FORM 10-K


                                  United States
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549




[X]   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 1998

[ ]   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the transition period from ________ to __________


Commission file number 33-62674

                   Great Northern Insured Annuity Corporation
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         Washington                                     91-1127115
------------------------------------       -----------------------------------
(State or other jurisdiction                (I.R.S. Employer Identification No.)
      of incorporation)

Two Union Square, Suite 1400
Seattle, Washington                                        98101
--------------------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)


(Registrant's telephone number, including area code)      (206) 625-1755


Securities registered pursuant to Section 12(b) of the Act:      None
Securities registered pursuant to Section 12(g) of the Act:      None


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable]

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1) (A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE PERMITTED
ABBREVIATED NARRATIVE DISCLOSURE.

<PAGE>


GREAT NORTHERN INSURED ANNUITY CORPORATION

FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(WITH INDEPENDENT AUDITORS' REPORT THEREON)


<PAGE>
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Great Northern Insured Annuity Corporation:

We have audited the accompanying balance sheets of Great Northern Insured
Annuity Corporation as of December 31, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Great Northern Insured Annuity
Corporation as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.




Richmond, Virginia
January 22, 1999

<PAGE>
                               GREAT NORTHERN INSURED ANNUITY CORPORATION

                                             Balance Sheets

                                       December 31, 1998 and 1997
                         (Dollar amounts in millions, except per share amounts)


<TABLE>
<CAPTION>

                                             ASSETS                                  1998        1997
                                                                                   ---------  -----------

<S>                                                                                 <C>          <C>
Investments:
    Fixed maturities available-for-sale, at fair value (amortized cost of
       $4,580.4 in 1998 and $4,903.2 in 1997)                                    $  4,731.9      5,056.9
    Mortgage loans, net of valuation allowance of $39.0 and $36.7
       at December 31, 1998 and 1997, respectively                                  1,045.4      1,203.8
    Real estate owned, net                                                              4.8          4.1
    Policy loans                                                                        3.3          3.3
    Short-term investments                                                             10.2         98.8
    Other invested assets                                                             277.1        256.0
                                                                                   ---------  -----------
             Total investments                                                      6,072.7      6,622.9

Cash                                                                                    2.4          2.8
Accrued investment income                                                              99.3        110.7
Deferred acquisition costs                                                             90.2         97.7
Intangible assets                                                                      76.0         98.5
Other assets                                                                           30.4        109.6
Separate account assets                                                                40.5         39.9
                                                                                   ---------  -----------
             Total assets                                                        $  6,411.5      7,082.1
                                                                                   =========  ===========

                             LIABILITIES AND SHAREHOLDER'S INTEREST

Liabilities:
    Future annuity and contract benefits                                         $  5,356.0      6,003.6
    Other policyholder liabilities                                                     10.7         18.7
    Accounts payable and accrued expenses                                             112.7        215.1
    Separate account liabilities                                                       40.5         39.9
    Deferred income tax liability                                                      23.0         12.3
                                                                                   ---------  -----------

             Total liabilities                                                      5,542.9      6,289.6
                                                                                   ---------  -----------

Shareholder's interest:
    Net unrealized investment gains                                                    47.7         38.3
                                                                                   ---------  -----------
       Accumulated non-owner changes in equity                                         47.7         38.3
    Common stock, ($100 par value;  25,000 authorized, issued and outstanding)          2.5          2.5
    Additional paid-in capital                                                        542.0        542.0
    Retained earnings                                                                 276.4        209.7
                                                                                   ---------  -----------

             Total shareholder's interest                                             868.6        792.5
                                                                                   ---------  -----------
             Total liabilities and shareholder's interest                        $  6,411.5      7,082.1
                                                                                   =========  ===========

</TABLE>

See accompanying notes to financial statements.

                                       2
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                              Statements of Income

                  Years ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

<TABLE>
<CAPTION>


                                                                     1998          1997         1996
                                                                  ------------  -----------  ------------
<S>                                                             <C>                  <C>           <C>
Revenues:
     Net investment income                                      $       441.7        475.3         462.5
     Net realized investment gains                                        9.0         19.7           3.1
     Premiums                                                            17.5         61.1         200.0
     Policy fees and other income                                         8.3          8.3           8.1
                                                                  ------------  -----------  ------------

              Total revenues                                            476.5        564.4         673.7
                                                                  ------------  -----------  ------------

Benefits and expenses:
     Interest credited                                                  253.6        293.9         295.7
     Benefits and other changes in policy reserves                       54.8         97.7         230.9
     Commissions                                                          5.3         14.7          27.4
     General expenses                                                    17.5         26.9          36.5
     Amortization of intangibles, net                                    31.3         32.6          33.9
     Change in deferred acquisition costs, net                           14.8         (8.2)        (26.7)
                                                                  ------------  -----------  ------------

              Total benefits and expenses                               377.3        457.6         597.7
                                                                  ------------  -----------  ------------

Income before income taxes                                               99.2        106.8          76.0

Provision for income taxes                                               32.5         35.5          24.9
                                                                  ------------  -----------  ------------

              Net income                                        $        66.7         71.3          51.1
                                                                  ============  ===========  ============

</TABLE>

See accompanying notes to financial statements.

                                       3
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                      Statements of Shareholder's Interest

                  Years ended December 31, 1998, 1997 and 1996
               (Dollar amounts in millions, except share amounts)


<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                               non-owner
                                                                Additional      changes                    Total
                                              Common Stock         paid-in    other than   Retained    shareholder's
                                            Shares    Amount       capital     earnings    earnings      interest
                                            ----------------     ----------   -----------   --------    -------------
<S>                                         <C>                     <C>           <C>         <C>            <C>
Balances at January 1, 1996                 25,000   $   2.5        541.9         29.9        87.3           661.6
Changes other than transactions
 with shareholder:
     Net income                                 -         -            -            -         51.1            51.1
     Net unrealized losses on
     securities (a)                             -         -            -         (22.9)         -            (22.9)
                                                                                                         ------------
Total changes other than
 transactions with shareholder                                                                                28.2
                                                                                                         ------------
Purchase price adjustments                      -         -           0.1           -           -              0.1
                                            ------  --------     ----------    -----------  --------     ------------

Balances at December 31, 1996               25,000       2.5        542.0          7.0       138.4            689.9
Changes other than transactions
 with shareholder:
     Net income                                 -         -            -            -         71.3             71.3
     Net unrealized gains on
     securities (a)                             -         -            -          31.3          -              31.3
                                                                                                         ------------
Total changes other than
 transactions with shareholder                                                                                102.6
                                             ------  --------     ----------    -----------  --------     ------------

Balances at December 31, 1997               25,000       2.5        542.0         38.3       209.7            792.5
Changes other than transactions
 with shareholder:
    Net income                                  -         -            -            -         66.7             66.7
    Net unrealized gains on
    securities (a)                              -         -            -           9.4          -               9.4
                                                                                                          ------------
Total changes other than
 transactions with shareholder                                                                                 76.1
                                             ------  --------     ----------    -----------  --------     ------------
Balances at December 31, 1998               25,000   $   2.5        542.0         47.7       276.4            868.6
                                            =======  ========     ==========    ===========  ========     ============
</TABLE>

(a) Presented net of deferred taxes of $(5.2) million, $(17.4) million and
    $12.7 million in 1998, 1997 and 1996, respectively.

See accompanying notes to financial statements.

                                       4
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                            Statements of Cash Flows

                  Years ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

<TABLE>
<CAPTION>

                                                                                   1998         1997         1996
                                                                                -----------  -----------  -----------
<S>                                                                           <C>                  <C>          <C>
Cash flows from operating activities:
     Net income                                                               $       66.7         71.3         51.1
     Adjustments to reconcile net income to net cash provided by
          operating activities:
        Increase in future policy benefits                                           270.8        355.3        496.7
        Equity in earnings of GE Capital Life of New York                             (9.4)        (8.4)        (7.6)
        Net realized investment gains                                                 (9.0)       (19.7)        (3.1)
        Amortization of investment premiums and discounts                              7.1          9.9         27.7
        Amortization of intangibles                                                   31.3         32.6         33.9
        Deferred income tax expense (benefit)                                          5.7         17.0        (10.4)
        Change in certain assets and liabilities:
           Decrease (increase) in:
              Accrued investment income                                               11.4          1.5        (26.6)
              Deferred acquisition costs                                              14.8         (8.2)       (26.7)
              Other assets, net                                                       78.6        (66.1)       (12.4)
           Increase (decrease) in:
              Other policy related balances                                           (8.0)       (29.4)       (25.5)
              Accounts payable and accrued expenses                                 (102.7)        37.7         73.3
                                                                                -----------  -----------  -----------

Total adjustments                                                                    290.6        322.2        519.3
                                                                                -----------  -----------  -----------

Net cash provided by operating activities                                            357.3        393.5        570.4
                                                                                -----------  -----------  -----------

Cash flows from investing activities:
     Proceeds from sales and maturities of investments in
      fixed maturities and real estate                                             1,395.7      1,229.3        868.2
     Principal collected on mortgage and policy loans                                259.8        152.1        163.9
     Purchases of fixed maturities                                                (1,088.1)      (965.2)    (1,199.5)
     Mortgage and policy loan originations                                          (102.9)      (198.0)       (42.3)
     Dividends received                                                                7.7          7.2          7.5
                                                                                -----------  -----------  -----------

Net cash provided by (used in) investing activities                                  472.2        225.4       (202.2)
                                                                                -----------  -----------  -----------

Cash flows from financing activities:
     Proceeds from issue of investment contracts                                      69.4        263.9        415.6
     Redemption and benefit payments on investment contracts                        (987.9)      (787.4)      (807.6)
                                                                                -----------  -----------  -----------

Net cash used in financing activities                                               (918.5)      (523.5)      (392.0)
                                                                                -----------  -----------  -----------

Net increase (decrease) in cash and cash equivalents                                 (89.0)        95.4        (23.8)

Cash and cash equivalents at beginning of year                                       101.6          6.2         30.0
                                                                                -----------  -----------  -----------

Cash and cash equivalents at end of year                                      $       12.6        101.6          6.2
                                                                                ===========  ===========  ===========
</TABLE>

See accompanying notes to financial statements.


                                       5
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (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 Great Northern Insured Annuity Corporation
           (GNA or the Company) and the Company's proportionate share of GE
           Capital Life Assurance Company of New York (GE Capital Life of New
           York), accounted for under the equity method.

           All of the outstanding common stock of the Company is owned by
           General Electric Capital Assurance (GE Capital Assurance), a
           wholly-owned subsidiary of GNA Corporation, which in turn is a
           wholly-owned subsidiary of GE Financial Assurance Holdings, Inc.

      (A)  BASIS OF PRESENTATION

           These financial statements have been prepared on the basis of
           generally accepted accounting principles (GAAP) for stock life
           insurance companies, which vary in several respects from accounting
           practices prescribed or permitted by the Insurance Commissioner of
           the State of Washington, where the Company is domiciled. The
           preparation of financial statements in conformity with GAAP requires
           management to make estimates and assumptions that affect the reported
           amounts and related disclosures. Actual results could differ from
           those estimates.

      (B)  PRODUCTS

           The Company's operations are in one business segment, Wealth
           Accumulation and Transfer. 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
           (fixed and variable) and immediate annuities.

           The Company primarily sells its products through banks, thrifts and
           other financial institutions.



                                       6
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

      (C)  REVENUES

           Investment income is recorded when earned. Realized investment gains
           and losses are calculated on the basis of specific identification.
           Premiums on short duration insurance contracts are reported as
           revenue over the terms of the related insurance policies. In general,
           earned premiums are calculated on a pro-rata basis or are recognized
           in proportion to expected claims. 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 and premiums received on universal life products are
           not reported as revenues but as future annuity and contract benefits.
           Policy fees and other income consists primarily of surrender charges
           on certain policies and charges to policyholder account values for
           variable annuity policies. Surrender charges are recognized as income
           when the policy is surrendered.

      (D)  STATEMENTS OF CASH FLOWS

           Certificates and other time deposits are classified as short-term
           investments on the balance sheets and considered cash equivalents in
           the statements of cash flows.

      (E)  INVESTMENTS

           The Company has designated its fixed maturities (bonds, notes, and
           redeemable preferred stock) as available-for-sale. The fair value for
           fixed maturities is based on quoted market prices, where available.
           For fixed maturities not actively traded, fair values are estimated
           using values obtained from independent pricing services or, in the
           case of private placements, are estimated by discounting expected
           future cash flows using a current market rate applicable to the
           credit quality, call features 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, but are shown as a component of accumulated non-owner changes
           in equity. Unrealized losses that are considered other than temporary
           are recognized in earnings through an adjustment to the amortized
           cost basis of the underlying securities.

           Investment income on mortgage-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

                                                                     (Continued)

                                       7
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

           purchase. The adjustments to amortized cost are recorded as a charge
           or credit to investment income.

           The Company does not engage in derivatives trading, market-making or
           other speculative activities. The Company requires all options,
           interest rate floors and swaptions to be designated and accounted for
           as hedges of specific assets, liabilities or committed transactions;
           resulting payments and receipts are recognized contemporaneously with
           effects of hedged transactions. A payment or receipt arising from
           early termination of an effective hedge is accounted for as an
           adjustment to the basis of the hedged transaction.

           Instruments used as hedges must be effective at reducing the risk
           associated with the exposure being hedged and must be designated as a
           hedge at the inception of the contract. Accordingly, changes in
           market values of hedged instruments must be highly correlated with
           changes in market values of underlying hedged items both at inception
           of the hedge and over the life of the hedge contract. Any instrument
           designated but ineffective as a hedge is marked to market and
           recognized in operations immediately.

           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.

           Mortgage and policy loans are stated at the unpaid principal balance
           of such loans, net of allowances for estimated uncollectable amounts.

      (F)  DEFERRED ACQUISITION COSTS

           Deferred acquisition costs include costs and expenses which 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, deferred acquisition costs are amortized
           based on the present value of the anticipated gross profits from
           investments, interest credited, surrender charges, mortality and
           maintenance expenses. As actual gross profits vary from projected,
           the impact on amortization is included in net income. For insurance
           contracts, the acquisition costs are amortized in relation to the
           benefit payments or the present value of expected future premiums.

           Recoverability of deferred acquisition costs 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 the asset, the difference is charged to expense.

                                                                     (Continued)

                                       8
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

      (G)  INTANGIBLE ASSETS

           Present Value of Future Profits - In conjunction with the
           acquisitions of life insurance subsidiaries, 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.

           Goodwill - Goodwill is amortized over its estimated period of 25
           years of benefit on the straight-line method. Goodwill in excess of
           associated expected operating cash flows is considered to be impaired
           and is written down to fair value.

      (H)  FEDERAL INCOME TAXES

           The Company is included with GE Capital Assurance in a life insurance
           consolidated 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.

      (I)  FUTURE ANNUITY AND CONTRACT BENEFITS

           Future annuity and contract benefits consists of the liability for
           life insurance policies and immediate and deferred annuity contracts.
           Depending on the type of contract, these are calculated based upon
           actuarial assumptions as to mortality, morbidity, interest, expense
           and withdrawals, with experience adjustments for adverse deviation
           where appropriate.

      (J)  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 equal to the liabilities that represent
           the policyholders' equity in those assets.

      (K)  RECLASSIFICATIONS

           Certain reclassifications may have been made to the prior year's
           financial statements to conform to the current year's presentation.
           These reclassifications have no effect on reported net income, or
           financial position.

                                                                     (Continued)
                                       9
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

 (2)  INVESTMENTS

      (A)  GENERAL

           For the years ended December 31, the sources of investment income of
           the Company were as follows:


<TABLE>
<CAPTION>

                                                                 1998     1997     1996
                                                                -------  -------  -------
<S>                                                            <C>        <C>      <C>
 Fixed maturities                                              $ 336.3    369.6    353.0
 Mortgage loans                                                   93.9     97.8    102.8
 GE Capital Life of New York equity method income                  9.4      8.4      7.6
 Other                                                             3.3      3.4      2.4
                                                                -------  -------  -------

 Gross investment income                                         442.9    479.2    465.8
 Investment expenses                                              (1.2)    (3.9)    (3.3)
                                                                -------  -------  -------

           Net investment income                               $ 441.7    475.3    462.5
                                                                =======  =======  =======
</TABLE>


           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:


<TABLE>
<CAPTION>
                                                                  1998    1997     1996
                                                                -------  ------  -------
<S>                                                           <C>        <C>      <C>
Sales proceeds                                                $  318.5   349.4    192.8

Gross realized investment:
    Gains                                                         12.9    24.1      8.1
    Losses                                                        (3.9)   (4.4)    (5.0)
                                                                -------  ------  -------

Net realized investment gains                                 $    9.0    19.7      3.1
                                                                =======  ======  =======
</TABLE>

           The additional proceeds from investments presented in
           the statements of cash flows result from principal collected on
           mortgage-backed securities, maturities, calls and sinking fund
           payments.

                                                                     (Continued)

                                       10

<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

           Net unrealized gains and losses on investment securities classified
           as available-for-sale are reduced by deferred income taxes and
           adjustments to the present value of future profits and deferred
           acquisition costs that would have resulted had such gains and losses
           been realized. Net unrealized gains and losses on available-for-sale
           investment securities reflected as a separate component of
           shareholder's interest at December 31 are summarized as follows:


<TABLE>
<CAPTION>
                                                                           1998         1997        1996
                                                                        ----------  -----------  ----------

<S>                                                                  <C>                 <C>          <C>
 Net unrealized gains on available-for-sale investment securities
      before adjustments:
 Fixed maturities                                                    $      151.5        153.7        15.7
 Other invested assets                                                        4.1          3.5         5.4
                                                                        ----------  -----------  ----------

 Sub-total                                                                  155.6        157.2        21.1

 Adjustments to the present value of future profits and deferred
      acquisition costs                                                     (84.1)      (100.1)      (10.0)
 Deferred income taxes                                                      (23.8)       (18.8)       (4.1)
                                                                        ----------  -----------  ----------

 Net unrealized gains on available-for-sale investment securities    $       47.7         38.3         7.0
                                                                        ==========  ===========  ==========

</TABLE>

           At December 31, the amortized cost, gross unrealized gains and
           losses, and fair values of the Company's fixed maturities
           available-for-sale were as follows:


<TABLE>
<CAPTION>
                                                                         Gross          Gross
                                                         Amortized     unrealized    unrealized      Fair
1998                                                       cost          gains         losses        value
                                                        ------------  -------------  ------------  ----------
<S>                                                   <C>                     <C>           <C>         <C>
Fixed maturities:
     U.S. government and agency                       $        70.8           18.8          (0.2)       89.4
     Non-U.S. government                                       15.0              -             -        15.0
     Non-U.S. corporate                                       236.7           11.4          (2.2)      245.9
     U.S. corporate                                         2,698.2          109.7         (25.7)    2,782.2
     Mortgage-backed                                        1,559.7           46.8          (7.1)    1,599.4
                                                        ------------  -------------  ------------  ----------

             Total fixed maturities                   $     4,580.4          186.7         (35.2)    4,731.9
                                                        ============  =============  ============  ==========
</TABLE>


                                                                     (Continued)

                                       11
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

<TABLE>
<CAPTION>
                                                                         Gross         Gross
                                                        Amortized     unrealized    unrealized       Fair
1997                                                       cost          gains        losses         value
                                                        -----------   ------------  ------------  ------------
<S>                                                  <C>                     <C>                         <C>
Fixed maturities:
     U.S. government and agency                      $        78.5           10.8             -          89.3
     Non-U.S. corporate                                      184.1           12.1          (0.9)        195.3
     U.S. corporate                                        2,826.9           97.6          (5.9)      2,918.6
     Mortgage-backed                                       1,813.7           48.7          (8.7)      1,853.7
                                                        -----------   ------------  ------------  ------------

             Total fixed maturities                  $     4,903.2          169.2         (15.5)      5,056.9
                                                        ===========   ============  ============  ============
</TABLE>



           The scheduled maturity distribution of the fixed maturities portfolio
           at December 31, 1998 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.

<TABLE>
<CAPTION>

                                                                                 --------------------------
                                                                                  Amortized       Fair
                                                                                    cost          value
                                                                                 ------------  ------------
<S>                                                                            <C>                   <C>
Due in one year or less                                                        $       518.0         521.4
Due one year through five years                                                      1,205.0       1,229.7
Due five years through ten years                                                       502.3         527.7
Due after ten years                                                                    795.4         853.7
                                                                                 ------------  ------------

Subtotals                                                                            3,020.7       3,132.5
Mortgage-backed securities                                                           1,559.7       1,599.4
                                                                                 ------------  ------------

Totals                                                                         $     4,580.4       4,731.9
                                                                                 ============  ============
</TABLE>

           As required by law, the Company has investments on
           deposit with governmental authorities and banks for the protection of
           policyholders of $3.4 and $3.5 at December 31, 1998 and 1997,
           respectively.

           At December 31, 1998, approximately 25.4% and 17.4% of the Company's
           investment portfolio is comprised of securities issued by the
           manufacturing and financial 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.

                                                                     (Continued)
                                       12
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


           At December 31, 1998, 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.

<TABLE>
<CAPTION>

                                                                   1998                          1997
                                                    -----------------------         ---------------------
                                                        Fair                          Fair
                                                       value       Percent            value      Percent
                                                    -------------  --------         ----------   --------
<S>                                              <C>                  <C>         <C>               <C>
 Agencies and treasuries                         $         991.8      20.9 %      $   1,207.0       23.9 %
 AAA/Aaa                                                   590.3      12.5              612.3       12.1
 AA/Aa                                                     297.4       6.3              317.1        6.3
 A/A                                                     1,218.3      25.7            1,162.4       23.0
 BBB/Baa                                                 1,105.0      23.4            1,262.7       25.0
 BB/Ba                                                      52.9       1.1               36.9        0.7
 B/B                                                        13.5       0.3                3.1        0.1
 Not rated                                                 462.7       9.8              455.4        8.9
                                                    -------------  --------         ----------   --------

 Totals                                          $       4,731.9     100.0 %      $   5,056.9      100.0 %
                                                    =============  ========         ==========   ========
</TABLE>

           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, some 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, 1998, there were no fixed maturities in default as to
           principal or interest.

      (B)  MORTGAGE LOANS

           At December 31, 1998 and 1997, the Company's mortgage loan portfolio
           consisted of first mortgage loans on commercial real estate
           properties. The loans, which are originated by the Company through a
           network of mortgage bankers, are made only on completed, leased
           properties and generally have a maximum loan-to-value ratio of 75% at
           the date of origination.

                                                                     (Continued)

                                       13
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


           At December 31, 1998 and 1997, respectively, the Company held $379.3
           and $451.1 in mortgages secured by real estate in California,
           comprising 34.9% and 36% of the respective total mortgage portfolio.
           For the years ended December 31, 1998, 1997 and 1996, respectively,
           the Company originated $29.9, $79.7 and $12.5 of mortgages secured by
           real estate in California, which represent 29%, 40% and 29% of the
           respective total originations for those years.

           "Impaired" loans are defined under generally accepted accounting
           principles 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.

           Under these principles, the Company has two types of "impaired" loans
           as of December 31, 1998 and 1997: loans requiring allowances for
           losses ($0 at December 31, 1998 and 1997) and loans expected to be
           fully recoverable because the carrying amount has been reduced
           previously through charge-offs or deferral of income recognition
           ($5.2 and $6.1, respectively). Allowance for losses on these loans as
           of December 31, 1998 and 1997 was $0. Average investment in impaired
           loans during 1998, 1997 and 1996 was $5.4, $8.9 and $15.6,
           respectively and interest income earned on these loans while they
           were considered impaired was $0.4, $0.7 and $0.7, respectively.

           The following table shows the activity in the allowance for losses
           during the years ended December 31:

<TABLE>
<CAPTION>
                                                                                1998      1997       1996
                                                                              ---------  --------  ---------
<S>                                                                         <C>             <C>        <C>
Balance at January 1                                                        $     36.7      35.6       35.3
Provision charged to operations                                                    2.3       2.3        2.5
Amounts written off, net of recoveries                                               -      (1.2)      (2.2)
                                                                              ---------  --------  ---------

Balance at December 31                                                      $     39.0      36.7       35.6
                                                                              =========  ========  =========
</TABLE>


                                                                     (Continued)

                                       14
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

      (C)  INVESTMENT IN GE CAPITAL LIFE OF NEW YORK

           A portion of other invested assets at December 31, 1998 and 1997
           included $127.9 and $126.3, respectively, for the Company's 48%
           investment in GE Capital Life of New York, accounted for under the
           equity method. Investment income for 1998, 1997 and 1996 includes
           $9.4, $8.4 and $7.6 for equity in earnings of GE Capital Life of New
           York, respectively. Following is the summarized financial information
           for GE Capital Life of New York as of and for the years ended
           December 31:

<TABLE>
<CAPTION>
                                                                            1998             1997          1996
                                                                      ------------------  ------------  ------------
<S>                                                                 <C>                         <C>           <C>
Total revenue                                                       $             204.7         164.4         163.3
Total expenses                                                                    171.5         135.4         137.6
                                                                      ------------------  ------------  ------------

Income before income taxes                                                         33.2          29.0          25.7
Provision for income taxes                                                         13.7          11.5           9.8
                                                                      ------------------  ------------  ------------

Net income                                                          $              19.5          17.5          15.9
                                                                      ==================  ============  ============

Total investments                                                   $           1,736.1       1,667.6       1,554.1

Other assets                                                                      144.9         139.9         154.9
                                                                      ------------------  ------------  ------------

Total assets                                                        $           1,881.0       1,807.5       1,709.0
                                                                      ==================  ============  ============

Total liabilities                                                   $           1,617.4       1,547.2       1,459.8

Shareholder's interest                                                            263.6         260.3         249.2
                                                                      ------------------  ------------  ------------

Total liabilities and shareholder's interest                        $           1,881.0       1,807.5       1,709.0
                                                                      ==================  ============  ============

</TABLE>
                                                                     (Continued)

                                       15
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


(3)   DEFERRED ACQUISITION COSTS

      Activity impacting deferred acquisition costs for the years ended December
      31, was as follows:

<TABLE>
<CAPTION>

                                                                                    1998        1997        1996
                                                                                ---------   ---------  ----------
<S>                                                                          <C>               <C>         <C>
Unamortized balance at January 1                                             $     141.4       133.2       106.5
Costs deferred                                                                       4.6        18.4        36.0
Amortization, net                                                                  (19.4)      (10.2)       (9.3)
                                                                                ---------   ---------  ----------

Unamortized balance at December 31                                                 126.6       141.4       133.2
Cumulative effect of net unrealized investment gains                               (36.4)      (43.7)       (3.6)
                                                                                ---------   ---------  ----------

Recorded balance                                                             $      90.2        97.7       129.6
                                                                                =========   =========  ==========
</TABLE>

 (4)  INTANGIBLE ASSETS

      (A)  PRESENT VALUE OF FUTURE PROFITS (PVFP)

           The method used by the Company to value PVFP in connection with
           acquisitions of life insurance entities 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 cost. Interest accretes at
           rates credited to policyholders on underlying contracts. As actual
           results vary from projected amounts, the impact on amortization is
           included in net income.

           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.

                                                                     (Continued)

                                       16
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

           The following table presents the activity in PVFP for the years ended
           December 31:

<TABLE>
<CAPTION>
                                                                                  1998         1997        1996
                                                                             -------------  ----------  ----------
<S>                                                                        <C>                  <C>         <C>
Unamortized balance at January 1                                           $        124.1       155.1       187.5
Interest accreted at 4.7% in 1998, 5.2% in 1997, and 5.4% in 1996                     5.4         7.1        10.0
Amortization                                                                        (35.1)      (38.1)      (42.4)
                                                                             -------------  ----------  ----------

Unamortized balance at December 31                                                   94.4       124.1       155.1
Cumulative effect of net unrealized investment gains                                (47.7)      (56.4)       (6.4)
                                                                             -------------  ----------  ----------

Recorded balance                                                           $         46.7        67.7       148.7
                                                                             =============  ==========  ==========

</TABLE>


           The estimated percentage of the December 31, 1998
           balance, before the effect of unrealized investment gains or losses,
           to be amortized over each of the next five years is as follows:


           1999                     22 %
           2000                     17
           2001                     14
           2002                     11
           2003                      9



      (B)  GOODWILL

           At December 31, 1998 and 1997, total unamortized goodwill was $28.3
           and $29.7, respectively, which is shown net of accumulated
           amortization of $8.4 and $6.9, respectively. Goodwill amortization
           was $1.5 for each of the years ended December 31, 1998, 1997 and
           1996, respectively.


(5)   FUTURE ANNUITY AND CONTRACT BENEFITS

      (A)  INVESTMENT AND UNIVERSAL LIFE TYPE CONTRACTS

           Investment contracts are broadly defined to include contracts without
           significant mortality or morbidity risk. Payments received from sales
           of investment and universal life contracts are recognized by
           providing a liability equal to the current account value of the
           policyholder's 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, 1998 and
           1997, investment and universal life contracts comprised $4,772.5 and
           $5,435.8, respectively.

                                                                     (Continued)

                                       17
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)

      (B)  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
           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. At December 31, 1998 and 1997, insurance contracts
           comprised $583.5 and $567.8, respectively.

           Interest rate assumptions used in calculating the present value of
           future annuity and contract benefits range from 5.8% to 9.9%.


 (6)  INCOME TAXES

      The total provision for income taxes for the years ended December 31
      consisted of the following components:

<TABLE>
<CAPTION>
                                                                               1998       1997       1996
                                                                             ---------  ---------   --------
<S>                                                                        <C>              <C>        <C>
Current federal income tax provision                                       $     25.9       17.2       34.3
Deferred federal income tax provision (benefit)                                   5.7       17.3      (10.1)
                                                                             ---------  ---------   --------

            Subtotal federal provision                                           31.6       34.5       24.2

Current state income tax provision                                                0.9        1.3        1.0
Deferred state income tax provision (benefit)                                       -       (0.3)      (0.3)
                                                                             ---------  ---------   --------

            Subtotal state provision                                              0.9        1.0        0.7
                                                                             ---------  ---------   --------

            Total income tax provision                                     $     32.5       35.5       24.9
                                                                             =========  =========   ========
</TABLE>
                                                                     (Continued)

                                       18
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


      The reconciliation of the federal statutory tax rate to the effective
      income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                            1998        1997        1996
                                                                          ---------   ---------   ---------
<S>                                                                           <C>         <C>         <C>
Statutory U.S. federal income tax rate                                        35.0 %      35.0 %      35.0 %
Equity in earnings of GE Capital Life of New York                             (3.3)       (2.8)       (3.5)
State income tax                                                               0.6         0.6         0.6
Goodwill amortization                                                          0.5         0.5         0.7
Other, net                                                                       -        (0.1)          -
                                                                          ---------   ---------   ---------

Effective rate                                                                32.8 %      33.2 %      32.8 %
                                                                          =========   =========   =========
</TABLE>

      The components of the net deferred income tax liability at December 31 are
as follows:

<TABLE>
<CAPTION>
                                                                                   1998            1997
                                                                                ------------  ---------------
<S>                                                                          <C>                        <C>
Assets:
     Future annuity and contract benefits                                    $         79.2             68.7
     Guaranty association assessments                                                  11.3             11.7
     Other                                                                             10.9              1.0
                                                                                ------------  ---------------

            Total deferred income tax assets                                          101.4             81.4
                                                                                ------------  ---------------

Liabilities:
     Net unrealized gains on investment securities                                    (23.8)           (18.8)
     Investments                                                                      (53.1)            (3.1)
     Present value of future profits                                                  (26.0)           (35.7)
     Deferred acquisition costs                                                       (21.5)           (22.5)
     Other                                                                                -            (13.6)
                                                                                ------------  ---------------

            Total deferred income tax liabilities                                    (124.4)           (93.7)
                                                                                ------------  ---------------

Net deferred income tax liability                                            $        (23.0)           (12.3)
                                                                                ============  ===============
</TABLE>

      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 paid $21.4, $25.4 and $50.4, for federal and state income
      taxes during the years 1998, 1997 and 1996, respectively.

                                                                     (Continued)

                                       19
<PAGE>
                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


(7)   RELATED PARTY TRANSACTIONS

      During the years ended December 31, 1998, 1997 and 1996, the Company
      recognized $1.4, $3.4 and $3.4, respectively, from its affiliates, Capital
      Brokerage Corporation (formerly known as GNA Securities, Inc.) and GNA
      Distributors, Inc. for reimbursement of marketing, administrative and
      general office expenses.

      During the years ended December 31, 1998, 1997 and 1996, the Company
      received a dividend from GE Capital Life of New York of $7.7, $7.2 and
      $7.5, respectively.


(8)   COMMITMENTS AND CONTINGENCIES

      (A)  MORTGAGE LOAN COMMITMENTS

           As of December 31, 1998 and 1997, the Company was committed to fund
           $33.2 and $94.8, respectively, in mortgage loans.

      (B)  GUARANTY ASSOCIATION ASSESSMENTS

           The Company is required to participate in the guaranty associations
           of the various states in which they do business. The state guaranty
           associations ensure payment of guaranteed benefits, with certain
           restrictions, to policyholders of impaired or insolvent insurance
           companies by assessing all other companies involved in similar lines
           of business.

           There are currently several unrelated insurance companies which had
           substantial amounts of annuity business in the process of liquidation
           or rehabilitation. The Company paid assessments of $3.3, $5.4 and
           $3.9 to various state guaranty associations during the years 1998,
           1997 and 1996, respectively. At December 31, 1998 and 1997, accounts
           payable and accrued expenses include $25.6 and $28.9, respectively,
           related to estimated future assessments.


      (C)  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.
                                                                     (Continued)

                                       20
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


(9)   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The Company's derivative financial instruments at December 31, 1998,
      consisted of mortgage loan commitments of $33.2, interest rate floors of
      $6.5 and swap options of $7.3. The notional amount of the interest rate
      floors and swap options are $1,000.0 and $1,600.0, and have expiration
      dates of October 2003 and December 2008, respectively. The Company also
      has an interest rate swap in the notional amount of $65.0 with an
      expiration date of December 2048.

      The fair values of financial instruments presented in the applicable notes
      to the Company's financial statements are estimates of the fair values at
      a specific point in time using available market information and valuation
      methodologies considered appropriate by management. These estimates are
      subjective in nature and involve uncertainties and significant judgment in
      the interpretation of current market data. Therefore, the fair values
      presented are not necessarily indicative of amounts the Company could
      realize or settle currently. The Company does not necessarily intend to
      dispose of or liquidate such instruments prior to maturity.

      Financial instruments that, as a matter of accounting policy, are
      reflected in the accompanying financial statements at fair value are not
      included in the following disclosures. Such items include fixed
      maturities, accrued investment income and certain other invested assets.
      The carrying value of policy loans and short-term investments approximates
      fair value at December 31, 1998 and 1997, respectively.

      At December 31, the carrying amounts and fair values of the Company's
      remaining financial instruments were as follows:

<TABLE>
<CAPTION>
                                                                    1998                           1997
                                                        -----------------------------  ----------------------------
                                                          Carrying          Fair         Carrying         Fair
Financial Instruments                                      amount          value          amount         value
                                                        -------------   -------------  -------------  -------------

<S>                                                   <C>                    <C>            <C>            <C>
Mortgage loans                                        $      1,045.4         1,146.5        1,203.8        1,268.6
Investment contracts                                  $      4,772.5         4,686.5        5,435.8        5,314.8
Interest rate floors                                  $          6.5             6.6              -              -
Swap Options                                          $          7.3             9.2              -              -
Interest rate swap                                    $            -            (0.8)             -              -
</TABLE>


      The fair value of mortgage loans is estimated by discounting the estimated
      future cash flows using interest rates applicable to current loan
      originations, adjusted for credit risks.

      The estimated fair value of investment contracts is the amount payable on
      demand (cash surrender value) for deferred annuities and the net present
      value based on interest rates currently offered on similar contracts for
      non-life contingent immediate annuities. Fair value disclosures are not
      required for insurance contracts.

                                                                     (Continued)
                                       21
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


(10)  RESTRICTIONS ON DIVIDENDS

      Insurance companies are restricted by states as to the aggregate amount of
      dividends they may pay to their parent in any consecutive twelve month
      period without regulatory approval. Generally, dividends may be paid out
      of earned surplus without approval with thirty days prior written notice
      within certain limits. The limits are generally based on 10% of the prior
      year surplus (net of adjustments in some cases) and prior year statutory
      income (net gain from operations, net income adjusted for realized capital
      gains, or net investment income). Dividends in excess of the prescribed
      limits or the company's earned surplus are deemed extraordinary and
      require formal state insurance commission approval. Based on statutory
      results as of December 31, 1998, the Company is able to pay $89.4 in
      dividends in 1999 without obtaining regulatory approval.


(11)  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 (statutory basis). Statutory accounting practices differ from
      generally accepted accounting principles (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
      state insurance authorities. The Company has no significant permitted
      accounting practices.

      Statutory net income for the Company for the years ended December 31,
      1998, 1997 and 1996 was $88.7, $73.0 and $65.4, respectively. The
      statutory capital and surplus as of December 31, 1998 and 1997 was $582.7
      and $496.5, 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: (i) asset quality, (ii) insurance risk, (iii) interest rate risk,
      and (iv) other business factors. 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 its RBC level. At
      December 31, 1998 and 1997, the Company exceeded the minimum required RBC
      levels.

                                                                     (Continued)
                                       22
<PAGE>


                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)


(12)     ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

        During 1998, The Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING
        FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement
        requires that, upon adoption, all derivative instruments (including
        certain derivative instruments embedded in other contracts) be
        recognized in the balance sheet at fair value, and that changes in such
        fair values be recognized in earnings unless specific hedging criteria
        are met. Changes in the values of derivatives that meet these hedging
        criteria will ultimately offset related earnings effects of the hedged
        items; effects of certain changes in fair value are recorded in equity
        pending recognition in earnings. The Company or its successor will adopt
        the Statement on January 1, 2000. The impact of adoption will be
        determined by several factors, including the specific hedging
        instruments in place and their relationships to hedged items, as well as
        market conditions. Management has not estimated the effects of adoption
        as it believes that such determination will not be meaningful until
        closer to the adoption date.


                                       23
<PAGE>

                   GREAT NORTHERN INSURED ANNUITY CORPORATION

                          Notes to Financial Statements

                   Year ended December 31, 1998, 1997 and 1996
                          (Dollar amounts in millions)



(12)     CONTINUED

      In December 1997, the American Institute of Certified Public Accountants
      issued a new Statement of Position (SOP) 97-3, ACCOUNTING BY INSURANCE AND
      OTHER ENTERPRISES FOR INSURANCE-RELATED ASSESSMENTS. This SOP provides
      guidance on accounting by insurance and other enterprises for
      guaranty-fund and certain other insurance related assessments. The SOP
      requires enterprises to recognize (1) a liability for assessments when (a)
      an assessment has been asserted or information available prior to issuance
      of the financial statements indicates it is probable that an assessment
      will be asserted, (b) the underlying cause of the asserted or probable
      assessment has occurred on or before the date of the financial statements,
      and (c) the amount of the loss can be reasonably estimated and (2) an
      asset for an amount when it is probable that a paid or accrued assessment
      will result in an amount that is recoverable from premium tax offsets or
      policy surcharges from in-force policies. This SOP is effective for
      financial statements for fiscal years beginning after December 15, 1998
      and will be reported in a manner similar to a cumulative effect of a
      change in accounting principle in the initial year of adoption. Management
      of the Company does not expect that this SOP will have a material impact
      on the Company's financial position, results of operations, or liquidity,
      since the Company does not pay a significant amount of policy-related
      premium taxes.


(13)    SUBSEQUENT EVENT

      On January 1, 1999, the Company merged with and into its parent company,
      GE Capital Assurance, pursuant to an Agreement and Plan of Merger between
      the Company and GE Capital Assurance dated May 18, 1998. Prior regulatory
      approval of the merger was obtained from the Delaware Department of
      Insurance and from the Washington Department of Insurance. As a result of
      the merger, the Company will no longer file financial information on Forms
      10-Q nor 10-K.


                                       24
<PAGE>

                                     PART I

ITEM 1.       BUSINESS

OWNERSHIP

         Great Northern Insured Annuity Corporation (GNA or the Company) was
incorporated as a stock life insurance company organized under the laws of the
State of Washington on June 4, 1980 and began writing business pursuant to
licensing on October 15, 1980. On June 30, 1983, The Weyerhaeuser Company
(Weyerhaeuser) acquired a controlling interest in GNA.

         Pursuant to a Stock Purchase Agreement dated January 5, 1993, by and
between Weyerhaeuser and General Electric Capital Corporation (GE Capital), 100%
of the outstanding capital stock of GNA Corporation was sold to GE Capital
effective April 1, 1993.

         Effective July 14, 1993, GE Capital acquired 100% of the outstanding
capital stock of United Pacific Life Insurance Company (United Pacific Life). GE
Capital transferred controlling ownership of United Pacific Life to GNA.
Subsequently, United Pacific Life's name was changed to General Electric Capital
Assurance Company (GE Capital Assurance). GE Capital Assurance, a Delaware life
insurer, is licensed in the District of Columbia, and all states except Maine
and New York.

         On February 1, 1990, GNA acquired 100% of the outstanding stock of
First GNA Life Insurance Company of New York (First GNA). Subsequent to the
acquisition of United Pacific Life, GNA merged First GNA with United Pacific
Reliance Life Insurance Company of New York, a wholly-owned subsidiary of United
Pacific Life. The merged company is 48% owned by GNA and 52% by GE Capital
Assurance. Effective February 1, 1996, First GNA's name was changed to GE
Capital Life Assurance Company of New York (GE Capital Life). GE Capital Life
issues deferred and immediate annuities and life insurance in the state of New
York.

         Effective October 1, 1995, GNA was party to a reorganization involving
GNA Corporation and certain of its life insurance company subsidiaries (herein
referred to as the Reorganization). As part of the Reorganization, GNA became a
wholly-owned subsidiary of GE Capital Assurance, and GE Capital Assurance became
a wholly-owned subsidiary of GNA Corporation. Previously, all of GE Capital
Assurance's voting common stock was owned by GNA. The Reorganization allows all
life insurance company subsidiaries of GNA Corporation to file a consolidated
federal tax return.

         On January 1, 1999, GNA merged with and into its parent company, GE
Capital Assurance, pursuant to an Agreement and Plan of Merger between the GNA
and GE Capital Assurance dated May 18, 1998. Prior regulatory approval of the
merger was obtained from the Delaware Department of Insurance and from the
Washington Department of Insurance. This merger was also approved by the U.S.
Securities & Exchange Commission. As a result of the merger, GNA will no longer
file financial information on Forms 10-Q nor 10-K. The merger will be treated on
an as-if-pooled basis; accordingly, the resulting consolidated financial
statements will include the accounts and operations of GNA and GE Capital
Assurance.


MARKETING

         GNA is licensed in the District of Columbia and all states except New
Hampshire and New York. GNA markets fixed-rate deferred annuities, immediate
annuities and structured settlement immediate annuities primarily through banks,
thrifts and other financial institutions.

         DEFERRED FIXED RATE ANNUITIES. The predominant form of deferred
annuities require either single premium or flexible premium payments and have a
minimum annual guaranteed crediting rate. After the initial guarantee period,
the crediting rate may be changed periodically. The policy owner is permitted to
withdraw all or part of the premium paid plus interest credited, less a
surrender charge for withdrawals during the initial penalty period of one to
eight years. The surrender charge is initially 5% to 8% of the contract value
and decreases over the penalty period. Some deferred annuities provide for
penalty-free partial withdrawals of the accumulated interest credited or up to
10% annually of the accumulation value. In

                                      -3-
<PAGE>

1998, the Company issued $33.0 million in deferred annuities. At December 31,
1998, deferred annuities comprised $4,436.7 million of total liabilities for
future annuity and contract benefits.

         IMMEDIATE ANNUITIES. The Company's immediate annuities are designed to
provide a series of periodic payments for a fixed length of time or for life,
according to the annuitant's choice at the time of issue. Once the payments have
begun, the amount, frequency and length of time for which they are payable are
fixed. A primary form of immediate annuities, the structured settlement annuity,
is usually sold as part of a settlement resulting from a personal injury or
wrongful death claim to provide scheduled payments to an injured person or their
dependents. Structured settlement annuities are generally long-term and cannot
be surrendered. In 1998, the Company issued $55.7 million in immediate
annuities. At December 31, 1998, immediate annuities comprised $777.9 million of
total liabilities for future annuity and contract benefits.

COMPETITION

         The Company is engaged in a business that is highly competitive because
of the large number of stock and mutual life insurance companies and other
entities marketing insurance and investment products. There are numerous stock,
mutual and other types of insurers in the life insurance business in the United
States, a significant number of which are substantially larger than GNA.

         A.M. Best has currently assigned to GNA an A + (Superior) rating and
Standard & Poor's has assigned an AA (Excellent) rating based on the Company's
high claims paying ability and excellent asset quality.

GOVERNMENT REGULATION

         GNA is subject to the laws of the State of Washington governing
insurance companies and to the regulations of the Washington Insurance
Department. In addition, GNA is subject to regulation under the insurance laws
of other jurisdictions in which the Company operates. Regulation by other
supervisory agencies includes licensing to transact business, overseeing trade
practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company's books and accounts are subject to review by
each Insurance Department and other supervisory agencies at all times, and GNA
files annual statements with these agencies. A full examination of the Company's
operations is conducted periodically by various Insurance Departments and may
include the participation of the insurance departments of other states in which
GNA conducts business. Recent examinations have not resulted in significant
findings.

         In addition, many states regulate affiliated groups of insurers
(including GNA) under insurance holding company legislation. Under such laws,
intercompany transactions, including transfers of assets and dividend payments
from insurance subsidiaries, may be subject to prior notice or approval,
depending on the size of the transfers and payments in relation to the financial
positions of the companies involved. Due to the Company's volume of California
business, GNA is considered a California commercially domiciled insurer under
California insurance holding company law.

         The National Association of Insurance Commissioners (NAIC) uses
Risk-Based Capital (RBC) requirements to evaluate the adequacy of statutory
capital and surplus in relation to risks associated with: (i) asset quality,
(ii) insurance risk (iii) interest rate risk, and (iv) other business factors.
The RBC formula is designed as an early warning tool for the states to identify
possible under-capitalized companies for the purpose of initiating regulatory
action. In the course of its operations, the Company monitors the level of its
RBC and it exceeds the minimum required levels.

         Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for policyholder
losses incurred by insolvent companies. GNA has estimated assessments related to
known insolvencies, primarily Executive Life Insurance Company, and has recorded
a liability of $25.6 million at December 31, 1998 related to this estimated
liability. The amount of any future assessments related to future insolvencies
under these laws, however, cannot be reasonably estimated. Most

                                      -4-
<PAGE>

of these laws do provide that an assessment may be excused or deferred if it
would threaten an insurer's own financial strength.

         Although the federal government generally does not directly regulate
the business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and the taxation impact on the relative
desirability of various investment vehicles.

ITEM 2.       PROPERTIES

         The Company leases office space in Seattle, Washington. The Company is
reimbursed by its affiliates for rent based on direct and indirect allocation
methods.

ITEM 3.       LEGAL PROCEEDINGS

         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.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.



                                      -5-
<PAGE>

                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

         The common stock of the Company is owned entirely by GE Capital
Assurance and, therefore, there is no trading market in such stock.

ITEM 6.       SELECTED FINANCIAL DATA

         The following selected financial data should be read in conjunction
with the financial statements and notes thereto included in this Form 10-K.

<TABLE>
<CAPTION>
                                              Selected Financial Data
                                               (Dollars in millions)

                                                                    Year ended December 31
                                    ----------------------------------------------------------------------------------------
                                       1998         1997         1996        1995        1995          1994         1994
                                    ------------  ----------   ----------  ----------  ----------   -----------  -----------
                                                                           Pro forma                Pro forma
                                                                           (unaudited)              (unaudited)
                                                                              (1)                      (1)
<S>                              <C>                  <C>          <C>         <C>         <C>           <C>          <C>
Net investment income            $        441.7       475.3        462.5       444.5       784.7         391.6        837.8
Income before income
     taxes and minority                    99.2       106.8         76.0        39.1        62.0          70.6        107.7
     interest
Net income                                 66.7        71.3         51.1        26.7        26.3          44.0         47.5
Total assets                            6,411.5     7,082.1      7,120.0     6,926.5     6,926.5       6,578.0     13,100.2
Shareholder's interest,
     excluding net
     unrealized investment
     gain/(loss)                          820.9       754.2        682.9       631.7       631.7         607.3        794.2
Net unrealized
     investment gain/(loss)                47.7        38.3          7.0        29.9        29.9        (166.7)      (528.8)
Total shareholder's
     interest                             868.6       792.5        689.9       661.6       661.6         440.6        265.4
</TABLE>

(1) Unaudited pro forma results reflect the Reorganization as if it had occurred
at the beginning of the period.

                                      -6-
<PAGE>

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         GNA derives substantially all its income from earnings on investments
offset by interest credited to policyholders of predominantly deferred and
immediate annuities, operating expenses, acquisition costs and taxes. Funds
received for the purchase of immediate annuities with life contingencies,
including options elected under annuity contracts, are reported as premium
income. Other income is primarily surrender fees on deferred annuity policies.

         GNA's results of operations for the years ended December 31, 1998 and
1997 include the accounts of GNA, as well as the Company's investment in GE
Capital Life of New York, accounted for under the equity method.

         As a result of a continued shift in marketing focus to GE Capital
Assurance for sales of life contingent structured settlement products, premium
revenues, benefits and changes in policy reserves, commissions, general expenses
and change in deferred acquisition costs, net were lower in 1998 as compared to
1997.

1998 Compared to 1997
---------------------

         NET INVESTMENT INCOME decreased $33.6 million to $441.7 million. This
decrease is primarily attributed to a decrease in average investments during the
period and the impact of lower weighted average yields due to a lower interest
rate environment in 1998.

         NET REALIZED INVESTMENT GAINS (LOSSES) - Net realized investment gains
were $9.0 million during 1998, compared to a $19.7 million in 1997. This change
is related to the Company's asset/liability risk management and varies with
market and economic conditions.

         PREMIUMS decreased $43.6 million to $17.5 million. This decrease is due
to lower sales of life contingent structured settlement product primarily
related to a shift in marketing focus to GE Capital Assurance products.

         INTEREST CREDITED on policyholder deposits decreased $40.3 million to
$253.6 million primarily due to lower future annuity and contract benefit
liabilities during 1998.

         BENEFITS AND OTHER CHANGES IN POLICY RESERVES decreased $42.9 million
to $54.8 million. This decrease was largely due to a reduction in sales of life
contingent structured settlement products and reserve reduction associated with
the payout of benefits.

         COMMISSIONS decreased $9.4 million to $5.3 million. This decrease is
due to continued shift in marketing focus to GE Capital Assurance products.

         GENERAL EXPENSES decreased $9.4 million to $17.5 million due to GNA's
continued shift in marketing focus to GE Capital Assurance products.

         AMORTIZATION OF INTANGIBLES, NET decreased $1.3 million to $31.3
million. The Company established goodwill and present value of future profits
(PVFP) assets in connection with GNA's acquisition. The decrease is primarily
related to lower PVFP amortization in 1998 versus 1997, due to a normal PVFP
amortization pattern.

         CHANGE IN DEFERRED ACQUISITION COSTS, NET increased $23.0 million to
$14.8 million primarily as a result of lower deferrable commissions as discussed
above and higher amortization of previously capitalized deferred acquisition
costs due to a continuing runoff of the underlying business.

         PROVISION FOR INCOME TAXES. The effective tax rate for 1998 decreased
to 32.8% from 33.2% primarily due to the recognition of equity income in
earnings of GE Capital Life of New York.


                                      -7-
<PAGE>

1997 Compared to 1996

         NET INVESTMENT INCOME decreased $12.8 million to $475.3 million. This
increase is primarily attributable to purchase of higher yield securities,
dividends from other invested assets and an increase in average investments
during the period.

         NET REALIZED INVESTMENT GAINS (LOSSES) - Net realized investment gains
were $19.7 million during 1997, compared to $3.1 million in 1996. This change is
related to the Company's asset/liability risk management and varies with market
and economic conditions.

         PREMIUMS decreased $138.9 million to $61.1 million. This decrease is
due to lower sales of life contingent structured settlement product primarily
related to a shift in marketing focus to GE Capital Assurance products.

         INTEREST CREDITED on policyholder deposits decreased $1.8 million to
$293.9 million primarily due to lower future annuity and contract benefit
liabilities during 1997.

         BENEFITS AND OTHER CHANGES IN POLICY RESERVES decreased $133.2 million
to $97.7 million. Change in policy reserves decreased largely due to a reduction
in sales of life contingent structured settlement products and reserve reduction
associated with the payout of benefits.

         COMMISSIONS decreased $12.7 million to $14.7 million. This decrease is
due to a continued shift in marketing focus to GE Capital Assurance products.

         GENERAL EXPENSES decreased $9.6 million to $26.9 million due to the
GNA's continued shift in marketing focus to GE Capital Assurance products.

         AMORTIZATION OF INTANGIBLES, NET decreased $1.3 million to $32.6
million. The Company established goodwill and present value of future profits
(PVFP) assets in connection with GNA's acquisition. The decrease is primarily
related to lower PVFP amortization in 1997 versus 1996, due to a normal PVFP
amortization pattern.

         CHANGE IN DEFERRED ACQUISITION COSTS, NET decreased $18.5 million to
$8.2 million primarily as a result of lower deferrable commissions, as discussed
above.

         PROVISION FOR INCOME TAXES. The effective tax rate for 1997 increased
to 33.2% from 32.8% primarily due to the recognition of equity income in
earnings of GE Capital Life of New York.


INVESTMENTS

         The Company manages its investment portfolio to meet the
diversification, credit quality, yield and liquidity requirements of its policy
liabilities by investing primarily in fixed maturity instruments, including
government and corporate bonds, mortgage-backed securities, and mortgage loans
on real estate. At December 31, 1998, the Company held $5.8 billion, or 95.1% of
its investment portfolio, in fixed maturity instruments and mortgage loans. The
Company's investment philosophy focuses on purchasing assets the durations of
which approximate policyholder obligations. To match some of its longer term
policy liabilities, the Company has followed a strategy of buying bonds with
adequate call protection. The Company also invests in policy loans, short-term
securities and other investments, which comprised the remaining 4.9% of its
investment portfolio at December 31, 1998.

         The Company primarily purchases investment-grade (BBB-/Baa3 or above)
bonds. At December 31, 1998, $4,269.2 million, or 90.2% of the fixed maturity
securities held by the Company were bonds rated by a rating agency (S&P or
Moody's), or were government/agency bonds. Fixed maturity securities of $462.7
million, or 9.8%, were comprised primarily of private placement bonds not rated
by either rating agency. At December 31, 1998, the Company held $66.4 million of
bonds rated below investment grade (excluding split-rated bonds). In addition,
the Company held $41.5 million of "not-rated" bonds which the Company believes
are below investment grade. Below investment grade bonds include those bonds
originally

                                      -8-
<PAGE>

purchased as investment grade but subsequently downgraded in rating, as well as
bonds purchased as below investment grade. The Company holds this small
percentage of below investment grade bonds in order to enhance the yield on its
investment portfolio.

         Investments in mortgage-backed securities include $1,288.3 million in
collateralized mortgage obligations (CMOs) and asset-backed securities and
$311.1 million of pass-through securities. These securities are secured
primarily by pools of residential mortgages and generally carry high credit
ratings. Approximately 41% of the mortgage-backed securities are backed by
securities issued by Government National Mortgage Association, Federal Home Loan
Mortgage Corporation, or Federal National Mortgage Association. In aggregate,
the mortgage-backed securities had an average rating of AAA/Aaa at December 31,
1998. Most CMO and pass-through securities are subject to prepayment and
extension risk (i.e., principal can be received earlier or later than
anticipated, based on the rate of mortgage prepayments in the underlying
residential mortgage pools).

          The Company has classified all of its fixed maturity investments
available-for-sale. Such securities are carried on the balance sheet at current
fair values and marked to market quarterly. Changes in market value, net of the
effect on present value of future profits, deferred policy acquisition costs and
deferred income taxes, are recorded as unrealized appreciation or depreciation
directly in shareholder's interest and, accordingly, have no effect on net
income, but are shown as a component of accumulated non-owner changes in
equity. At December 31, 1998, the amortized cost basis of the Company's fixed
maturity securities was $4,580.4 million, representing net unrealized gains of
$151.5 million.

         The Company's mortgage loan portfolio consisted of 870 loans at
December 31, 1998. The loans, which are originated through a network of mortgage
bankers, are made only on completed, leased properties and have a maximum
loan-to-value ratio of 75% at the date of origination. Commercial loans comprise
the majority of the portfolio, with $558.0 million (51.4%), $255.9 million
(23.6%) and $139.3 million (12.8%) attributable to the retail, industrial and
office sectors, respectively. The remainder of the loans are attributable to the
residential and other miscellaneous sectors. The mortgage loans are secured by
property throughout the U.S., with concentrations in the Pacific region (42.1%)
and the South Atlantic region (21.0%).

         Other invested assets of $277.1 million at December 31, 1998 were
comprised of several type of assets. These include investments in mutual funds
offered by the Company's mutual fund and variable annuity distribution channels
($55.2 million) in order to provide seed money for these funds; and pursuant to
a periodic review of its asset allocation strategy, the Company has also made
investments in limited partnerships ($80.0 million) and an investment in
affiliate ($127.9 million).

LIQUIDITY AND CAPITAL RESOURCES

         The Company's liquidity requirements are met by funds from operations
and investment activity. Premiums and policyholder deposits are invested in
assets that generally have durations similar to the Company's liabilities. Funds
from investment activity included principal and interest payments from the bond
and mortgage portfolio as well as sales, calls and maturities of certain
securities. As of December 31, 1998, investments subject to certain call
provisions totaled $185.5 million; and mortgage-backed securities subject to
prepayment risk totaled $1,599.4 million.

         The Company is restricted by Washington State as to the amount of
dividends it may pay within a given calendar year to its parent without
regulatory consent. That restriction is the greater of statutory net gain from
operations for the year or 10% of the statutory surplus at the end of the year,
subject to a maximum equal to statutory earned surplus. As of December 31, 1998,
approximately $89.4 million was available for dividend payments in 1999.

YEAR 2000

         Year 2000 will test the capability of business processes to function
correctly. The Company, with the assistance of its parent, has undertaken an
effort to identify and mitigate Year 2000 issues in its information systems,
products, facilities and suppliers. The Company has a Year 2000 leader who
oversees a multi-functional remediation project team responsible for applying a
Six Sigma quality approach in four phases: (1) define/measure- identify and
inventory possible sources of Year 2000 issues; (2) analyze- determine the

                                      -9-
<PAGE>

nature and extent of Year 2000 issues and develop project plans to address those
issues; (3) improve- execute project plans and per-form a majority of the
testing; and (4) control - complete testing, continue monitoring readiness and
complete necessary contingency plans. The progress of this program is monitored
and reviews with senior management are conducted monthly. The first three phases
of the program have been completed for a substantial majority of
mission-critical activities. Management plans to have nearly all significant
information systems, products and facilities through the control phase of the
program by mid-1999.

         The scope of the Year 2000 effort encompasses many hundreds of
applications and computer programs; as well as products and services; facilities
and facilities-related equipment; suppliers and customers. Business operations
are also affected by the Year 2000 readiness of customers, distribution channels
and infrastructure suppliers in areas such as utilities, communications and
other services. In this environment, there will likely be instances of failure
that could cause disruptions in business processes for the Company's business.
The likelihood and effects of failures in the customer base, infrastructure
systems, distribution channels and in the supply chain cannot be estimated.
However, with respect to operations under its direct control, management does
not expect, in view of its Year 2000 program efforts and the diversity of its
products, suppliers, distribution channels and customers, that occurrences of
Year 2000 failures will have a material adverse effect on the financial
position, results of operations or liquidity of the Company.

         Total Year 2000 remediation expenditures, to be incurred by the Company
and its affiliated carriers, are expected to be approximately $47 million, of
which approximately 80% was spent by the end of 1998. Substantially all of the
remainder is expected to be spent in 1999. The activities involved in the Year
2000 effort necessarily involve estimates and projections of activities and
resources that will be required in the future. These estimates and projections
could change as work progresses.


                                      -10-
<PAGE>

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

         None


                                      -37-
<PAGE>

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.

ITEM 11.      EXECUTIVE COMPENSATION

         Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Item omitted pursuant to General Instructions J(2) (c) of Form 10-K.


                                      -38-
<PAGE>

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
<S>         <C>

           (a)  (1)   Financial Statements

                      Independent Auditors' Reports
                      Balance Sheets as of December 31, 1998 and 1997
                      Statements of Income for the Years ended December 31,
                         1998, 1997 and 1996
                      Statements of Shareholder's Interest for the Years ended
                         December 31, 1998, 1997 and 1996
                      Statements of Cash Flows for the Years ended December 31,
                         1998, 1997 and 1996
                      Notes to Financial Statements

                  All schedules are omitted because of the absence of conditions
                  under which they are required or because the required
                  information is shown in the financial statements or notes
                  thereto.

                   (2)   Listing of Exhibits

                         1       Resolution  of  the  Board  of  Directors  of  Great  Northern   Insured   Annuity
                                 Corporation establishing the GNA Variable Investment Account*

                         3.1     Articles of Incorporation of Great Northern Insured Annuity Corporation*

                                 Underwriting   Agreement  between  Great  Northern  Insured  Annuity   Corporation
                                 (Depositor) and GNA Distributors, Inc. (Underwriter)*

                         3.2     By-Laws of Great Northern Insured Annuity Corporation*

                                 Form  of   broker-dealer   agreement   between  Great  Northern   Insured  Annuity
                                 Corporation,  GNA  Distributors,  Inc.  (Underwriter),  GNA  Securities,  Inc. and
                                 broker-dealers*

                         4.1     Group Modified Guaranteed Annuity Contract*

                                 Specimen  Group  Deferred  Variable  Annuity  and  Modified   Guaranteed   Annuity
                                 Contract*

                         4.2     Addendum to Contract of Certificate for Modified Guaranteed Annuity*

                                 Specimen   Certificate   under  Group  Deferred   Variable  Annuity  and  Modified
                                 Guaranteed Annuity Contract*

                         4.3     Certificate of Participation*

                                 Endorsements to Contracts or Certificates*

                         4.4     Addendum to Modified Guaranteed Annuity Certificate for 403(b) Annuity*

                         4.5     Addendum to Modified  Guaranteed  Annuity  Certificate  for Individual  Retirement
                                 Annuity*

                         5.1     Application for Group Deferred  Variable Annuity and Modified  Guaranteed  Annuity
                                 Contract*

                         5.2     Application for  Certificate  under Group Deferred  Variable  Annuity and Modified
                                 Guaranteed Annuity Contract*

                         6.1     Certificate of Incorporation of Great Northern Insured Annuity Corporation*

                         6.2     By-Laws of Great Northern Insured Annuity Corporation*

                         8       Service  Agreement   between  Great  Northern  Insured  Annuity   Corporation  and
                                 Delaware Valley Financial Services*

                         9       Opinion and consent of J. Neil McMurdie, Esq.,
                                 Associate Counsel, as to the legality of the
                                 securities being registered*

                         10.1 Written consent of KPMG Peat Marwick LLP*

                         10.2    Written consent of Arthur Andersen LLP*

                         10.3    Written consent of Deloitte & Touche LLP*

                         10.4    Written consent of Jones & Blouch*

                         13      Schedule  of  computation   of  each   performance   quotation   provided  in  the
                                 Registration Statement in response to Item 21*

                         16.1    Letter re change in certifying accountant.*

                         24.2    Consent of Jones & Blouch*

                         24.3    Consent of Judith Gilyeart*

                        *  Previously filed

              (b) Reports on Form 8-K filed in the fourth quarter of 1998

                   No reports on Form 8-K were required to be filed by the
                   Company for the quarter ended December 31, 1998.

</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    Great Northern Insured Annuity Corporation
                                                    Registrant

<S>                                                  <C>

______________________                               By  _______________________________
         Date                                                 Patrick E. Welch, Director, President
                                                              and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

______________________                               By  _____________________________________
         Date                                                 Patrick E. Welch, Director, President
                                                              and Chief Executive Officer


______________________                               By  _____________________________________
         Date                                                 Hans L. Carstensen, Director, Senior Vice
                                                              President and Chief Marketing Officer


______________________                               By  _____________________________________
         Date                                                 Charles A. Kaminski, Director and
                                                              Senior Vice President


______________________                               By  _____________________________________
         Date                                                 Victor C. Moses, Director, Senior Vice
                                                              President and Chief Actuary


______________________                               By  _____________________________________
         Date                                                 Kenneth F. Starr, Director and
                                                              Senior Vice President


______________________                               By  _____________________________________
         Date                                                 Geoffrey S. Stiff, Director, Senior Vice
                                                              President, Chief Financial Officer
                                                               (Principal Financial Officer)

______________________                               By  _____________________________________
         Date                                                 Thomas W. Casey, Vice President
                                                              and Controller (Principal Accounting Officer)

</TABLE>