased.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
68
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $250,000
Female Issue Age 55 Preferred No
Nicotine Use Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $3,800
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Maximum Return with Maximum Return with Maximum
End Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
of At 5% ------------------------- ------------------------- -------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------
1 3,990 0 2,987 250,000 0 3,182 250,000 0 3,377 250,000
2 8,180 504 5,904 250,000 1,081 6,481 250,000 1,682 7,082 250,000
3 12,578 3,947 8,747 250,000 5,097 9,897 250,000 6,344 11,144 250,000
4 17,197 7,310 11,510 250,000 9,230 13,430 250,000 11,394 15,594 250,000
5 22,047 10,587 14,187 250,000 13,477 17,077 250,000 16,868 20,468 250,000
6 27,140 13,772 16,772 250,000 17,836 20,836 250,000 22,803 25,803 250,000
7 32,487 16,855 19,255 250,000 22,302 24,702 250,000 29,237 31,637 250,000
8 38,101 19,822 21,622 250,000 26,866 28,666 250,000 36,213 38,013 250,000
9 43,996 22,656 23,856 250,000 31,515 32,715 250,000 43,772 44,972 250,000
10 50,186 25,336 25,936 250,000 36,232 36,832 250,000 51,961 52,561 250,000
15 86,098 35,064 35,064 250,000 59,966 59,966 250,000 104,697 104,697 250,000
20 131,933 34,876 34,876 250,000 81,211 81,211 250,000 187,445 187,445 250,000
25 190,431 11,749 11,749 250,000 90,810 90,810 250,000 328,212 328,212 344,623
30 265,091 * * * 64,001 64,001 250,000 555,681 555,681 583,465
35 360,378 * * * * * * 908,607 908,607 954,037
- -------------------------------------------------------------------------------------------------
* Premium in addition to the planned premium is required to keep the Policy
in effect.
(1) The values illustrated assume that the planned premium of $3,800 is paid at
the beginning of each Policy year. Values will be different if premiums are
paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the
assumed hypothetical gross annual investment return were earned, the values
and benefits of an actual Policy with the listed specifications could never
be less than those shown, and in some cases may be greater than those
shown.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
69
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $250,000
Female Issue Age 55 Preferred No
Nicotine Use Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $3,800
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Current Return with Current Return with Current
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End of At 5% ------------------------- ------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -----------------------------------------------------------------------------------------------------
1 3,990 0 3,230 250,000 0 3,434 250,000 0 3,639 250,000
2 8,180 1,005 6,405 250,000 1,617 7,017 250,000 2,253 7,653 250,000
3 12,578 4,725 9,525 250,000 5,952 10,752 250,000 7,281 12,081 250,000
4 17,197 8,388 12,588 250,000 10,446 14,646 250,000 12,764 16,964 250,000
5 22,047 11,993 15,593 250,000 15,104 18,704 250,000 18,749 22,349 250,000
6 27,140 15,538 18,538 250,000 19,930 22,930 250,000 25,285 28,285 250,000
7 32,487 19,022 21,422 250,000 24,929 27,329 250,000 32,430 34,830 250,000
8 38,101 22,441 24,241 250,000 30,106 31,906 250,000 40,243 42,043 250,000
9 43,996 25,789 26,989 250,000 35,463 36,663 250,000 48,792 49,992 250,000
10 50,186 29,062 29,662 250,000 41,004 41,604 250,000 58,150 58,750 250,000
15 86,098 42,423 42,423 250,000 70,051 70,051 250,000 119,035 119,035 250,000
20 131,933 51,502 51,502 250,000 103,276 103,276 250,000 217,972 217,972 250,000
25 190,431 53,426 53,426 250,000 140,855 140,855 250,000 382,627 382,627 401,758
30 265,091 41,690 41,690 250,000 184,017 184,017 250,000 651,773 651,773 684,362
35 360,378 992 992 250,000 239,860 239,860 251,853 1,087,349 1,087,349 1,141,716
- -----------------------------------------------------------------------------------------------------
(1) The values illustrated assume that the planned premium of $3,800 is paid at
the beginning of each Policy year. Values will be different if premiums are
paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Capital Life anticipates
deducting these charges for the forseeable future, these charges are not
guaranteed and could be raised at the discretion of GE Capital Life.
Accordingly, even if the assumed hypothetical gross annual investment
return were earned, the values and benefits under an actual Policy with the
listed specifications may be less than those shown if the cost of insurance
or other charges were increased.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
70
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $1,000,000
Female Issue Age 55 Preferred
No Nicotine Use Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $19,400
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Maximum Return with Maximum Return with Maximum
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End Of At 5% --------------------------- --------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---------------------------------------------------------------------------------------------------------
1 20,370 0 16,508 1,016,508 0 17,560 1,017,560 0 18,613 1,018,613
2 41,759 11,066 32,666 1,032,666 14,205 35,805 1,035,805 17,472 39,072 1,039,072
3 64,216 29,254 48,454 1,048,454 35,539 54,739 1,054,739 42,344 61,544 1,061,544
4 87,797 47,049 63,849 1,063,849 57,566 74,366 1,074,366 69,412 86,212 1,086,212
5 112,557 64,424 78,824 1,078,824 80,282 94,682 1,094,682 98,874 113,274 1,113,274
6 138,555 81,342 93,342 1,093,342 103,676 115,676 1,115,676 130,935 142,935 1,142,935
7 165,853 97,759 107,359 1,107,359 127,724 137,324 1,137,324 165,816 175,416 1,175,416
8 194,515 113,611 120,811 1,120,811 152,384 159,584 1,159,584 203,740 210,940 1,210,940
9 224,611 128,814 133,614 1,133,614 177,589 182,389 1,182,389 244,928 249,728 1,249,728
10 256,212 143,266 145,666 1,145,666 203,247 205,647 1,205,647 289,606 292,006 1,292,006
15 439,555 197,966 197,966 1,197,966 333,239 333,239 1,333,239 574,789 574,789 1,574,789
20 673,553 205,169 205,169 1,205,169 445,467 445,467 1,445,467 988,108 988,108 1,988,108
25 972,201 112,631 112,631 1,112,631 472,313 472,313 1,472,313 1,541,524 1,541,524 2,541,524
30 1,353,359 * * * 279,787 279,787 1,279,787 2,198,388 2,198,388 3,198,388
35 1,839,825 * * * * * * 2,802,809 2,802,809 3,802,809
- ---------------------------------------------------------------------------------------------------------
* Premium in addition to the planned premium is required to keep the Policy
in effect.
(1) The values illustrated assume that the planned premium of $19,400 is paid
at the beginning of each Policy year. Values will be different if premiums
are paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the
assumed hypothetical gross annual investment return were earned, the values
and benefits of an actual Policy with the listed specifications could never
be less than those shown, and in some cases may be greater than those
shown.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
71
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $1,000,000
Female Issue Age 55 Preferred
No Nicotine Use Initial Premium and Planned
Death Benefit Option A Premium (Payable Annually) (1) $19,400
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Current Return with Current Return with Current
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End of At 5% --------------------------- --------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---------------------------------------------------------------------------------------------------------
1 20,370 0 17,543 1,017,543 0 18,636 1,018,636 0 19,730 1,019,730
2 41,759 13,197 34,797 1,034,797 16,486 38,086 1,038,086 19,907 41,507 1,041,507
3 64,216 32,561 51,761 1,051,761 39,179 58,379 1,058,379 46,338 65,538 1,065,538
4 87,797 51,630 68,430 1,068,430 62,744 79,544 1,079,544 75,251 92,051 1,092,051
5 112,557 70,398 84,798 1,084,798 87,211 101,611 1,101,611 106,899 121,299 1,121,299
6 138,555 88,857 100,857 1,100,857 112,608 124,608 1,124,608 141,556 153,556 1,153,556
7 165,853 106,996 116,596 1,116,596 138,962 148,562 1,148,562 179,523 189,123 1,189,123
8 194,515 124,798 131,998 1,131,998 166,293 173,493 1,173,493 221,127 228,327 1,228,327
9 224,611 142,241 147,041 1,147,041 194,619 199,419 1,199,419 266,723 271,523 1,271,523
10 256,212 159,297 161,697 1,161,697 223,949 226,349 1,226,349 316,696 319,096 1,319,096
15 439,555 230,770 230,770 1,230,770 379,526 379,526 1,379,526 642,803 642,803 1,642,803
20 673,553 280,591 280,591 1,280,591 554,487 554,487 1,554,487 1,158,679 1,158,679 2,158,679
25 972,201 292,815 292,815 1,292,815 734,102 734,102 1,734,102 1,966,153 1,966,153 2,966,153
30 1,353,359 237,837 237,837 1,237,837 882,614 882,614 1,882,614 3,213,285 3,213,285 4,213,285
35 1,839,825 68,633 68,633 1,068,633 932,482 932,482 1,932,482 5,118,805 5,118,805 6,118,805
- ---------------------------------------------------------------------------------------------------------
(1) The values illustrated assume that the planned premium of $19,400 is paid
at the beginning of each Policy year. Values will be different if premiums
are paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Capital Life anticipates
deducting these charges for the forseeable future, these charges are not
guaranteed and could be raised at the discretion of GE Capital Life.
Accordingly, even if the assumed hypothetical gross annual investment
return were earned, the values and benefits under an actual Policy with the
listed specifications may be less than those shown if the cost of insurance
or other charges were increased.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
72
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $1,000,000
Female Issue Age 55 Preferred
No Nicotine Use Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $14,600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Maximum Return with Maximum Return with Maximum
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End of At 5% --------------------------- --------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---------------------------------------------------------------------------------------------------------
1 15,330 0 12,015 1,000,000 0 12,793 1,000,000 0 13,572 1,000,000
2 31,427 2,148 23,748 1,000,000 4,458 26,058 1,000,000 6,863 28,463 1,000,000
3 48,328 15,982 35,182 1,000,000 20,593 39,793 1,000,000 25,588 44,788 1,000,000
4 66,074 29,498 46,298 1,000,000 37,198 53,998 1,000,000 45,878 62,678 1,000,000
5 84,708 42,671 57,071 1,000,000 54,266 68,666 1,000,000 67,870 82,270 1,000,000
6 104,273 55,473 67,473 1,000,000 71,785 83,785 1,000,000 91,714 103,714 1,000,000
7 124,817 67,865 77,465 1,000,000 89,735 99,335 1,000,000 117,570 127,170 1,000,000
8 146,388 79,794 86,994 1,000,000 108,081 115,281 1,000,000 145,602 152,802 1,000,000
9 169,037 91,191 95,991 1,000,000 126,771 131,571 1,000,000 175,984 180,784 1,000,000
10 192,819 101,969 104,369 1,000,000 145,737 148,137 1,000,000 208,899 211,299 1,000,000
15 330,799 141,176 141,176 1,000,000 241,262 241,262 1,000,000 420,978 420,978 1,000,000
20 506,901 140,753 140,753 1,000,000 327,083 327,083 1,000,000 754,067 754,067 1,000,000
25 731,656 48,720 48,720 1,000,000 366,947 366,947 1,000,000 1,320,657 1,320,657 1,386,689
30 1,018,508 * * * 263,170 263,170 1,000,000 2,235,787 2,235,787 2,347,576
35 1,384,610 * * * * * * 3,655,636 3,655,636 3,838,417
- ---------------------------------------------------------------------------------------------------------
* Premium in addition to the planned premium is required to keep the Policy
in effect.
(1) The values illustrated assume that the planned premium of $14,600 is paid
at the beginning of each Policy year. Values will be different if premiums
are paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the
assumed hypothetical gross annual investment return were earned, the values
and benefits of an actual Policy with the listed specifications could never
be less than those shown, and in some cases may be greater than those
shown.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
73
Flexible Premium Joint and Last Survivor
Variable Life Insurance
Male Issue Age 55 Preferred No
Nicotine Use Initial Specified Amount $1,000,000
Female Issue Age 55 Preferred
No Nicotine Use Initial Premium and Planned
Death Benefit Option B Premium (Payable Annually) (1) $ 14,600
0% Assumed Hypothetical 6% Assumed Hypothetical 12% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Premiums Return with Current Return with Current Return with Current
Accumulated Charges (2)(3) Charges (2)(3) Charges (2)(3)
End of At 5% --------------------------- --------------------------- -----------------------------
Policy Interest Surrender Account Death Surrender Account Death Surrender Account Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---------------------------------------------------------------------------------------------------------
1 15,330 0 12,978 1,000,000 0 13,794 1,000,000 0 14,610 1,000,000
2 31,427 4,135 25,735 1,000,000 6,582 28,182 1,000,000 9,127 30,727 1,000,000
3 48,328 19,069 38,269 1,000,000 23,985 43,185 1,000,000 29,304 48,504 1,000,000
4 66,074 33,776 50,576 1,000,000 42,024 58,824 1,000,000 51,309 68,109 1,000,000
5 84,708 48,250 62,650 1,000,000 60,721 75,121 1,000,000 75,328 89,728 1,000,000
6 104,273 62,486 74,486 1,000,000 80,095 92,095 1,000,000 101,565 113,565 1,000,000
7 124,817 76,473 86,073 1,000,000 100,166 109,766 1,000,000 130,243 139,843 1,000,000
8 146,388 90,199 97,399 1,000,000 120,950 128,150 1,000,000 161,606 168,806 1,000,000
9 169,037 103,645 108,445 1,000,000 142,459 147,259 1,000,000 195,924 200,724 1,000,000
10 192,819 116,788 119,188 1,000,000 164,703 167,103 1,000,000 233,490 235,890 1,000,000
15 330,799 170,477 170,477 1,000,000 281,380 281,380 1,000,000 477,956 477,956 1,000,000
20 506,901 207,035 207,035 1,000,000 414,915 414,915 1,000,000 875,295 875,295 1,000,000
25 731,656 215,003 215,003 1,000,000 566,135 566,135 1,000,000 1,536,488 1,536,488 1,613,312
30 1,018,508 168,426 168,426 1,000,000 740,246 740,246 1,000,000 2,617,244 2,617,244 2,748,106
35 1,384,610 6,262 6,262 1,000,000 966,376 966,376 1,014,695 4,366,295 4,366,295 4,584,609
- ---------------------------------------------------------------------------------------------------------
(1) The values illustrated assume that the planned premium of $14,600 is paid
at the beginning of each Policy year. Values will be different if premiums
are paid with a different frequency or in different amounts.
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or partial surrenders have been made. Excessive loans
or partial surrenders may cause this Policy to lapse because of
insufficient Account Value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Capital Life anticipates
deducting these charges for the forseeable future, these charges are not
guaranteed and could be raised at the discretion of GE Capital Life.
Accordingly, even if the assumed hypothetical gross annual investment
return were earned, the values and benefits under an actual Policy with the
listed specifications may be less than those shown if the cost of insurance
or other charges were increased.
The hypothetical gross annual investment rates of return shown above and
elsewhere in this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return.
Actual investment rates of return may be more or less than those shown and will
depend on a number of factors, including prevailing interest rates, rates of
inflation, and the allocations made by an Owner among the Investment
Subdivisions. The gross hypothetical investment rates of return of 0%, 6%, and
12% shown above correspond to net annual rates of -1.45%, 4.55%, and 10.55%.
The Death Benefit, Surrender Value and Account Value for a Policy will be
different from those shown if the actual investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuated above or below those averages
for individual Policy years. No representations can be made by GE Capital Life
Assurance Company of New York or the Funds that these hypothetical investment
rates of return can be achieved for any one year or sustained over any period
of time.
74
GE CAPITAL LIFE ASSURANCE COMPANY
Table of Contents
Six months ended June 30, 2001
Page
----
Consolidated Balance Sheets................................................ F-1
Consolidated Statements of Income.......................................... F-2
Consolidated Statements of Shareholders' Interest.......................... F-3
Consolidated Statements of Cash Flows...................................... F-4
Notes to Financial Statements (unaudited).................................. F-5
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Financial Statements
Six months ended June 30, 2001
(Unaudited)
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(Dollar amounts in millions, except per share amounts)
Restated
June 30, December 31,
----------- ------------
2001 2000
----------- ------------
(unaudited)
Assets
Investments:
Fixed maturities available-for-sale, at fair value.. $2,452.5 $2,079.7
Equity Securities available for sale, at fair value:
Preferred Stock, non-redeemable.................... 5.3 4.6
Mortgage loans...................................... 333.2 329.8
Policy loans........................................ 1.3 1.3
Short-term investments.............................. -- 74.0
-------- --------
Total investments................................. 2,792.3 2,489.4
-------- --------
Cash and cash equivalents........................... 48.2 2.0
Accrued investment income........................... 61.0 50.6
Deferred acquisition costs.......................... 144.6 122.4
Intangible assets................................... 169.7 175.0
Deferred tax assets................................. 1.9 --
Other assets........................................ 7.9 15.6
Reinsurance recoverable............................. 6.6 5.6
Separate account assets............................. 67.0 61.1
-------- --------
Total assets...................................... $3,299.2 $2,921.7
======== ========
Liabilities and Shareholder's Interest
Liabilities:
Future annuity and contract benefits................ $2,538.4 $2,294.4
Liability for policy and contract claims............ 68.4 57.7
Unearned premiums................................... 41.0 40.5
Other policyholder liabilities...................... 80.8 40.3
Accounts payable and accrued expenses............... 119.3 17.9
Deferred tax liabilities............................ -- 13.8
Separate account liabilities........................ 67.0 61.1
-------- --------
Total liabilities................................. 2,914.9 2,525.7
-------- --------
Shareholder's interest:
Net unrealized investment (losses) gains............ (1.3) 29.7
-------- --------
Accumulated non-owner changes in equity............. (1.3) 29.7
Common stock ($1,000 par value, 2,000 shares
authorized, issued and outstanding)................ 2.0 2.0
Additional paid-in capital.......................... 342.6 342.6
Retained earnings................................... 41.0 21.7
-------- --------
Total shareholder's interest...................... 384.3 396.0
-------- --------
Total liabilities and shareholder's interest...... $3,299.2 $2,921.7
======== ========
See accompanying notes to financial statements.
F-1
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(Dollar amounts in millions)
Unaudited
Six Months
Three Months Ended Ended
--------------------- ----------------
June 30 June 30 June 30 June 30
2001 2000 2001 2000
--------- --------- ------- -------
Revenues:
Net investment income................ $ 48.4 $ 36.3 $ 93.0 $ 70.5
Premiums............................. 44.6 23.1 82.6 46.2
Net realized investment gains
(losses)............................ 2.0 (0.1) 9.1 (1.3)
Other income......................... 0.4 1.0 1.0 1.5
--------- --------- ------ ------
Total revenues................... 95.4 60.3 185.7 116.9
--------- --------- ------ ------
Benefits and expenses:
Benefits and other changes in policy
reserves............................ 40.4 23.4 71.6 45.3
Interest credited.................... 27.1 20.9 51.7 39.9
Commissions.......................... 18.0 10.1 32.4 20.5
General expenses..................... 5.0 4.2 13.1 9.8
Amortization of intangibles, net..... 7.7 3.1 14.0 5.2
Change in deferred acquisition costs,
net................................. (16.0) (11.5) (27.5) (22.8)
--------- --------- ------ ------
Total benefits and expenses...... 82.2 50.2 155.3 97.9
--------- --------- ------ ------
Income before income taxes....... 13.2 10.2 30.4 19.0
Provision for income taxes........... 13.1 3.3 11.1 6.9
--------- --------- ------ ------
Net income....................... $ 0.1 $ 6.8 $ 19.3 $ 12.1
========= ========= ====== ======
See accompanying notes to financial statements.
F-2
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S INTEREST
Period ended June 30, 2001
(Dollar amounts in millions, except share amounts)
Accumulated
Common Stock Additional Non-owner Total
------------- Paid-In Changes In Retained Shareholder's
Shares Amount Capital Equity Earnings Interest
------ ------ ---------- ----------- -------- -------------
Balances at December
31, 1998.............. 2,000 $2.0 $259.4 $ 7.1 $(4.9) $263.6
Changes other than
transactions with
shareholder:
Net income........... -- -- -- -- 18.1 18.1
Net unrealized losses
on investment
securities(a)....... -- -- -- (39.6) -- (39.6)
------
Total changes other
than transactions
with shareholder.. (21.5)
------
Dividends declared..... -- -- -- -- (16.5) (16.5)
----- ---- ------ ------ ----- ------
Balances at December
31, 1999.............. 2,000 2.0 259.4 (32.5) (3.3) 225.6
Changes other than
transactions with
shareholder:
Net income........... -- -- -- -- 25.0 25.0
Net unrealized gains
on investment
securities(a)....... -- -- -- 62.2 -- 62.2
Non-cash capital
contribution........ -- -- 83.2 -- -- 83.2
------
Total changes other
than transactions
with shareholder.. 170.4
----- ---- ------ ------ ----- ------
Balances at December
31, 2000 (as
restated)............. 2,000 2.0 342.6 29.7 21.7 396.0
Changes other than
transactions with
shareholder:
Net income........... -- -- -- -- 19.3 19.3
Net unrealized gains
on investment
securities(a)....... -- -- -- (31.0) -- (31.0)
Non-cash capital
contribution........ -- -- -- -- -- --
------
Total changes other
than transactions
with shareholder.. (11.7)
----- ---- ------ ------ ----- ------
Balances at June 30,
2001 (unaudited)...... 2,000 $2.0 $342.6 $ (1.3) $41.0 $384.3
===== ==== ====== ====== ===== ======
- --------
(a) Presented net of deferred taxes of $16.7 million, $(33.5) million, and
$21.3 million in 2001, 2000, and 1999 respectively.
See accompanying notes to financial statements.
F-3
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Statements of Cash Flows
(Dollar amounts in millions)
(Unaudited)
Period Ended
June 30,
-----------------
2001 2000
-------- -------
Cash flows from operating activities:
Net income................................................ $ 19.3 $ 12.1
-------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in reserves....................................... 83.4 43.8
Other--net............................................... 127.4 (7.0)
Total adjustments....................................... 210.8 36.8
-------- -------
Net cash provided by operating activities............... 230.1 48.9
-------- -------
Cash flows from investing activities:
Short-term investing activities, net...................... 74.0 --
Proceeds from sales and maturities of investments in
securities............................................... 418.9 86.5
Purchases of securities................................... (833.1) (169.4)
Mortgage and policy loan originations..................... (16.7) (26.5)
Principal collected on mortgage and policy loans.......... 12.9 14.9
Net cash used in investing activities................... (344.0) (94.5)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of investment contracts............ 260.6 236.8
Redemption and benefit payments on investment contracts... (100.5) (116.9)
Dividends paid to shareholder............................. -- --
-------- -------
Net cash provided by (used in) financing activities..... 160.1 119.9
-------- -------
Net increase (decrease) in cash and cash equivalents.... 46.2 74.3
Cash and cash equivalents at beginning of period............ 2.0 4.3
-------- -------
Cash and cash equivalents at end of period.................. $ 48.2 $ 78.6
======== =======
See accompanying notes to financial statements.
F-4
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
Unaudited
1. The accompanying financial statements include the historical operations and
accounts of GE Capital Life Assurance Company of New York ("GECLA-NY" or
"the Company").
GE Capital Life Assurance Company of New York is a wholly-owned subsidiary
of General Electric Capital Assurance Company ("GE Capital Assurance"),
which, in turn, is wholly-owned by GE Financial Assurance Holdings, Inc.
("GE Financial Assurance"). Prior to January 1, 1999, the Company was a
majority owned subsidiary of GE Capital Assurance. The remaining minority
interest was owned by Great Northern Insured Annuity Corporation ("GNIAC"),
which was also a wholly-owned subsidiary of GE Capital Assurance. On
January 1, 1999, GNIAC merged with and into its parent company, GE Capital
Assurance.
These financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts and related disclosures. Actual results could differ from
those estimates. Certain prior year amounts may have been reclassified to
conform to the current year presentation.
These financial statements are unaudited. These statements include all
adjustments (consisting of normal recurring accruals) considered necessary
by management to present a fair statement of the results of operations,
financial position and cash flows. The results reported in these financial
statements should not be regarded as necessarily indicative of results that
may be expected for the entire year. The financial statements included
herein should be read in conjunction with the audited financial statements
and related notes contained in the Company's audited financial statements
for the year ended December 31, 2000.
2. The Financial Accounting Standards Board ("FASB") issued, then subsequently
amended, Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, which became
effective for the Company on January 1, 2001. Under SFAS No. 133, as
amended, all derivative instruments (including certain derivative
instruments embedded in other contracts) are recognized in the balance
sheet at their fair values and changes in fair value are recognized
immediately in earnings, unless the derivatives qualify as hedges of future
cash flows. For derivatives qualifying as hedges of future cash flows, the
effective portion of changes in fair value is recorded temporarily in
equity, then recognized in earnings along with the related effects of the
hedged items. Any ineffective portion of a hedge is reported in earnings as
it occurs. The adoption of SFAS No. 133 did not have a material effect on
the Company's financial statements.
F-5
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
December 31, 2000
(With Independent Auditors' Report Thereon)
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Table of Contents
Page
----
Independent Auditors' Report............................................... F-1
Balance Sheets............................................................. F-2
Statements of Income....................................................... F-3
Statements of Shareholder's Interest....................................... F-4
Statements of Cash Flows................................................... F-5
Notes to Financial Statements.............................................. F-6
Independent Auditors' Report
The Board of Directors
GE Capital Life Assurance Company of New York:
We have audited the accompanying balance sheets of GE Capital Life
Assurance Company of New York as of December 31, 2000 and 1999, and the
related statements of income, shareholder's interest, and cash flows for each
of the years in the three-year period ended December 31, 2000. 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 conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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. As 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 out
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 GE Capital Life Assurance
Company of New York as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 15, the accompanying balance sheet as of December 31,
2000 and the related statement of shareholder's interest for the year ended
December 31, 2000 have been restated.
/s/ KPMG LLP
Richmond, Virginia
January 22, 2001, except for Note 15 which is as of June 28, 2001
F-1
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(Dollar amounts in millions, except per share amounts)
December 31,
----------------------
2000 1999
ASSETS ------------- --------
(As Restated)
Investments:
Fixed maturities available-for-sale, at fair value.... $2,079.7 $1,588.9
Equity Securities available for sale, at fair value:
Preferred Stock, non-redeemable...................... 4.6 --
Mortgage loans, net of valuation allowance of $1.9 and
$1.3 at December 31, 2000 and 1999, respectively..... 329.8 265.3
Policy loans.......................................... 1.3 1.4
Short-term investments................................ 74.0 --
-------- --------
Total investments..................................... 2,489.4 1,855.6
-------- --------
Cash and cash equivalents............................. 2.0 4.3
Accrued investment income............................. 50.6 37.1
Deferred acquisition costs............................ 122.4 94.8
Intangible assets..................................... 175.0 63.6
Deferred tax assets................................... -- 24.8
Other assets.......................................... 15.6 18.9
Reinsurance recoverable............................... 5.6 3.6
Separate account assets............................... 61.1 19.2
-------- --------
Total assets.......................................... $2,921.7 $2,121.9
======== ========
LIABILITIES AND SHAREHOLDER'S INTEREST
Liabilities:
Future annuity and contract benefits.................. $2,294.4 $1,737.0
Liability for policy and contract claims.............. 57.7 19.1
Unearned premiums..................................... 40.5 15.2
Other policyholder liabilities........................ 40.3 44.0
Accounts payable and accrued expenses................. 17.9 61.8
Deferred tax liabilities.............................. 13.8 --
Separate account liabilities.......................... 61.1 19.2
-------- --------
Total liabilities..................................... 2,525.7 1,896.3
-------- --------
Shareholder's interest:
Net unrealized investment gains (losses).............. 29.7 (32.5)
-------- --------
Accumulated non-owner changes in equity............... 29.7 (32.5)
Common stock ($1,000 par value, 2,000 shares
authorized, issued and outstanding).................. 2.0 2.0
Additional paid-in capital............................ 342.6 259.4
Retained earnings (deficit)........................... 21.7 (3.3)
-------- --------
Total shareholder's interest.......................... 396.0 225.6
-------- --------
Total liabilities and shareholder's interest.......... $2,921.7 $2,121.9
======== ========
See accompanying notes to financial statements.
F-2
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(Dollar amounts in millions)
Years Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Net investment income........................... $ 155.5 $ 126.0 $ 115.9
Premiums........................................ 113.7 79.1 83.3
Net realized investment (losses) gains.......... (1.1) 0.3 2.5
Other income.................................... 3.0 3.4 3.0
-------- -------- --------
Total revenues.................................. 271.1 208.8 204.7
-------- -------- --------
Benefits and expenses:
Benefits and other changes in policy reserves... 104.4 78.4 78.7
Interest credited............................... 87.9 69.3 69.3
Commissions..................................... 50.6 28.1 17.0
General expenses................................ 23.1 19.6 9.0
Amortization of intangibles, net................ 9.3 6.1 7.3
Change in deferred acquisition costs, net....... (43.7) (23.3) (9.8)
-------- -------- --------
Total benefits and expenses..................... 231.6 178.2 171.5
-------- -------- --------
Income before income taxes...................... 39.5 30.6 33.2
Provision for income taxes....................... 14.5 12.5 13.7
-------- -------- --------
Net income...................................... $ 25.0 $ 18.1 $ 19.5
======== ======== ========
See accompanying notes to financial statements.
F-3
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S INTEREST
Years ended December 31, 2000, 1999, and 1998
(Dollar amounts in millions, except share amounts)
Accumulated
Common Stock Additional Non-owner Total
------------- Paid-In Changes In Retained Shareholder's
Shares Amount Capital Equity Earnings Interest
------ ------ ---------- ----------- -------- -------------
Balances at January 1,
1998................... 2,000 $ 2.0 $259.4 $ 7.3 $ (8.4) $260.3
Changes other than
transactions with
shareholder:
Net income............. -- -- -- -- 19.5 19.5
Net unrealized losses
on investment
securities (a)........ -- -- -- (0.2) -- (0.2)
------
Total changes other
than transactions with
shareholder........... 19.3
------
Dividends declared...... -- -- -- -- (16.0) (16.0)
----- ----- ------ ------ ------ ------
Balances at December 31,
1998................... 2,000 2.0 259.4 7.1 (4.9) 263.6
Changes other than
transactions with
shareholder:
Net income............. -- -- -- -- 18.1 18.1
Net unrealized losses
on investment
securities (a)........ -- -- -- (39.6) -- (39.6)
------
Total changes other
than transactions with
shareholder........... (21.5)
------
Dividends declared...... -- -- -- -- (16.5) (16.5)
----- ----- ------ ------ ------ ------
Balances at December 31,
1999................... 2,000 2.0 259.4 (32.5) (3.3) 225.6
Changes other than
transactions with
shareholder:
Net income............. -- -- -- -- 25.0 25.0
Net unrealized gains on
investment securities
(a)................... -- -- -- 62.2 -- 62.2
------
Total changes other
than transactions with
shareholder........... 87.2
------
Non-cash capital
contribution (as
restated)............. -- -- 83.2 -- -- 83.2
----- ----- ------ ------ ------ ------
Balances at December 31,
2000 (as restated)..... 2,000 $ 2.0 $342.6 $ 29.7 $ 21.7 $396.0
===== ===== ====== ====== ====== ======
- -------
(a) Presented net of deferred taxes of $(33.5), $21.3 million and $0.1 million
in 2000, 1999, and 1998, respectively.
See accompanying notes to financial statements.
F-4
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
Years Ended
December 31,
-------------------------
2000 1999 1998
------- ------- -------
Cash flows from operating activities:
Net income......................................... $ 25.0 $ 18.1 $ 19.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits................. 274.6 117.6 128.5
Charges assessed to policyholders.................. (0.1) -- --
Net realized investment loss (gain)................ 1.1 (0.3) (2.5)
Amortization of investment premiums and
discounts......................................... (3.1) (0.7) 4.7
Amortization of intangibles........................ 9.4 6.1 7.3
Deferred income tax provision (benefit)............ 5.1 (1.2) (1.9)
Change in certain assets and liabilities:
(Increase) decrease in:
Accrued investment income........................ (13.5) (6.5) (0.3)
Deferred acquisition costs, net.................. (43.7) (23.3) (9.8)
Other assets, net................................ 2.7 (8.8) (2.8)
Increase (decrease) in:
Other policy related balances.................... (0.2) 20.8 (3.7)
Policy and contract claims....................... 36.3 7.2 --
Accounts payable and accrued expenses............ 29.8 1.6 10.3
------- ------- -------
Total adjustments............................... 298.4 112.5 129.8
------- ------- -------
Net cash provided by operating activities....... 323.4 130.6 149.3
------- ------- -------
Cash flows from investing activities:
Short-term investing activities, net............... (74.0) -- --
Proceeds from sales and maturities of investments
in securities..................................... 247.8 408.2 457.9
Purchase of securities............................. (444.3) (567.5) (498.3)
Mortgage and policy loan originations.............. (88.5) (93.8) (39.7)
Principal collected on mortgage and policy loans... 24.3 19.0 22.1
Acquisition, net of cash........................... (246.4) -- --
------- ------- -------
Net cash used in investing activities........... (581.1) (234.1) (58.0)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of investment contracts..... 488.4 287.1 106.2
Redemption and benefit payments on investment
contracts......................................... (233.0) (177.6) (171.1)
Dividends paid to shareholder...................... -- (16.5) (16.0)
------- ------- -------
Net cash provided by (used in) financing
activities..................................... 255.4 93.0 (80.9)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... (2.3) (10.5) 10.4
Cash and cash equivalents at beginning of year...... 4.3 14.8 4.4
------- ------- -------
Cash and cash equivalents at end of year............ $ 2.0 $ 4.3 $ 14.8
======= ======= =======
See accompanying notes to financial statements.
F-5
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(1) Basis of Presentation and Summary of Significant Accounting Policies
The accompanying financial statements include the historical operations and
accounts of GE Capital Life Assurance Company of New York ("GECLA-NY" or the
"Company").
GE Capital Life Assurance Company of New York is a wholly-owned subsidiary
of General Electric Capital Assurance Company ("GE Capital Assurance"), which,
in turn, is wholly-owned by GE Financial Assurance Holdings, Inc. ("GE
Financial Assurance"). Prior to January 1, 1999, the Company was a majority
owned subsidiary of GE Capital Assurance. The remaining minority interest was
owned by Great Northern Insured Annuity Corporation ("GNIAC"), which was also
a wholly- owned subsidiary of GE Capital Assurance. On January 1, 1999, GNIAC
merged with and into its parent company, GE Capital Assurance.
Basis of Presentation
These financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America ("U.S. GAAP").
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
and related disclosures. Actual results could differ from those estimates.
Certain prior year amounts may have been reclassified to conform to the
current year presentation.
Products
The Company sells a variety of insurance and investment-related products.
Its operations are in two business segments: (i) Wealth Accumulation and
Transfer, and (ii) Lifestyle Protection and Enhancement.
Wealth Accumulation and Transfer products are investment vehicles and
insurance contracts intended to increase the policyholder's wealth, transfer
wealth to beneficiaries or provide a means for replacing the income of the
insured in the event of premature death. The Company's principal product lines
under the Wealth Accumulation and Transfer segment are deferred annuities,
structured settlements, immediate annuities, and variable annuities.
Lifestyle Protection and Enhancement products are products intended to
protect accumulated wealth and income from the financial drain of unforseen
events. The Company's principal product line under the Lifestyle Protection
and Enhancement segment is long-term care insurance.
The Company markets and sells products in the State of New York through
financial institutions and various agencies. During 2000, 1999, and 1998, 82%,
92%, and 96%, respectively, of product sales were distributed through five
financial institutions, including one financial institution, which accounted
for 51%, 60%, and 68%, respectively, of total product sales.
Revenues
Investment income is recorded when earned. Realized investment gains and
losses are calculated on the basis of specific identification. Premiums on
long-duration insurance products are recognized as earned when due or, in the
case of life contingent immediate annuities, when the contracts are issued.
Premiums received under annuity contracts without significant mortality risk
are not reported as revenues but as liabilities for future annuity and
contract benefits. Variable product fees are charged to variable annuity
policyholders based upon the daily net assets of the policyholders' account
values and are recognized as revenue when charged. Other income consists
primarily of surrender charges on certain policies. Surrender charges are
recognized as income when the policy is surrendered.
Cash Equivalents
Certificates and other time deposits with original maturities of less than
90 days are considered cash equivalents in the Balance Sheets and Statements
of Cash Flows.
F-6
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(1) Basis of Presentation and Summary of Significant Accounting Policies --
Continued
Investments
The Company has designated its fixed maturities (bonds and notes) and its
equity securities (non-redeemable preferred stock) as available-for-sale. The
fair value for regularly traded fixed maturities and equity securities is
based on quoted market prices, where available. For fixed maturities not
regularly traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the credit quality, call features, industry sector, and
maturity of the investments, as applicable.
Changes in the market values of investments available-for-sale, net of the
effect on deferred policy acquisition costs, present value of future profits,
and deferred federal income taxes, are reflected as unrealized investment
gains or losses in a separate component of shareholder's interest and,
accordingly, have no effect on net income. Unrealized losses that are
considered other than temporary are recognized in earnings through an
adjustment to the amortized cost basis of the underlying securities. The
Company engages in certain securities lending transactions, which require the
borrower to provide collateral, primarily consisting of cash and government
securities, on a daily basis, in amounts equal to or exceeding 102% of the
market value of the applicable securities loaned.
Investment income on mortgage and asset-backed securities is initially
based upon yield, cash flow and prepayment assumptions at the date of
purchase. Subsequent revisions in those assumptions are recorded using the
retrospective method, whereby the amortized cost of the securities is adjusted
to the amount that would have existed had the revised assumptions been in
place at the date of purchase. The adjustments to amortized cost are recorded
as a charge or credit to investment income.
Mortgage and policy loans are stated at the unpaid principal balance of
such loans, net of allowances for estimated uncollectible amounts. The
allowance for losses is determined primarily on the basis of management's best
estimate of probable losses, including specific allowances for known troubled
loans, if any.
Intangible Assets
(a) Present Value of Future Profits
In conjunction with the acquisitions of life insurance companies, a portion
of the purchase price is assigned to the right to receive future gross profits
arising from existing insurance and investment contracts. This intangible
asset, called the present value of future profits ("PVFP"), represents the
actuarially determined present value of the projected future cash flows from
the acquired policies.
(b) Goodwill
Goodwill is amortized over its estimated period of benefit on the straight-
line method. No amortization period exceeds 25 years. Goodwill in excess of
associated expected operating cash flows is considered to be impaired and is
written down to fair value.
Deferred Acquisition Costs
Acquisition costs include costs and expenses that vary with and are
primarily related to the acquisition of insurance and investment contracts,
such as commissions, direct advertising and printing, and certain support
costs such as underwriting and policy issue expenses. Deferred acquisition
costs capitalized are determined by actual costs and expenses incurred by
product in the year of issue.
For investment contracts, amortization of deferred acquisition cost is
based on the present value of the anticipated gross profits resulting from
investments, interest credited, surrender charges and other policy changes,
mortality and maintenance expenses. For insurance contracts, the acquisition
costs are amortized in relation to the estimated benefit payments or the
present value of expected future premiums.
F-7
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(1) Basis of Presentation and Summary of Significant Accounting Policies --
Continued
Deferred acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income, and, if not
considered recoverable, are charged to expense.
Federal Income Taxes
The Company is included with GE Capital Assurance in a consolidated life
insurance federal income tax return. Deferred taxes are allocated by applying
the asset and liability method of accounting for deferred income taxes to
members of the group as if each member was a separate taxpayer. Intercompany
balances are settled annually.
Reinsurance
Premium revenue, benefits, underwriting, acquisition and insurance expenses
are reported net of the amounts relating to reinsurance ceded to other
companies, except for reinsurance costs for universal life products. Amounts
due from reinsurers for incurred and estimated future claims are reflected in
the reinsurance recoverable asset that is included in other assets on the
balance sheet. The cost of reinsurance is accounted for over the terms of the
related treaties using assumptions consistent with those used to account for
the underlying reinsured policies.
Future Annuity and Contract Benefits
Future annuity and contract benefits consist of the liability for life
insurance policies, accident and health, and deferred annuity contracts. The
liability for insurance and accident and health contracts is calculated based
upon actuarial assumptions as to mortality, morbidity, interest, expense and
withdrawals, with experience adjustments for adverse deviation where
appropriate. The liability for deferred annuity contracts is generally equal
to the policyholder's current account value.
Liability for Policy and Contract Claims
The liability for policy and contract claims represents the amount needed
to provide for the estimated ultimate cost of settling claims relating to
insured events that have occurred on or before the end of the respective
reporting period. The estimated liability includes requirements for future
payments of (a) claims that have been reported to the insurer, (b) estimated
claims related to insured events that have occurred but that have not been
reported to the insurer, and (c) claim adjustment expenses. Claim adjustment
expenses include costs incurred in the claim settlement process such as legal
fees and costs to record, process, and adjust claims.
Separate Accounts
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality risk fees and administration charges from the variable
mutual fund portfolios. The separate account assets are carried at fair value
and are equivalent to the liabilities that represent the policyholders' equity
in those assets.
Accounting Pronouncement Not Yet Adopted
The Financial Accounting Standards Board ("FASB") has issued, then
subsequently amended, Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, effective
for GECLA-NY on January 1, 2001. Upon adoption, all derivative instruments
(including certain derivative instruments embedded in other contracts) will be
recognized in the balance sheet at their fair values; changes in such fair
values must be recognized immediately in earnings unless specific hedging
criteria are met. Effects of qualifying changes in fair value will be recorded
in equity pending recognition in earnings as offsets to the related earnings
effects of the hedged items. Management estimates that, at January 1, 2001,
there will be no effect on its financial statements for adopting SFAS No. 133,
as amended.
F-8
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(2) Investments
General
For the years ended December 31, the sources of investment income of the
Company were as follows:
2000 1999 1998
------ ------ ------
Fixed maturities........................................ $133.8 $109.1 $101.1
Mortgage and Policy loans............................... 23.2 17.8 15.4
------ ------ ------
Gross investment income................................. 157.0 126.9 116.5
Investment expenses..................................... (1.5) (0.9) (0.6)
------ ------ ------
Net investment income................................... $155.5 $126.0 $115.9
====== ====== ======
For the years ended December 31, sales proceeds and gross realized
investment gains and losses resulting from the sales of investment securities
available-for-sale were as follows:
2000 1999 1998
------ ------ ------
Sales proceeds.......................................... $ 57.1 $143.0 $153.4
------ ------ ------
Gross realized investment:
Gains................................................. 2.3 1.1 3.2
Losses................................................ (3.4) (0.8) (0.7)
------ ------ ------
Net realized investment (losses) gains.................. $ (1.1) $ 0.3 $ 2.5
====== ====== ======
The additional proceeds from investments presented in the Company's
Statements of Cash Flows result from principal collected on mortgage and
asset-backed securities, maturities, calls and sinking fund payments.
Net unrealized gains and losses on investment securities classified as
available-for-sale reflected as a separate component of shareholder's interest
at December 31 are summarized as follows:
2000 1999 1998
------ ------ ------
Net unrealized gains (losses) on fixed maturities
available-for-sale before adjustments................ $ 47.3 $(78.3) $ 23.8
Adjustments to the present value of future profits and
deferred acquisition costs........................... (1.6) 28.3 (12.9)
Deferred income taxes................................. (16.0) 17.5 (3.8)
------ ------ ------
Net unrealized gains (losses) on available-for-sale
investment securities................................ $ 29.7 $(32.5) $ 7.1
====== ====== ======
The change in the net unrealized gains (losses) on investment securities
reported in accumulated non-owner changes in equity is as follows:
2000 1999 1998
------ ------- -----
Net unrealized gains (losses) on investment
securities -- beginning of year....................... $(32.5) $ 7.1 $ 7.3
Unrealized gains (losses) on investment securities --
net of deferred taxes of $(33.1), $21.2, and $(0.8).. 61.5 (39.4) 1.4
Reclassification adjustments -- net of deferred taxes
of $(0.4), $0.1, and $0.9............................. 0.7 (0.2) (1.6)
------ ------- -----
Net unrealized gain (loss) on investment securities --
end of year.......................................... $ 29.7 $ (32.5) $ 7.1
====== ======= =====
F-9
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(2) Investments -- Continued
At December 31, the amortized cost, gross unrealized gains and losses, and
fair values of the Company's fixed maturities and equity securities available-
for-sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
- ---- --------- ---------- ---------- --------
Fixed maturities:
U.S. government and agency.......... $ 53.4 $ 0.1 $ -- $ 53.5
Non U.S. government................. 5.1 0.3 -- 5.4
Non U.S. corporate.................. 168.4 4.2 -- 172.6
U.S. corporate...................... 1,184.1 8.5 -- 1,192.6
Mortgage backed..................... 286.4 17.5 -- 303.9
Asset backed........................ 335.0 16.7 -- 351.7
-------- ----- ----- --------
Total fixed maturities.............. 2,032.4 47.3 -- 2,079.7
-------- ----- ----- --------
Non-redeemable preferred stock...... 4.6 -- -- 4.6
-------- ----- ----- --------
Total available-for-sale
securities....................... $2,037.0 $47.3 $ -- $2,084.3
======== ===== ===== ========
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
- ---- --------- ---------- ---------- --------
Fixed maturities:
U.S. government and agency.......... $ 50.0 $ -- $ (9.8) $ 40.2
Non U.S. government................. 5.1 -- (0.1) 5.0
Non U.S. corporate.................. 119.9 0.2 (5.4) 114.7
U.S. corporate...................... 940.6 2.3 (57.4) 885.5
Mortgage backed..................... 221.0 2.2 (3.5) 219.7
Asset backed........................ 330.6 0.3 (7.1) 323.8
-------- ----- ------ --------
Total fixed maturities.............. 1,667.2 5.0 (83.3) 1,588.9
-------- ----- ------ --------
Non-redeemable preferred stock...... -- -- -- --
-------- ----- ------ --------
Total available-for-sale
securities....................... $1,667.2 $ 5.0 $(83.3) $1,588.9
======== ===== ====== ========
The scheduled maturity distribution of the fixed maturity portfolio at
December 31, 2000 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.
Amortized Fair
Cost Value
--------- --------
Due in one year or less..................................... $ 77.4 $ 160.7
Due after one year through five years....................... 485.3 476.4
Due after five years through ten years...................... 215.6 208.7
Due after ten years......................................... 632.7 578.3
-------- --------
Subtotal.................................................... 1,411.0 1,424.1
Mortgage backed securities.................................. 286.4 303.9
Asset backed securities..................................... 335.0 351.7
-------- --------
Totals.................................................... $2,032.4 $2,079.7
======== ========
At December 31, 2000, $71.1 of the Company's investments (excluding
mortgage and asset-backed securities) were subject to certain call provisions.
F-10
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(2) Investments -- Continued
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders of $0.5
at December 31, 2000 and 1999, respectively.
At December 31, 2000, approximately 24.9%, 15.4% and 13.5% of the Company's
investment portfolio is comprised of securities issued by the manufacturing,
finance, and utility industries, respectively, the vast majority of which are
rated investment grade and which are senior secured bonds. No other industry
group comprises more than 10% of the Company's investment portfolio. 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.
At December 31, 2000, the Company did not hold any fixed maturity
securities, other than securities issued or guaranteed by the U.S. government,
which exceeded 10% of shareholder's interest.
The credit quality of the fixed maturity portfolio at December 31 follows.
The categories are based on the higher of the ratings published by Standard &
Poors or Moody's.
2000 1999
---------------- ----------------
Fair Fair
Value Percent Value Percent
-------- ------- -------- -------
Agencies and treasuries....................... $ 264.8 12.7% $ 166.6 10.5%
AAA/Aaa....................................... 500.3 24.1 379.4 23.9
AA/Aa......................................... 221.5 10.7 118.9 7.5
A/A........................................... 457.2 22.0 332.3 20.9
BBB/Baa....................................... 412.3 19.8 415.4 26.1
BB/Ba......................................... 29.7 1.4 47.0 3.0
B/B........................................... 11.0 0.5 8.0 0.5
CC............................................ 1.7 0.1 -- --
Not rated..................................... 181.2 8.7 121.3 7.6
-------- ----- -------- -----
Totals........................................ $2,079.7 100.0% $1,588.9 100.0%
======== ===== ======== =====
Bonds with ratings ranging from AAA/Aaa to BBB-/Baa3 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. Finally,
certain securities, such as private placements, have not been assigned a
rating by any rating service and are therefore categorized as "not rated."
This has neither positive nor negative implications regarding the value of the
security.
At December 31, 2000, there were fixed maturities in default with a fair
value of $1.7. At December 31, 1999, there were no fixed maturities in default
as to principal or interest.
Mortgage Loans
At December 31, 2000 and 1999, the Company's mortgage loan portfolio
consisted of first mortgage loans on commercial real estate properties of 221
and 153, respectively. The loans, which are originated by the Company through
a network of mortgage bankers, are made on completed, leased properties and
generally have a maximum loan-to-value ratio of 75% at the date of
origination.
At December 31, 2000 and 1999, respectively, the Company held $81.8 and
$73.4 in mortgages secured by real estate in California, comprising 24.8% and
27.7% of the respective total mortgage portfolio. For the years ended December
31, 2000, 1999, 1998, respectively, the Company originated $12.8, $38.3 and
$9.5 of mortgages secured by real estate in California, which represent 14.7%,
40.9% and 24.0% and of the respective total originations for those years.
F-11
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(2) Investments -- Continued
The following table presents the activity in the allowance for losses
during the years ended December 31:
2000 1999 1998
---- ---- ----
Balance at January 1........................................... $1.3 $ .9 $.5
Provision charged to operations................................ .6 .4 .4
---- ---- ---
Balance at December 31......................................... $1.9 $1.3 $.9
==== ==== ===
As of December 31, 2000 and 1999, the Company was committed to fund $2.0
and $22.8, respectively, in mortgage loans.
"Impaired" loans are defined under U.S. GAAP as loans for which it is
probable that the lender will be unable to collect all amounts due according
to the original contractual terms of the loan agreement. That definition
excludes, among other things, leases or large groups of smaller-balance
homogeneous loans, and therefore applies principally to the Company's
commercial loans. There were no impaired loans at December 31, 2000 and 1999.
(3) Deferred Acquisition Costs
Activity impacting deferred acquisition costs for the years ended December
31, was as follows:
2000 1999 1998
------ ----- -----
Unamortized balance at January 1........................ $ 79.9 $56.6 $46.8
Costs deferred.......................................... 49.6 29.9 14.4
Amortization, net....................................... (5.9) (6.6) (4.6)
------ ----- -----
Unamortized balance at December 31...................... 123.6 79.9 56.6
------ ----- -----
Cumulative effect of net unrealized investment (gains)
losses................................................. (1.2) 14.9 (7.2)
------ ----- -----
Balance at December 31.................................. $122.4 $94.8 $49.4
====== ===== =====
(4) Intangible Assets
Present Value of Future Profits (PVFP)
In conjunction with the acquisition of the Company in 1993 and an indemnity
reinsurance agreement with the Travelers Insurance Company in July 2000, a
portion of the purchase price was assigned to the right to receive future
gross profits arising from existing insurance and investment contracts. This
intangible asset, PVFP, represents the actuarially determined present value of
the projected future cash flows from the acquired policies.
The method used by the Company to value PVFP is summarized as follows: (1)
identify the future gross profits attributable to certain lines of business,
(2) identify the risks inherent in realizing those gross profits, and (3)
discount those gross profits at the rate of return that the Company must earn
in order to accept the inherent risks.
PVFP is amortized, net of accreted interest, in a manner similar to the
amortization of deferred acquisition costs. Interest accretes at rates
credited to policyholders on underlying contracts.
Recoverability of PVFP is evaluated periodically by comparing the current
estimate of expected future gross profits to the unamortized asset balance. If
such comparison indicates that the expected gross profits will not be
sufficient to recover PVFP, the difference is charged to expense.
F-12
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(4) Intangible Assets -- Continued
The following table presents the activity in PVFP for the years ended
December 31:
2000 1999 1998
------ ----- -----
Unamortized balance at January 1........................ $ 21.8 $26.4 $32.2
Acquisitions............................................ 117.2 -- --
Interest accreted at 4.9% in 2000, 4.7% in 1999, 5.0% in
1998................................................... 0.7 0.8 1.0
Amortization............................................ (8.0) (5.4) (6.8)
------ ----- -----
Unamortized balance at December 31...................... 131.7 21.8 26.4
------ ----- -----
Cumulative effect of net unrealized investment (gains)
losses................................................. (0.4) 13.4 (5.8)
------ ----- -----
Balance at December 31.................................. $131.3 $35.2 $20.6
====== ===== =====
The estimated percentage of the December 31, 2000 balance, before the
effect of unrealized investment gains or losses, to be amortized over each of
the next five years is as follows:
2000................................................... 8.8%
2001................................................... 7.1%
2002................................................... 5.7%
2003................................................... 4.5%
2004................................................... 3.6%
Goodwill
At December 31, 2000 and 1999, total unamortized goodwill was $43.7 and
$28.4, respectively, which is presented net of accumulated amortization of
$12.0 and $10.0, respectively. Goodwill amortization was $2.0, $1.5, and $1.5
for the years ended December 31, 2000, 1999, and 1998, respectively. Goodwill
in excess of associated expected operating cash flows is considered to be
impaired and is written down to fair value (no such write-downs have been
made).
(5) Reinsurance
In order to limit the amount of loss retention, certain policy risks are
reinsured with other insurance companies. The maximum amount of individual
ordinary life insurance normally retained by the Company on any one life may
not exceed $0.2. Reinsurance contracts do not relieve the Company of its
obligations to policyholders. In the event that the reinsurers would be unable
to meet their obligations, the Company is liable for the reinsured claims. The
Company monitors both the financial condition of individual reinsurers and
risk concentrations arising from similar geographic regions, activities and
economic characteristics of reinsurers to lessen the risk of default by such
reinsurers. The Company does not have significant concentrations of
reinsurance with any one reinsurer that could have a material impact on its
results of operations.
The Company has a reinsurance agreement with an affiliated company whereby
it assumed all liabilities and future premiums related to the affiliate's New
York business. Certain fixed maturities with a fair value of $259.7 at
December 31, 2000 were held in trust for the benefit of policyholders.
In July 2000, the Company began underwriting and distributing long-term
care insurance through a strategic alliance with The Travelers Insurance
Company ("Travelers") and certain of its Citigroup affiliates. Under the
arrangement, the Company assumed through indemnity reinsurance 90% of
Travelers existing long-term care insurance business issued in New York and
entered into a continuing agreement with various Citigroup distribution
channels including Travelers.
F-13
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(5) Reinsurance -- Continued
The effects of reinsurance on premiums written and earned for the years
ended December 31 were as follows:
Written Earned
-------------------- --------------------
2000 1999 1998 2000 1999 1998
------ ----- ----- ------ ----- -----
Direct............................ $ 87.1 $78.8 $82.8 $ 83.8 $76.2 $80.6
Assumed........................... 33.1 5.2 4.0 33.1 5.2 4.0
Ceded............................. (3.0) (2.3) (1.7) (3.2) (2.3) (1.3)
------ ----- ----- ------ ----- -----
Net Premiums...................... $117.2 $81.7 $85.1 $113.7 $79.1 $83.3
------ ----- ----- ------ ----- -----
Percentage of amount assumed to
net.............................. 29.1% 6.6% 4.8%
====== ===== =====
Reinsurance recoveries recognized as a reduction of benefits amounted to
$14.2, $9.3 and $10.8, during 2000, 1999, and 1998, respectively.
(6) Future Annuity and Contract Benefits
Investment Contracts
Investment contracts are broadly defined to include contracts without
significant mortality or morbidity risk. Payments received from sales of
investment contracts are recognized by providing a liability equal to the
current account value of the policyholders' contracts. Interest rates credited
to investment contracts are guaranteed for the initial policy term with
renewal rates determined as necessary by management. At December 31, 2000 and
1999, investment contracts totaled $1,776.6 and $1,474.4, respectively.
Traditional Life Insurance Contracts
Insurance contracts are broadly defined to include contracts with
significant mortality and/or morbidity risk. The liability for future benefits
of insurance contracts is the present value of such benefits less the present
value of future net premiums based on mortality, morbidity, and other
assumptions which were appropriate at the time the policies were issued or
acquired. These assumptions are periodically evaluated for potential premium
deficiencies. Any changes in the estimated liability are reflected in income
as the estimates are revised. At December 31, 2000 and 1999, insurance
contracts, totaled $517.8 and $262.6, respectively.
Interest rate assumptions used in calculating the present value of future
annuity and contract benefits range from 5.3% to 7.0%.
(7) Related-Party Transactions
The Company receives administrative services from certain affiliates for
which progress payments for these services are made monthly. For the years
ended December 31, 2000, 1999, and 1998, these services were valued at $20.2,
$17.7 and $7.6, respectively.
During 2000, the Company entered into an agreement with GNA Corporation, an
affiliate, in which GNA Corporation assumed, on a non-recourse basis, certain
tax liabilities. Accordingly, the assumption of such liabilities was recorded
as a non-cash capital contribution.
Effective July 1, 2000, the Company entered into a coinsurance agreement
with Travelers Insurance Company. The Company received a $75.0 capital
contribution from its parent in connection with this reinsurance agreement.
F-14
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(8) Income Taxes
The total provision for income taxes for the years ended December 31
consisted of the following components:
2000 1999 1998
------ ----- -----
Current federal income tax (benefit) provision............. $ 9.4 $13.7 $15.1
Deferred federal income tax provision (benefit)............ 5.1 (1.2) (1.9)
------ ----- -----
Federal provision.......................................... 14.5 12.5 13.2
Current state income tax provision......................... -- -- 0.5
------ ----- -----
Total income tax provision................................. $ 14.5 $12.5 $13.7
====== ===== =====
The reconciliation of the federal statutory tax rate to the effective
income tax rate is as follows:
2000 1999 1998
---- ---- ----
Statutory U.S. federal income tax rate........................ 35.0% 35.0% 35.0%
State income tax, net of federal income tax effect............ -- -- 0.9
Non-deductible goodwill amortization.......................... 1.7 1.8 1.6
Other, net.................................................... -- 4.0 3.8
---- ---- ----
Effective rate................................................ 36.7% 40.8% 41.3%
==== ==== ====
The components of the net deferred income tax asset (liability) at December
31 are as follows:
2000 1999
------ ------
Assets:
Net unrealized losses on investment securities................ $ -- $ 17.5
Future annuity and contract benefits.......................... 76.3 34.9
------ ------
Total deferred income tax assets................................ 76.3 52.4
------ ------
Liabilities:
Net unrealized gains on investment securities................. (16.0) --
Investments................................................... (1.2) (1.0)
Present value of future profits............................... (44.2) (5.2)
Deferred acquisition costs.................................... (27.3) (19.6)
Other, net.................................................... (1.4) (1.8)
------ ------
Total deferred income tax liabilities........................... (90.1) (27.6)
------ ------
Net deferred income tax (liability) asset....................... $(13.8) $ 24.8
====== ======
Based on an analysis of the Company's tax position, management believes it
is more likely than not that the results of future operations and
implementation of tax planning strategies will generate sufficient taxable
income enabling the Company to realize remaining deferred tax assets.
Accordingly, no valuation allowance for deferred tax assets is deemed
necessary.
The Company (received) paid $(3.9), $11.2 and $13.6, for federal and state
income taxes in 2000, 1999, and 1998, respectively.
(9) Guaranty Association Assessments
The Company is required by law to participate in the guaranty association
of the State of New York. The state guaranty association ensures payment of
guaranteed benefits, with certain restrictions, to policyholders of impaired
or insolvent insurance companies, by assessing all other companies involved in
similar lines of business. The insolvency of a major
insurer that wrote significant business in New York could have an adverse
impact on the profitability of the Company. The Company made no payments to
the New York State guaranty association in 2000, received a net refund of $0.2
in 1999, and made payments of $0.2 in 1998.
F-15
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(10) Litigation
The Company is a defendant in various cases of litigation considered to be
in the normal course of business. The Company believes that the outcome of
such litigation will not have a material effect on its financial position or
results of operations.
(11) Fair Value of Financial Instruments
This note discloses the fair value information about certain of the
Company's financial instruments, whether or not recognized in the balance
sheet. No attempt has been made to estimate the value of anticipated future
business or the value of assets or liabilities that are not considered
financial instruments. Fair value estimates are made at a specific point in
time based on relevant market information and valuation methodologies
considered appropriate by management. These estimates may be subjective in
nature and involve uncertainties and significant judgement 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. Changes in the assumptions could significantly affect the
estimates. As such, the derived fair value estimates cannot necessarily be
substantiated by comparison to independent markets and may differ from the
amounts that might be involved in an immediate settlement of the instrument.
The Company does not necessarily intend to dispose of or liquidate such
instruments prior to maturity. Fair value disclosures are not required for
certain financial instruments; the most significant of these for the Company
are the insurance liabilities and related assets, other than financial
guarantees and investment deposits.
Financial instruments that, as a matter of accounting policy, are reflected
in the accompanying consolidated financial statements at fair value are not
included in the following disclosures. Such items include fixed maturities,
equity securities and certain other invested assets. The carrying value of
policy loans, short-term investments, and accrued investment income
approximates fair value at December 31, 2000 and 1999, respectively.
At December 31, the carrying amounts and fair values of the Company's
financial instruments were as follows:
2000 1999
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Mortgage loans.............................. $ 329.8 $ 340.9 $ 265.3 $ 261.8
Investment contracts........................ $1,766.2 $1,674.0 $1,463.8 $1,411.6
======== ======== ======== ========
A description of how values are estimated follows:
Mortgage loans. Based on quoted market prices, recent transactions, and/or
discounted future cash flows, using rates at which similar loans would have
been made to similar borrowers.
Investment contract deposits. Based on expected future cash flows,
discounted at currently offered discount rates for deferred annuity contracts.
(12) Restrictions on Dividends
State insurance departments that regulate life insurance companies
recognize only statutory accounting practices for determining and reporting
the financial condition and results of operations of an insurance company, for
determining its solvency under law, and for determining whether its financial
condition warrants the payment of a dividend to its shareholders. The maximum
amount of dividends, which can be paid by State of New York insurance
companies to shareholders without prior approval of the Insurance
Commissioner, is subject to certain restrictions. No dividend payout may be
made without prior approval. The Company last paid a dividend of $16.5 to GE
Capital Assurance in 1999.
(13) Supplementary Financial Data
The Company files financial statements with state insurance regulatory
authorities and the National Association of Insurance Commissioners ("NAIC")
that are prepared on an accounting basis prescribed or permitted by such
authorities
F-16
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(13) Supplementary Financial Data -- Continued
(statutory basis). Statutory accounting practices differ from U.S. GAAP in
several respects, causing differences in reported net income and shareholder's
interest. Permitted statutory accounting practices encompass all accounting
practices not so prescribed but that have been specifically allowed by the
state insurance authority. The Company has no significant permitted accounting
practices.
The NAIC adopted model statutory accounting practices to take effect
January 1, 2001. The impact of the new accounting practices on the Company is
not expected to be material.
Statutory net (loss) income for the years ended December 31, 2000, 1999,
and 1998 was $(68.2), $5.1, and $24.8, respectively. Statutory capital and
surplus as of December 31, 2000 and 1999 was $155.7 and $153.7, respectively.
The NAIC has adopted Risk-Based Capital ("RBC") requirements to evaluate
the adequacy of statutory capital and surplus in relation to risks associated
with: (1) asset risk, (2) insurance risk, (3) interest rate risk, and (4)
business risk. The RBC formula is designated as an early warning tool for the
states to identify possible under-capitalized companies for the purpose of
initiating regulatory action. In the course of operations, the Company
periodically monitors the RBC level. At December 31, 2000 and 1999, the
Company exceeded the minimum required RBC levels.
(14) Business Segments
The Company conducts its operations through two business segments: (1)
Wealth Accumulation and Transfer, comprised of products intended to increase
the policyholder's wealth, transfer wealth to beneficiaries or provide for a
means for replacing the income of the insured in the event of premature death,
and (2) Lifestyle Protection and Enhancement, comprised of products intended
to protect accumulated wealth and income from the financial drain of
unforeseen events. See Note (1) for further discussion of the Company's
principal products.
The following is a summary of industry segment activity for 2000, 1999, and
1998:
2000 1999 1998
---------------------------------- --------------------------------- ---------------------------------
Lifestyle Lifestyle Lifestyle
Wealth protection Wealth protection Wealth protection
acccumulation and accumulation and accumulation &
and transfer enhancement Total and transfer enhancement Total & transfer enhancement Total
------------- ----------- -------- ------------ ----------- -------- ------------ ----------- --------
Net investment
income.......... $ 138.7 $ 16.8 $ 155.5 $ 120.0 $ 6.0 $ 126.0 $ 111.9 $ 4.0 $ 115.9
Premiums......... 29.2 84.5 113.7 36.3 42.8 79.1 48.3 35.0 83.3
Net unrealized
investment
(losses) gains.. (1.1) -- (1.1) 0.3 -- 0.3 2.5 -- 2.5
Other revenues... 3.1 (0.1) 3.0 3.4 -- 3.4 3.0 -- 3.0
-------- ------ -------- -------- ------ -------- -------- ----- --------
Total revenues... 169.9 101.2 271.1 160.0 48.8 208.8 165.7 39.0 204.7
-------- ------ -------- -------- ------ -------- -------- ----- --------
Interest
credited,
benefits and
other changes in
policy
reserves........ 125.1 67.2 192.3 114.0 33.7 147.7 122.0 26.0 148.0
Commissions...... 31.8 18.8 50.6 17.8 10.3 28.1 8.0 9.0 17.0
Amortization of
intangibles..... 5.5 3.9 9.4 5.5 0.6 6.1 6.3 1.0 7.3
Other operating
costs and
expenses........ (18.5) (2.2) (20.7) (3.5) (0.2) (3.7) 3.2 (4.0) (0.8)
-------- ------ -------- -------- ------ -------- -------- ----- --------
Total benefits
and expenses.... 143.9 87.7 231.6 133.8 44.4 178.2 139.5 32.0 171.5
-------- ------ -------- -------- ------ -------- -------- ----- --------
Income before
income taxes.... $ 26.0 $ 13.5 $ 39.5 $ 26.2 $ 4.4 $ 30.6 $ 26.2 $ 7.0 $ 33.2
======== ====== ======== ======== ====== ======== ======== ===== ========
Provision for
income taxes.... $ 9.7 $ 4.8 $ 14.5 $ 10.7 $ 1.8 $ 12.5 $ 10.8 $ 2.9 $ 13.7
======== ====== ======== ======== ====== ======== ======== ===== ========
Total assets..... $2,354.6 $567.1 $2,921.7 $1,986.2 $135.7 $2,121.9 $1,787.7 $93.3 $1,881.0
======== ====== ======== ======== ====== ======== ======== ===== ========
F-17
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
Notes to Financial Statements -- Continued
December 31, 2000, 1999, and 1998
(Dollar amounts in millions)
(15) Restatement
The originally filed financial statements of the Company did not reflect a
$75 forgiveness of intercompany debt by its parent that occurred during 2000,
in connection with the coinsurance agreement with Travelers Insurance Company
(see Notes 5 and 7). The Balance Sheet as of December 31, 2000 and the
Statement of Shareholder's Interest for the year ended December 31, 2000 have
been restated to reflect the reduction in liabilities and the increase in
additional paid in capital that should have been recorded as a result of this
intercompany transaction.
F-18
PART II
OTHER INFORMATION
Undertaking To File Reports
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
Rule 484 Undertaking
Section 722 of the Code of New York, in brief, allow a corporation to
indemnify any person made party to a proceeding because such person is or was
a director, officer, employee, or agent of the corporation, against liability
incurred in the proceeding if: (1) he conducted himself in good faith; and (2)
he believed that (a) in the case of conduct in his official capacity with the
corporation, his conduct was in its best interests; and (b) in all other
cases, his conduct was at least not opposed to the corporation's best
interests and (3) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. The termination of a proceeding by
judgment, order, settlement or conviction is not, of itself, determinative
that the director, officer, employee, or agent of the corporation did not meet
the standard of conduct described. A corporation may not indemnify a director,
officer, employee, or agent of the corporation in connection with a proceeding
by or in the right of the corporation, in which such person was adjudged
liable to the corporation, or in connection with any other proceeding charging
improper personal benefit to such person, whether or not involving action in
his official capacity, in which such person was adjudged liable on the basis
that personal benefit was improperly received by him. Indemnification
permitted under these sections of the Code of New York in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Article VIII, Section 1 of the By-Laws of GE Capital Life Assurance Company
of New York further provides that:
(a) The Corporation may indemnify any person, made, or threatened to be
made, a party to an action or proceeding other than one by or in the right of
the Corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other Corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the Corporation, or served such other Corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including fines, amounts paid in settlement and reasonable expenses,
including attorney's fees actually and necessarily incurred as a result of
such action or proceeding, or any appeal therein, if such director or officer
acted, in good faith, for a purpose which he reasonable believed to be in, or,
in the case of service for any other Corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to, the
best interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other Corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the Corporation or that he had
reasonable cause to believe that his conduct was unlawful.
II-1
(c) The Corporation may indemnify any person made, or threatened to be
made, a party to an action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of any
other Corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense or
settlement of such action, or in connection with an appeal therein, if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in or in the case of service for other Corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to the best interests of the Corporation, except that no
indemnification under this paragraph shall be made in respect of (1) a
threatened action or a pending action which is settled or otherwise disposed
of or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation, unless and only to the extent that
the court in which the action was brought, or, if no action was brought, any
court of competent jurisdiction, determines upon application that, in view of
all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such portion of the settlement and expenses as the
court deems proper.
(d) For the purpose of this section, the Corporation shall be deemed to
have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Corporation also imposes
duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable law shall be
considered fines; and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provision, or otherwise
under circumstances where the burden of proof set forth in Section 11(b) of
the Act has not been sustained, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-2
Representation Pursuant To Section 26(e)(2)(A)
GE Capital Life hereby represents that the fees and charges deducted under
the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by GE
Capital Life.
Contents Of Registration Statement
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons:
(a) Donita King, Senior Vice President, General Counsel & Secretary
(b) Sutherland Asbill & Brennan LLP
(c) Paul A. Haley, F.S.A.
(d) KPMG LLP.
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
(b) Exhibits
1 A. (1)(a) Resolution of Board of Directors of GE Capital Life Assurance
Company of New York ("GE Capital Life") authorizing the
establishment of the GE Capital Life Separate Account III (the
"Separate Account").(4)
1 A. (1)(b) Resolution of Board of Directors of GE Capital Life Assurance
Company of New York ("GE Capital Life") authorizing the
establishment of investment subdivisions of the Separate
Account investing in shares of 43 investment
subdivisions/subaccounts.(4)
1 A. (2) Not Applicable.
1 A. (3) Underwriting Agreement between GE Capital Life and Capital
Brokerage Corporation.(2)
1 A. (3)(a) Dealer Sales Agreement.(2)
1 A. (3)(c) Commission Schedule.(5)
1 A. (4) None.
1 A. (5)(a) Policy Form NY1255.(5)
1 A. (5)(b) Endorsements/ Riders to Policy Form.(4)
1 A. (5)(b)(i) Policy Split Option Rider, NY4473 12/99.(4)
1 A. (5)(b)(ii) Joint Life Level Term Insurance Rider, NY4474 12/99.(4)
1 A. (6)(a) Certificate of Incorporation of GE Capital Life.(1)
1 A. (6)(b) By-Laws of GE Capital Life.(1)
II-3
1 A. (7) Not Applicable.
1 A. (8)(a) Participation Agreement regarding Alger American Fund.(2)
1 A. (8)(a)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Alger American Fund.(5)
1 A. (8)(b) Participation Agreement regarding Federated Insurance Series.(2)
1 A. (8)(b)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Federated Insurance Series.(5)
1 A. (8)(c) Participation Agreement regarding GE Investments Funds, Inc.(2)
1 A. (8)(c)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and GE Investments Funds, Inc.(5)
1 A. (8)(d) Participation Agreement regarding Janus Aspen Series.(2)
1 A. (8)(d)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Janus Aspen Series.(5)
1 A. (8)(e) Participation Agreement regarding Oppenheimer Variable Account Funds.(2)
1 A. (8)(e)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Oppenheimer Variable Account Funds.(5)
1 A. (8)(f) Participation Agreement regarding Variable Insurance Products Fund.(2)
1 A. (8)(f)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Variable Insurance Products Fund.(5)
1 A. (8)(g) Participation Agreement regarding Variable Insurance Products Fund II.(2)
1 A. (8)(g)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Variable Insurance Products II.(5)
1 A. (8)(h) Participation Agreement regarding Variable Insurance Products Fund III.(2)
1 A. (8)(h)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Variable Insurance Products Fund III.(5)
1 A. (8)(i) Participation Agreement regarding Goldman Sachs Variable Insurance Trust.(2)
1 A. (8)(i)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Goldman Sachs Variable Insurance Trust.(5)
1 A. (8)(j) Participation Agreement regarding Salomon Brothers Variable Series Fund.(3)
1 A. (8)(j)(i) Form of Amendment to the Participation Agreement between GE Capital Life of
New York and Salomon Brothers Variable Series Fund.(5)
1 A. (9) Not Applicable.
1 A. (10) Form of Individual Policy Application.(5)
2. Opinion and Consent of Donita King, Senior Vice President, General Counsel &
Secretary.(6)
3.(a) Consent of Sutherland, Asbill & Brennan LLP.(6)
3.(b) Consent of Independent Auditors.(6)
4. Not Applicable.
5. Not Applicable.
II-4
6. Opinion and Consent of Paul A. Haley, F.S.A.(6)
7. Consolidated memorandum describing certain procedures filed pursuant to Rule
6e-2(b)(12)(ii) and Rule 6e-3(T)(b)(12)(iii).(5)
8.(a) Power of Attorney, April 1997.(1)
8.(b) Power of Attorney, April 1999.(4)
8.(c) Power of Attorney, July 2000.(5)
- --------
(1) Incorporated herein by reference to initial filing of the registration
statement on Form N-4, File No. 333-39955, filed with the Securities and
Exchange Commission on September 10, 1997.
(2) Incorporated herein by reference to pre-effective amendment of the
registration statement on Form N-4, File No. 333-39955, filed with the
Securities and Exchange Commission on May 13, 1998.
(3) Incorporated herein by reference to post-effective amendment filing of the
registration statement on Form N-4, File No. 333-39955, filed with the
Securities and Exchange Commission on April 30, 1999.
(4) Filed March 21, 2000 with Initial Registration Statement Filed of Form S-
6, for GE Capital Life Separate Account III, File No. 333-32908.
(5) Filed July 31, 2000 with Pre-Effective I of Form S-6 for GE Capital Life
Separate Account III, File No. 333-32908.
(6) Filed Herein.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
GE Capital Life Separate Account III, certifies that it meets all the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of New York in the State of New York, on the 14th day of September, 2001.
GE Capital Life Separate Account III
(Registrant)
/s/ Donita King
By: _________________________________
Donita King
Senior Vice President, General
Counsel & Secretary
GE Capital Life Assurance Company
of New York
(Depositor)
/s/ Laura C. Deusebio
Attest: _______________________
Laura C. Deuseblo
Name
/s/ Donita King
By: _________________________________
Donita King
Senior Vice President, General
Counsel & Secretary
GE Capital Life Assurance Company
of New York
(Depositor)
/s/ Laura C. Deusebio
Attest: _______________________
Laura C. Deuseblo
Name
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 date(s) indicated.
Directors and Officers of GE Capital Life
Signature Title Date
--------- ----- ----
* Chairperson 9/14/01
______________________________________
Pamela S. Schutz
* President, Chief Executive 9/14/01
______________________________________ Officer & Managing
Cheryl Whaley Officer
* Director 9/14/01
______________________________________
Marshall S. Belkin
* Director 9/14/01
______________________________________
Richard I. Byer
II-6
* Vice President and Chief 9/14/01
______________________________________ Financial Officer
Thomas W. Casey
* Vice President and 9/14/01
______________________________________ Investment Officer
Stephen N. DeVos
* Director 9/14/01
______________________________________
Bernard M. Eiber
* Director 9/14/01
______________________________________
Jerry S. Handler
* Director 9/14/01
______________________________________
Gerald A. Kaufman
/s/ Donita King Senior Vice President, 9/14/01
______________________________________ General Counsel &
Donita King Secretary
* Senior Vice President 9/14/01
______________________________________
Leon E. Roday
* Director 9/14/01
______________________________________
Thomas A. Skiff
* Director 9/14/01
______________________________________
Steven A. Smith
* Director 9/14/01
______________________________________
Geoffrey S. Stiff
By /s/ Donita King, pursuant to Power of Attorney executed on July 21, 2000.
------------------
II-7
EXHIBIT LIST
2. Opinion and Consent of Donita King, General Counsel
3. (a) Consent of Sutherland, Asbill & Brennan LLP.
3. (b) Consent of Independent Auditors.
6. Consent of Paul Haley, F.S.A.
II-8