SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=========
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / 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 333-16279
First Golden American Life Insurance Company of New York
(Exact name of registrant as specified in its charter)
New York 13-3919096
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
230 Park Avenue, Suite 966, New York, New York 10169-0999
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 973-9647
__________________________________________________________________________
Former name, former address and formal fiscal year, if changed since last
report
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 12 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 200,000 shares of Common
Stock as of August 7, 1998.
NOTE: WHEREAS FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1)(a) AND (b) OF FORM 10Q,
THIS FORM IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
_____________________________
Person for whom the Financial Information is given: First Golden American
Life Insurance Company
of New York
Condensed Statements of Income (Unaudited):
<TABLE> POST-MERGER PRE-MERGER
<CAPTION> _________________________________
For the Three | For the Three
Months Ended | Months Ended
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity product charges $54 | --
Net investment income 434 | $415
Realized gains on investments 24 | --
________________|________________
512 | 415
|
Insurance benefits and expenses: |
Annuity benefits: |
Interest credited to account balances 78 | 4
Underwriting, acquisition and |
insurance expenses: |
Commissions 457 | 71
General expenses 129 | 199
Insurance taxes 60 | 9
Policy acquisition costs deferred (556)| (102)
Amortization: |
Deferred policy acquisition costs 14 | 14
Present value of in force acquired 4 | --
Goodwill -- | --
________________|________________
186 | 195
________________|________________
326 | 220
|
Income taxes 114 | 77
________________|________________
|
Net income $212 | $143
=================================
</TABLE>
See accompanying notes.
Condensed Statements of Income (Unaudited):
<TABLE> POST-MERGER PRE-MERGER
<CAPTION> _________________________________
For the Six | For the Six
Months Ended | Months Ended
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity product charges $77 | --
Net investment income 867 | $837
Realized gains on investments 24 | --
________________|________________
968 | 837
|
Insurance benefits and expenses: |
Annuity benefits: |
Interest credited to account balances 128 | 4
Underwriting, acquisition and |
insurance expenses: |
Commissions 764 | 71
General expenses 264 | 253
Insurance taxes 94 | 9
Policy acquisition costs deferred (953)| (102)
Amortization: |
Deferred policy acquisition costs 26 | 14
Present value of in force acquired 8 | --
Goodwill 1 | --
________________|________________
332 | 249
________________|________________
636 | 588
|
Income taxes 223 | 206
________________|________________
|
Net income $413 | $382
=================================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited):
<TABLE> POST-MERGER
<CAPTION> ____________________________________
June 30, 1998 | December 31, 1997
_________________| _________________
(Dollars in thousands,
except per share data)
<S> <C> | <C>
ASSETS |
|
Investments: |
Fixed maturities, available for sale, |
at fair value (cost: 1998 - $25,721; |
1997 - $26,570) $26,116 | $26,721
Short-term investments 115 | 799
_________________| _________________
Total investments 26,231 | 27,520
|
Cash and cash equivalents 4,129 | 621
Accrued investment income 353 | 376
Deferred policy acquisition costs 1,116 | 189
Present value of in force acquired 120 | 126
Current income taxes recoverable -- | 63
Property and equipment, less |
allowances for depreciation of |
$10 in 1998 and $3 in 1997 50 | 57
Goodwill, less accumulated amortization |
of $2 in 1998 and $1 in 1997 94 | 95
Other assets 4 | 2
Separate account assets 15,741 | 4,878
_________________| _________________
Total assets $47,838 | $33,927
====================================
</TABLE>
See accompanying notes.
Condensed Balance Sheets (Unaudited) (Continued):
<TABLE> POST-MERGER
<CAPTION> ____________________________________
June 30, 1998 | December 31, 1997
_________________| _________________
(Dollars in thousands,
except per share data)
<S> <C> | <C>
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
Policy liablities and accruals: |
Future policy benefits: |
Annuity products $4,723 | $2,506
Current income taxes payable 75 | --
Deferred income tax liability 417 | 247
Due to affiliates 54 | 61
Other liabilities 160 | 140
Separate account liabilities 15,741 | 4,878
_________________| _________________
21,170 | 7,832
|
Commitments and contingencies |
|
Stockholder's equity: |
Preferred stock, par value $5,000 per share, |
authorized 6,000 shares -- | --
Common stock, par value $10 per share, |
authorized, issued and outstanding |
200,000 shares 2,000 | 2,000
Additional paid-in capital 23,936 | 23,936
Accumulated comprehensive income 256 | 96
Retained earnings 476 | 63
_________________| _________________
Total stockholder's equity 26,668 | 26,095
_________________| _________________
Total liabilities and stockholder's equity $47,838 | $33,927
====================================
</TABLE>
See accompanying notes.
Condensed Statements of Cash Flows (Unaudited):
<TABLE> POST-MERGER PRE-MERGER
<CAPTION> __________________________________
For the Six | For the Six
Months Ended | Months Ended
June 30, 1998 | June 30, 1997
________________|_________________
(Dollars in thousands)
<S> <C> | <C>
NET CASH PROVIDED BY (USED IN) OPERATING |
ACTIVITIES ($109)| $251
|
INVESTING ACTIVITIES |
Sales of fixed maturities - available for |
sale 836 | 119
Short-term investments - net 684 | (306)
Purchase of property and equipment -- | (71)
________________|_________________
Net cash provided by (used in) investing |
activities 1,520 | (258)
|
FINANCING ACTIVITIES |
Receipts from investment contracts credited |
to policyholder account balances 2,377 | 1,378
Return of policyholder account balances on |
investment contracts (110)| --
Net reallocations to Separate Account (170)| (3)
________________|_________________
Net cash provided by financing activities 2,097 | 1,375
________________|_________________
|
Increase in cash and cash equivalents 3,508 | 1,368
Cash and cash equivalents at beginning |
of period 621 | 5
________________|_________________
|
Cash and cash equivalents at end of period $4,129 | $1,373
================|=================
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
Cash paid during the period for income taxes -- | $283
</TABLE>
See accompanying notes.
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This form is being filed with the reduced disclosure format
specified in General Instruction H (1)(a) and (b) of Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. All adjustments were of a normal recurring
nature, unless otherwise noted in Management's Discussion and Analysis and
the Notes to Financial Statements. These financial statements should be read
in conjunction with the financial statements and the related notes included
in First Golden American Life Insurance Company of New York's ("First Golden"
or the "Company") annual report on Form 10-K for the year ended December 31,
1997. Operating results for the six months ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") pursuant to the terms of the Agreement and Plan of Merger among
Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is a wholly owned
subsidiary of ING, a global financial services holding company based in The
Netherlands. As a result of the merger, Equitable was merged into PFHI which
was simultaneously renamed Equitable of Iowa Companies, Inc., a Delaware
corporation.
For financial statement purposes, the merger was accounted for as a purchase
effective October 25, 1997. The merger resulted in a new basis of accounting
reflecting estimated fair values of assets and liabilities at that date. As
a result, the Company's financial statements for the period subsequent to
October 24, 1997, are presented on the Post-Merger new basis of accounting,
while the financial statements for October 24, 1997, and prior periods are
presented on the Pre-Merger historical cost basis of accounting.
FAIR VALUES: Estimated fair values of investment grade public bonds are
estimated using a third party pricing system. This pricing system uses a
matrix calculation assuming a spread over the U.S. Treasury bonds based upon
the expected average lives of the securities.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net income or stockholder's equity. SFAS No. 130
requires unrealized gains or losses on the Company's available for sale
securities (net of deferred income taxes, deferred policy acquisition costs
and present value of in force acquired), which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
Total comprehensive income for the second quarter of 1998 and 1997 amounted
to $379,000 and $466,000, respectively. During the first six months of 1998
and 1997, total comprehensive income amounted to $573,000 and $328,000,
respectively.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Directed Services, Inc. ("DSI") acts as the principal underwriter (as defined
in the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) and distributor of the variable insurance products issued by the
Company. DSI is authorized to enter into agreements with broker/dealers to
distribute the Company's variable insurance products and appoint the
broker/dealers as agents. As of June 30, 1998, the Company's variable
insurance products were sold primarily through two broker/dealer
institutions. The Company paid commissions and expenses to DSI totaling
$457,000 in the second quarter and $764,000 for the first six months of 1998.
For the second quarter and first six months of 1997, the commissions and
expenses were $71,000.
The Company has service agreements with Golden American Life Insurance
Company ("Golden American") and Equitable Life Insurance Company of Iowa
("Equitable Life") in which Golden American and Equitable Life provide
administrative and financial related services. For the second quarter of
1998, the Company incurred expenses of $42,000 and $17,000, respectively,
from Equitable Life and Golden American under these agreements. The Company
incurred expenses of $82,000 and $31,000, respectively, from Equitable Life
and Golden American for the six months ended June 30, 1998.
The Company provides resources and services to Golden American and DSI.
Revenues for these services, which reduce general expenses incurred by the
Company, totaled $18,000 and $19,000 for Golden American and DSI,
respectively, for the second quarter of 1998. For the six months ended June
30, 1998, these revenues were $36,000 and $38,000 from Golden American and
DSI, respectively.
Effective January 1, 1998, the Company has an asset management agreement with
ING Investment Management LLC ("ING-IM"), an affiliated company, in which ING-
IM provides asset management and accounting services. Under the agreement,
the Company records a fee based on the value of the assets under management.
The fee is payable quarterly. For the quarter ending June 30, 1998, the
Company incurred fees of $14,000 under this agreement. The Company incurred
fees of $28,000 under this agreement for the six months ending June 30, 1998.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At June 30, 1998, First Golden had a reinsurance treaty with an
unaffiliated reinsurer covering a significant portion of the mortality risks
under its variable contracts. First Golden remains liable to the extent its
reinsurer does not meet its obligation under the reinsurance agreement. At
June 30, 1998, the Company had a payable of $1,000 for reinsurance premiums.
Included in the accompanying financial statements are net considerations to
reinsurers of $1,000 in the second quarter, and $3,000 for the first six
months of 1998.
LITIGATION: The Company is not currently involved in any legal proceeding as
of the date of this report.
VULNERABILITY FROM CONCENTRATIONS: The Company has various concentrations in
its investment portfolio. The Company's asset growth, net investment income
and cash flow are primarily generated from the sale of variable products and
associated future policy benefits. Two broker/dealers generated 84% of the
Company's sales in the six months ending June 30, 1998. One of these
distributors sold 70% of the Company's products in the six months ended June
30, 1998. This distributor has indicated that it may discontinue its sales
relationship with the Company by the end of 1998. Substantial changes in tax
laws would make these products less attractive to consumers, and extreme
fluctuations in interest rates or stock market returns which may result in
higher lapse experience than assumed, could cause a severe impact to the
Company's financial condition.
YEAR 2000 PROJECT: Based on a study of its computer software and hardware,
First Golden's parent, Golden American, has determined its exposure to the
Year 2000 change of the century date issue. Management believes the
Company's systems are or will be substantially compliant by Year 2000, and
Golden American has engaged external consultants to validate this assumption.
The only system known to be affected by this issue is a system maintained by
an affiliate that will incur the related costs to make the system compliant.
To mitigate the effect of outside influences and other dependencies relative
to the Year 2000, Golden American will continue to contact significant
customers, suppliers and other third parties. To the extent these third
parties would be unable to transact business in the Year 2000 and thereafter,
the Company's operations could be adversely affected.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's condensed
results of operations. In addition, some analysis and information regarding
financial condition and liquidity and capital resources has also been
provided. This analysis should be read in conjunction with the condensed
financial statements, the related notes and the Cautionary Statement
Regarding Forward-Looking Statements which appear elsewhere in this report.
First Golden American Life Insurance Company of New York ("First Golden" or
the "Company"), a wholly owned subsidiary of Golden American Life Insurance
Company ("Golden American" or the "Parent"), was incorporated on May 24,
1996. Golden American is a wholly owned subsidiary of Equitable of Iowa
Companies, Inc. First Golden's primary purpose is to offer insurance
products in the states of New York and Delaware. On January 2, 1997 and
December 23, 1997, First Golden became licensed as a life insurance company
in New York and Delaware, respectively. First Golden began selling products
in May of 1997.
RESULTS OF OPERATIONS
_____________________
MERGER
On October 23, 1997, Equitable of Iowa Companies ("Equitable") shareholders
approved the Agreement and Plan of Merger ("Merger Agreement") dated as of
July 7, 1997, among Equitable, PFHI Holdings, Inc., ("PFHI") and ING Groep
N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired
all of the outstanding capital stock of Equitable pursuant to the Merger
Agreement. PFHI is a wholly owned subsidiary of ING, a global financial
services holding company based in The Netherlands. Equitable, an Iowa
corporation, in turn, owned all the outstanding capital stock of Equitable
Life Insurance Company of Iowa and Golden American and their wholly owned
subsidiaries. Equitable also owned all the outstanding capital stock of
Locust Street Securities, Inc., Equitable Investment Services, Inc., Directed
Services, Inc., Equitable of Iowa Companies Capital Trust, Equitable of Iowa
Companies Capital Trust II and Equitable of Iowa Securities Network, Inc. In
exchange for the outstanding capital stock of Equitable, ING paid total
consideration of approximately $2.1 billion in cash and stock plus the
assumption of approximately $400 million in debt according to the Merger
Agreement. As a result of the merger, Equitable was merged into PFHI which
was simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC"), a
Delaware corporation.
For financial statement purposes, the change in control of the Company
through the ING merger was accounted for as a purchase effective October 25,
1997. This merger resulted in a new basis of accounting reflecting estimated
fair values of assets and liabilities at that date. As a result, the
Company's financial statements for the periods subsequent to October 24,
1997, are presented on the Post-Merger new basis of accounting, while the
financial statements for October 24, 1997, and prior periods are presented on
the Pre-Merger historical cost basis of accounting.
The purchase price was allocated to the companies mentioned previously.
Goodwill of $1.4 billion was established for the excess of the merger cost
over the fair value of the assets and liabilities of EIC with $96,000 pushed
down to the Company. The allocation of the purchase price to the Company was
$25.9 million. The cost of the acquisition is preliminary as it relates to
estimated expenses, and as a result, the allocation of the purchase price to
the Company may change. Goodwill resulting from the merger is being
amortized over 40 years on a straight-line basis. The carrying value will be
reviewed periodically for any indication of impairment in value.
PREMIUMS
On March 25, 1997 and December 23, 1997, First Golden received policy
approvals in New York and Delaware, respectively. The Company reported $12.6
million in variable annuity premiums during the first six months of 1998
compared to $1.4 million for the first six months of 1997.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers for the six months ended June 30, 1998, totaled $10.7 million,
or 84% of premiums. One of these distributors sold 70% of the Company's
products during this period. This distributor has indicated that it may
discontinue its sales relationship with the Company by the end of 1998.
REVENUES
During the first six months of 1998, product charges totaled $77,000. Net
investment income was $867,000 for the first six months of 1998. This is an
increase of 3.5% compared to net investment income of $837,000 for the first
six months of 1997. The Company recognized a realized gain of $24,000 from
the sale of investments during the first six months of 1998.
EXPENSES
The Company reported total insurance benefits and expenses of $332,000 during
the first six months of 1998 and $249,000 for first six months of 1997.
Interest credited to annuity benefits totaled $128,000 during this period,
and $4,000 for the same period in 1997. Commissions, general expenses and
insurance taxes were $764,000, $264,000 and $94,000, respectively, for the
first six months of 1998. For the first six months of 1997, commissions,
general expenses and insurance taxes were $71,000, $253,000 and $9,000,
respectively.
The Company's deferred policy acquisition costs ("DPAC") was eliminated and
an asset of $132,000 representing present value of in force acquired ("PVIF")
was established for policies in force as of the merger date. First Golden
deferred $953,000 of expenses associated with the sale of variable annuity
contracts for the six months ended June 30, 1998. These acquisition costs are
amortized in proportion to the expected gross profits. Amortization of DPAC
was $26,000 for the six months ended June 30, 1998. The amortization of PVIF
for the period was $8,000. Based on current conditions and assumptions as to
the impact of future events on acquired policies in force, the expected
approximate net amortization is $10,000 for the remainder of 1998, $18,000 in
1999, $17,000 in 2000, $15,000 in 2001, $13,000 in 2002 and $10,000 in 2003.
Certain expense estimates inherent in the cost of the merger may change
resulting in changes of the allocation of the purchase price. If changes
occur, the impact could result in changes to PVIF and the related
amortization and deferred taxes. Actual amortization may vary based upon
final purchase price allocation and changes in assumptions and experience.
Amortization of goodwill totaled $1,000 for the six months ended June 30,
1998. Goodwill is being amortized on a straight-line basis over 40 years.
NET INCOME
Net income was $413,000 for the first six months of 1998, an increase of
$31,000 or 8.1% from the same period in 1997.
FINANCIAL CONDITION
___________________
INVESTMENTS
First Golden's assets are invested in accordance with applicable laws. These
laws govern the nature and the quality of investments that may be made by
life insurance companies and the percentage of their assets that may be
committed to any particular type of investment. In general, these laws
permit investments, within specified limits subject to certain
qualifications, in federal, state, and municipal obligations, corporate
bonds, preferred or common stocks, real estate mortgages, real estate and
certain other investments.
First Golden purchases investments in accordance with investment guidelines
that take into account investment quality, liquidity and diversification, and
invests primarily in investment grade securities. All of First Golden's
assets except for variable separate account assets are available to meet its
obligations to the policyholders.
The Company's total investment portfolio remained stable during the first six
months of 1998 compared to December 31, 1997. All of the Company's
investments are carried at fair value in the Company's financial statements.
The change in the carrying value of the Company's investment portfolio
included changes in unrealized appreciation and depreciation of fixed
maturity securities as well as a decline in the cost basis of these
securities due to scheduled principal payments.
FIXED MATURITY SECURITIES: At June 30, 1998, the Company had fixed
maturities with an amortized cost of $25.7 million and an estimated fair
value of $26.1 million. The individual securities in the Company's fixed
maturities portfolio (at amortized cost) include investment grade securities
($22.9 million or 89.2%), which include securities issued by the U.S.
Government, agencies and corporations that are rated at least BBB- by
Standard & Poor's Rating Services ("Standard & Poor's"), and below investment
grade securities ($1.1 million or 4.1%), which are securities issued by
corporations that are rated BB+ to BB- by Standard & Poor's. Securities not
rated by Standard & Poor's had a National Association of Insurance
Commissioners rating of 1 ($1.7 million or 6.7%).
The Company classifies 100% of its securities as available for sale. Net
unrealized appreciation on fixed maturity securities of $395,000 was
comprised of gross appreciation of $400,000 and gross depreciation of $5,000.
Net unrealized holding gains on these securities, net of adjustments to DPAC,
PVIF and deferred income taxes, increased stockholder's equity by $256,000 at
June 30, 1998.
At June 30, 1998, the amortized cost value of the Company's total investment
in below investment grade securities was $1.05 million, or 3.5%, of the
Company's investment portfolio. The Company intends to purchase additional
below investment grade securities, but it does not expect the percentage of
its portfolio invested in below investment grade securities to exceed 10% of
its investment portfolio. At June 30, 1998, the yield at amortized cost on
the Company's below investment grade portfolio was 8.1% compared to 6.5% for
the Company's investment grade corporate bond portfolio. The Company
estimates the fair value of its below investment grade portfolio was $1.04
million, or 99.5% of amortized cost value, at June 30, 1998.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other
creditors of the issuer. Also, issuers of below investment grade securities
usually have higher levels of debt and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are issuers
of investment grade securities. The Company attempts to reduce the overall
risk in its below investment grade portfolio, as in all of its investments,
through careful credit analysis, strict investment policy guidelines, and
diversification by company and by industry.
The Company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability to
realize its carrying value on any investment has been impaired. For debt
securities, if impairment in value is determined to be other than temporary
(i.e. if it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the security), the cost
basis of the impaired security is written down to fair value, which becomes
the security's new cost basis. The amount of the write-down is included in
earnings as a realized loss. Future events may occur, or additional or
updated information may be received, which may necessitate future write-downs
of securities in the Company's portfolio. Significant write-downs in the
carrying value of investments could materially adversely affect the Company's
net income in future periods.
During the six months ended June 30, 1998, the amortized cost basis of the
Company's fixed maturity portfolio was reduced by $271,000 as a result of
scheduled principal repayments. In total, net pre-tax gains from sales,
calls and repayments of fixed maturity investments amounted to $24,000 in the
first six months of 1998.
At June 30, 1998, no fixed maturity securities were deemed to have
impairments in value that are other than temporary. The Company's fixed
maturity investment portfolio had a combined yield at amortized cost of 6.6%
at June 30, 1998.
OTHER ASSETS
DPAC represents certain deferred costs of acquiring new insurance business,
principally commissions and other expenses related to the production of new
business subsequent to the merger. The Company's DPAC was eliminated as of
the merger date and an asset of $132,000 representing PVIF was established
for all policies in force at the merger date. PVIF is amortized into income
in proportion to the expected gross profits of in force acquired in a manner
similar to DPAC amortization. Any expenses which vary with the sales of the
Company's products are deferred and amortized. At June 30, 1998, PVIF and
DPAC were $1.1 million and $120,000, respectively.
Goodwill totaling $96,000, representing the excess of the acquisition cost
over the fair value of net assets acquired, was established at the merger
date. Amortization of goodwill through June 30, 1998, was approximately
$1,000.
At June 30, 1998, the Company had $15.7 million of separate account assets
compared to $4.9 million at December 31, 1997. The increase in separate
account assets is due to growth in the sales of the Company's variable
products and market appreciation.
At June 30, 1998, the Company had total assets of $47.8 million, an increase
of 41.0% from December 31, 1997.
LIABILITIES
Future policy benefits increased $2.2 million in the first six months of 1998
to $4.7 million. Policy reserves represent the premiums received plus
accumulated interest less mortality and administration charges. At June 30,
1998, the Company had $15.7 million of separate account liabilities. This is
an increase of 222.1% over separate account liabilities as of December 31,
1997, and is primarily related to increased sales of the Company's products
and market appreciation.
The Company's total liabilities increased $13.3 million, or 170.3%, during
the first six months of 1998 and totaled $21.1 million at June 30, 1998. The
increase is primarily the result of an increase in future policy benefits and
separate account liabilities. Liabilities will continue to show significant
growth as the Company increases its variable annuity sales throughout 1998.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The liquidity requirements of the Company are met by cash flow from
investment income, premiums and maturities of fixed maturity investments.
The Company primarily uses funds for the payment of annuity benefits,
commissions, operating expenses and the purchase of new investments.
First Golden's principal office is located in New York, New York, where
certain of the Company's records are maintained. The 2,568 square feet of
office space is leased through 2001.
On December 17, 1996, Golden American made a capital contribution to First
Golden of $25.0 million. Of this amount, $2.0 million represented 200,000
shares of common stock with a par value of $10.00 per share. The remaining
$23.0 million was contributed as additional paid-in capital. First Golden
believes it will be able to fund the capital required for projected new
business primarily with existing capital and future capital contributions
from its Parent. First Golden expects to continue to receive capital
contributions from Golden American if necessary.
The Golden American board of directors has agreed by resolution to provide
funds as needed for the Company to maintain policyholders' surplus that meets
or exceeds the greater of: (1) the minimum capital adequacy standards to
maintain a level of capitalization necessary to meet A.M. Best Company's
guidelines for a rating one level less than the one originally given to First
Golden, or (2) the New York State Insurance Department risk-based capital
minimum requirements as determined in accordance with New York statutory
accounting principles. No funds were transferred from Golden American during
1997 or 1998.
First Golden is required to maintain a minimum capital and surplus of not
less than $4 million under the provisions of the insurance laws of the State
of New York in which it became licensed to sell insurance products on January
2, 1997. Under the provisions of the insurance laws of the State of New York,
First Golden cannot distribute any dividends to its stockholder unless a
notice of its intention to declare a dividend and the amount of the dividend
has been filed not less than thirty days in advance of the proposed
declaration. The superintendent may disapprove the distribution by giving
written notice to the Company within thirty days after the filing should the
superintendent find that the financial condition of the Company does not
warrant the distribution.
SEGMENT INFORMATION: First Golden's operations consist of one business
segment, the sale of insurance products. First Golden is not dependent upon
any single customer, however, two broker/dealers accounted for a significant
portion of its sales volume in 1998. One of these distributors sold 70% of
the Company's products in the first six months of 1998. This distributor has
indicated that it may discontinue its sales relationship with the Company by
the end of 1998. All premiums are generated from consumers in the states of
New York and Delaware.
REINSURANCE: At June 30, 1998, First Golden had a reinsurance treaty with an
unaffiliated reinsurer covering a significant portion of the mortality risks
under its variable contracts. First Golden remains liable to the extent its
reinsurer does not meet its obligation under the reinsurance agreement.
YEAR 2000 PROJECT: Based on a study of its computer software and hardware,
First Golden's parent, Golden American, has determined its exposure to the
Year 2000 change of the century date issue. Management believes the Company's
systems are or will be substantially compliant by Year 2000, and Golden
American has engaged external consultants to validate this assumption. The
only system known to be affected by this issue is a system maintained by an
affiliate that will incur the related costs to make the system compliant. To
mitigate the effect of outside influences and other dependencies relative to
the Year 2000, Golden American will continue to contact significant
customers, suppliers and other third parties. To the extent these third
parties would be unable to transact business in the Year 2000 and thereafter,
the Company's operations could be adversely affected.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statements contained herein or in any other oral or
written statement by the Company or any of its officers, directors or
employees is qualified by the fact that actual results of the Company may
differ materially from such statement due to the following important factors,
among other risks and uncertainties inherent in the Company's business:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Company to sell its products, the market value
and liquidity of the Company's investments and the lapse rate of the
Company's policies, notwithstanding product design features intended to
enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations which may affect
the relative tax advantages of the Company's products.
3. Changes in the regulation of financial services, including bank sales
and underwriting of insurance products, which may affect the competitive
environment for the Company's products.
4. Increasing competition in the sale of the Company's products.
5. Other factors affecting the performance of the Company, including, but
not limited to, market conduct claims, litigation, insurance industry
insolvencies, investment performance of the underlying portfolios of the
variable products, variable product design and sales volume by
significant sellers of the Company's variable products.
6. To the extent third parties would be unable to transact business in the
Year 2000 and thereafter, the Company's operations could be adversely
affected.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth
in the Exhibit Index which immediately precedes such exhibits
and is hereby incorporated by reference herein.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
DATE: August 14, 1998 FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY
OF NEW YORK
By/s/ Mary Bea Wilkinson
________________________________
Mary Bea Wilkinson
Senior Vice President and Treasurer
(Principal Financial Officer)
By/s/ Michellen A. Wildin
________________________________
Michellen A. Wildin
Assistant Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1998
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
2 PLAN OF ACQUISITION
(a) Agreement and Plan of Merger dated July 7, 1997, among Equitable
of Iowa Companies ("Equitable"), ING Groep N.V. and PFHI
Holdings, Inc. (incorporated by reference from Exhibit 2 in
Equitable's Form 8-K filed July 11, 1997)
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of First Golden American Life Insurance
Company of New York ("Registrant" or "First Golden")
(incorporated by reference from Exhibit 3(i) to Amendment No. 1
to Registrant's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission ("the SEC") on or about March
18, 1997 (File No. 333-16279))
(b) By-laws of First Golden (incorporated by reference from Exhibit
3(ii) to Amendment No. 1 to Registrant's Registration Statement
on Form S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity
Contract (incorporated by reference from Exhibit 4(a) to Amendment
No. 1 to Registrant's Registration Statement on Form S-1 filed
with the SEC on or about March 18, 1997 (File No. 333-16279))
(b) Individual Deferred Combination Variable and Fixed Annuity
Contract Application (incorporated by reference from Exhibit 4(b)
to Amendment No. 1 to Registrant's Registration Statement on
Form S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
10 MATERIAL CONTRACTS
(a) Services Agreement, dated November 8, 1996, between Directed
Services, Inc. and First Golden (incorporated be reference from
Exhibit 10(a) to Amendment No. 1 to Registrant's Registration
Statement on Form S-1 filed with the SEC on or about March 18,
1997 (File No. 333-16279))
(b) Administrative Services Agreement, dated November 8, 1996,
between First Golden and Golden American Life Insurance Company
(incorporated by reference from Exhibit 10(b) to Amendment No. 1
to Registrant's Registration Statement on Form S-1 filed with the
SEC on or about March 18, 1997 (File No. 333-16279))
(c) Form of Administrative Services Agreement between First Golden
and Equitable Life Insurance Company of Iowa (incorporated by
reference from Exhibit 10(c) to Amendment No. 1 to Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
March 18, 1997 (File No. 333-16279))
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1998
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
(d) Form of Custodial Agreement between Registrant and The Bank of
New York (incorporated by reference from Exhibit 10(d) to
Amendment No. 1 to Registrant's Registration Statement on Form
S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
(e) Form of Participation Agreement between: First Golden and the
Travelers Series Fund, Inc.; First Golden and the Smith Barney
Series Fund Inc.; First Golden and the Smith Barney Concert
Allocation Series Inc. (incorporated by reference from Exhibit
10(e) to Amendment No. 1 to Registrant's Registration Statement
on Form S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
(f) Form of Participation Agreement between First Golden and PIMCO
Variable Trust (incorporated by reference from Exhibit 10(f) to
Amendment No. 3 to Registrant's Registration Statement on
Form S-1 filed with the SEC on or about April 30, 1998
(File No. 333-16279))
(g) Asset Management Agreement, dated March 30, 1998, between
First Golden and ING Investment Management LLC
(h) Underwriting Agreement between First Golden and Directed
Services, Inc. (incorporated by reference from Exhibit 1 to
Amendment No. 1 to Registrant's Registration Statement on
Form S-1 filed with the SEC on or about March 18, 1997
(File No. 333-16279))
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING ONLY)
Exhibit 10 (g)
ASSET MANAGEMENT AGREEMENT
THIS ASSET MANAGEMENT AGREEMENT (the "Agreement"), dated March 30, 1998, and
effective as of the date specified in Section 18 hereof, is by and between
FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation (the "Client"), and ING INVESTMENT MANAGEMENT LLC, a Delaware
limited liability company ("ING-IM").
SECTION 1. APPOINTMENT OF ING-IM - The Client hereby appoints ING-IM to
provide asset management services for the Client's general account (the
"Account") under the terms and conditions set forth in this Agreement.
ING-IM hereby accepts such appointment and agrees to provide such asset
management services as specified in EXHIBIT "A" attached hereto and
incorporated herein by reference.
All investments made by ING-IM on behalf of Client shall be approved by an
officer of Client, which has been duly authorized by the Board of Directors
of Client to approve investments, and shall be in accordance with investment
policies and objectives, rules and regulations established periodically by
the Board of Directors of Client or by a committee of the Board charged with
the supervision thereof. ING-IM shall acquire or dispose of any specific
investment if so directed by the Board or duly authorized committee.
SECTION 2. INVESTMENTS - ING-IM shall provide direction to the Client
regarding the investment and reinvestment of assets in the Account and any
additions thereto. No cash or securities due to or held for the Account
shall be paid or delivered to ING-IM except in payment of the fee payable to
ING-IM under this Agreement. Client and/or the Custodian shall hold and
maintain all assets in the Account in the State of New York.
SECTION 3. DISCRETIONARY AUTHORITY - BROKERAGE - ING-IM shall have full and
complete discretion to establish brokerage accounts in the name of the Client
and execute transactions in securities markets in the name of the Client,
pursuant to proper authorization from the Client, through one or more
securities broker/dealer firms as ING-IM may select, including those which
from time to time may furnish ING-IM statistical and investment research
information and other services. The Client accepts the Statement of Policy
on Brokerage Practices which is attached to this Agreement as EXHIBIT "B".
This policy may be modified by ING-IM in consultation with the Client.
SECTION 4. INVESTMENT OBJECTIVES - The investment objectives and guidelines
for the Account will be communicated in writing by the Client from time to
time. ING-IM will utilize these objectives in managing the Account.
SECTION 5. ADMINISTRATIVE SERVICES - ING-IM will provide the Client with the
following administrative services: preparation of Schedules B and D to the
Client's annual statement; pricing of portfolios on a periodic basis as
mutually agreed; mortgage loan servicing for both direct and mortgage banker-
serviced loans; private placement securities servicing; coordination of
purchases and sales at custodian bank; and coordination of securities lending
by agent banks.
SECTION 6. FEES - The Client will pay to ING-IM as full compensation for
services rendered a quarterly fee based on the quarterly fees set forth in
EXHIBIT "C", as it may be amended in writing.
If ING-IM shall serve for less than the whole of any quarterly period, its
compensation determined as provided above shall be calculated and shall be
payable on a pro rata basis for the period of the calendar quarter for which
it has served as an adviser hereunder.
SECTION 7. PROCEDURES - All transactions will be consummated by payment to,
or delivery by, the Client, or such other party as the Client may designate
in writing (the "Custodian") of all cash and/or securities due to or from the
Account. ING-IM shall not act as custodian for the Account. ING-IM shall
instruct all brokers or dealers executing orders on behalf of the Account to
forward to the Client and/or the Custodian copies of all brokerage
confirmations promptly after execution of transactions. The Client will
instruct the Custodian, if any, to provide ING-IM with such periodic reports
concerning the status of the Account as ING-IM may reasonably request. Unless
otherwise notified in writing by Client, ING-IM shall be authorized to rely
upon instruction received from the named Client representatives set forth in
EXHIBIT "D".
SECTION 8. BOOK AND RECORDS - ING-IM shall keep proper books and records
wherein shall be recorded the business transacted by it on behalf of Client
and shall forward to Client's New York office, on a monthly basis, copies of
such books and records in printed form, on a computer diskette, or as
otherwise agreed by ING-IM and Client. All books, records and files
established by ING-IM by reason of its performance under this Agreement shall
be deemed the property of Client and shall be subject to examination at any
time by Client or persons authorized by Client, or any governmental agency
having jurisdiction over Client. ING-IM agrees to provide to Client such
records, statements, and reports as Client shall reasonably request in a
timely and diligent manner.
SECTION 9. PROXIES - ING-IM shall vote securities held in the Account in
response to proxies solicited by the issuers of such securities in accordance
with guidelines established by Client. ING-IM will provide such information
with respect to such voting as the Client may reasonably request.
SECTION 10. SERVICE TO OTHER CLIENTS - It is understood that ING-IM provides
asset management services for other clients. It is further understood that
ING-IM may take management action on behalf of such other clients which
differs from management action taken on behalf of the Account. If the
purchase or sale of securities for the Account and for one or more such other
clients is considered at or about the same time, the transactions in such
securities will be allocated among the several clients in a manner deemed
equitable by ING-IM.
SECTION 11. LIABILITY OF ING-IM - In rendering services under this
Agreement, ING-IM will not be subject to any liability to the Client to any
other party for any act or omission of ING-IM except as the result of ING-
IM's gross negligence or willful misconduct. Nothing herein shall in any way
constitute a waiver or limitation of any right of any person under applicable
Federal or State law.
SECTION 12. REPRESENTATIONS BY CLIENT - By execution of this Agreement, the
Client represents that the terms hereof do not violate any obligation by
which the Client is bound, whether arising by contract, operation of law or
otherwise and that this Agreement has been duly authorized.
SECTION 13. FORM ADV PART II - The parties hereto acknowledge that,
concurrently with the execution of this Agreement, ING-IM is furnishing to
Client, for Client's review and inspection, a copy of Form ADV Part II most
recently filed by ING-IM with the Securities and Exchange Commission, and a
copy of such Form ADV Part II is attached here as EXHIBIT "E". Upon Client's
written or oral request, ING-IM shall provide to Client a copy of any future
Form ADV Part II.
SECTION 14. TERMINATION - This Agreement may be terminated by either party
on the month-end next following receipt of written notice of termination.
SECTION 15. NOTICE - Any notice, advice or report to be given pursuant to
this Agreement shall be delivered or mailed:
To ING-IM: ING INVESTMENT MANAGEMENT LLC
5780 Powers Ferry Road, NW
Suite 300
Atlanta, GA 30327-4349
To Client: FIRST GOLDEN AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
230 Park Avenue, Suite 966
New York, New York 10169
Attn: Mary Bea Wilkinson, Senior V.P.
SECTION 16. CONSTRUCTION OF AGREEMENT - This Agreement shall be construed
and the rights and obligations of the parties hereunder enforced in
accordance with the laws of the State of New York.
SECTION 17. ASSIGNMENT - This Agreement shall bind and inure to the benefit
of and be enforceable by the parties hereto and their permitted successors
and assigns hereunder; provided, however, that ING-IM may not assign its
rights and obligations under this Agreement unless and until it shall have
first received the prior written consent of the Client. The above consent
may be withheld for any reason, but if such consent if given, ING-IM's
assignee shall be required to assume and agree to perform all the obligations
of ING-IM hereunder and ING-IM shall remain fully liable for the full and
faithful performance of all obligations arising prior to any such assignment.
SECTION 18. EFFECTIVE DATE - Notwithstanding the date set forth in the first
paragraph hereof, this Agreement shall be effective as of January 1, 1998.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
it to be executed by their duly authorized officers, all as of the day and
year first above.
CLIENT: FIRST GOLDEN AMERICAN LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ David L. Jacobson
________________________________
Title: Senior Vice President
____________________________
ING-IM: ING INVESTMENT MANAGEMENT LLC
By: /s/ Thomas J. Balachowski
________________________________
Title: President and CEO
____________________________
EXHIBIT "A"
Asset Management Services
_________________________
To the extent permitted by applicable law, ING-IM shall provide all asset
management services for Client's Account, including the following:
Private placement bonds and preferred stocks in an amount not to exceed
the maximum established from time to time by Client's Investment
Committee and communicated to ING-IM.
Public Market Corporate and Government Bonds.
Public Market Preferred Stocks.
Common Stocks.
Participating and Non-participating Mortgage Loans.
Equity Real Estate.
Mortgage Backed Securities and Collateralized Mortgage Obligations and
derivatives thereof.
Cash Management services, as required, in conjunction with Mortgage
Loans, Equity Real Estate, and/or the servicing of same.
Swap Transactions.
"Cap", "Floors", "Puts", "Calls" and similar derivative transactions.
EXHIBIT "B"
STATEMENT OF POLICY ON BROKERAGE PRACTICES
As of May 1, 1975, all national securities exchanges were prohibited from
requiring their members to charge fixed rates of commissions on the execution
of transactions. This prohibition resulted from the adoption by the
Securities and Exchange Commission of Rule 19b-3 under the Securities and
Exchange Act of 1934 and the subsequent passage by Congress of the Securities
Acts Amendments to include Section 28(e) relating to the payment of brokerage
commissions on specific securities transactions in excess of the commission
which might be charged by another broker for the same transaction. The
provisions of Section 28(e) are specifically incorporated herein by
reference.
In recognition of the regulatory changes, ING-IM has adopted this statement
of policy with respect to commissions paid on portfolio transactions executed
on behalf of our clients. It is the responsibility of individuals trading on
behalf of our clients to carry out this statement of policy, including the
fiduciary responsibility of negotiating for each agency transaction the
amount of the brokerage commission.
Essentially, this policy reaffirms the principle of seeking "best available
price and most favorable execution" with respect to all portfolio
transactions. This principle recognized that commissions on portfolio
transactions must be negotiated and utilized for the ultimate benefit of our
clients.
Our brokerage commission policy is as follows:
1. We will continue to use our best efforts to obtain the best
available price and most favorable execution with respect to all
portfolio transactions executed on behalf of our clients.
2. "Best available price and most favorable execution" is defined to
mean the execution of a particular investment decision at the
price and commission which provides the most favorable total cost
or proceeds reasonably obtainable under the circumstances.
3. In selecting a broker for each specific transaction, we will use
our best judgment to choose the broker most capable of providing
the brokerage services necessary to obtain best available price
and most favorable execution. The full range and quality of
brokerage services available will be considered in making these
determinations. For example, brokers may be selected on the basis
of the quality of such "brokerage services" related to the
requirements of the specific transaction as the following:
capable floor brokers and traders, competent block trading
coverage, good communications, ability to position, retail
distribution and underwriting, use of automation, research
contacts, arbitrage skills, administrative ability, or provision
of market information relating to the security. We will continue
to make periodic evaluations of the quality of these brokerage
services against our own standards of execution. Brokerage
services will be obtained only from those firms which meet our
standards, maintain a reasonable capital position, and can be
expected to reliably and continuously supply these services. We
will continue our endeavor to develop and maintain brokerage
contacts and relationships in the interest of providing our
clients with maximum liquidity.
4. We are not obliged to choose the broker offering the lowest
available commission rate if, in our best judgment, there is a
material risk that the total cost or proceeds from the transaction
might be less favorable than obtainable elsewhere. We will make
every effort to keep informed of rate structures offered by the
brokerage community. In the selection of brokers, we will not
solicit competitive bids or "shop" the order for a lower rate if
this would, in our best judgment, be harmful to the execution
process and not in the best interests of our clients.
5. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain
the best available price and most favorable execution,
consideration will be given to those brokers which supply research
and other services in addition to execution services. Such
services may include factual and statistical information or other
items of supplementary research assistance. The individuals
trading on behalf of our clients will be informed as to the
broker/dealers who supply specific or general research assistance.
However, we will not select an executing broker on the basis of
research or other services unless such selection is otherwise
consistent with best available price and most favorable execution.
6. In no event will we enter into agreements, expressed or implied,
with broker/dealer wherein we would select a firm for execution as
a means of remuneration for recommending us as an asset manager
for prospective or present clients. However, portfolio
transactions may be executed through broker/dealers who have made
such a recommendation, if otherwise consistent with best price and
most favorable execution.
7. In those instances where a client has expressed a preference for a
particular broker, that broker will be selected only when the
broker is reasonably determined in our best judgment, to be
capable of providing the best available and most favorable
execution. With the exception of clients subject to the
provisions of The Employee Retirement Income Security Act of 1974
("ERISA"), a client may direct us in writing to execute
transactions with one or more specific brokers at such commission
rate or rates as may be agreed to by the client and such brokers.
With respect to clients subject to ERISA, we may accept clients'
direction to execute transactions with one or more specific
brokers upon written direction of the clients. Such written
notice shall specify the services provided by the broker(s) to the
clients, the amount of rate of commissions to be paid and the
determination by the clients that such direction is consistent
with the provisions of ERISA.
EXHIBIT "C"
ING INVESTMENT MANAGEMENT
ADVISORY FEE SCHEDULE
AS OF JANUARY 1, 1998
ANNUAL ASSET MANAGEMENT FEES (based on assets under management):
<TABLE>
<CAPTION>
ASSET CLASS BASIS POINT FEE
__________________________________________________________________________
<S> <C>
- public bonds, MBS, CMO-A, preferred
stock, insured residential mortgages
and short term investments 20.0
- private placements (investment grade) 20.0
- below investment grade 25.0
- derivatives 50.0
- CMO-B 50.0
- actively managed common stock and
other high yield stock programs 50.0
- indexed common stocks 10.0
- commercial mortgages 20.0
- real estate, foreclosed mortgages,
and problem commercial loans 72.7
- portfolio management and
investment services (applied to 1.8 b.p for first
all assets under management per $1.0 billion and
portfolio) 0.8 b.p for the excess
- separate accounts, segregated 5.0 b.p. in addition to
funds, and pension trusts the asset class charge
</TABLE>
PRODUCTION FEE (one-time fee assessed at close of transaction):
(excludes Equitable of Iowa)
<TABLE>
<CAPTION>
ASSET CLASS BASIS POINT FEE
__________________________________________________________________________
<S> <C>
- private placements (investment grade) 20.7
- private placements (international -
investment grade) 30.0
- private placements (BIG) 40.0
- commercial mortgages 16.7
</TABLE>
EXHIBIT "D"
AUTHORIZED REPRESENTATIVES OF CLIENT
____________________________________
Until otherwise notified in writing by Client, ING-IM shall be authorized to
rely upon instruction received from the following named representatives of the
Client:
Thomas J. Balachowski
Robert F. Bowman
Maurice M. Moore
Jeffery W. Seel
Fred C. Smith
Michael B. Stevens
Mary Bea Wilkinson
Terry L. Kendall
David L. Jacobson
EXHIBIT "E"
Part II of Form ADV of ING Investment Management LLC reference is made to Form
ADV of ING Investment Management LLC, Securities and Exchange Commission File
No. 801-15160, which is incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
STATEMENTS OF INCOME AND CONDENSED BALANCE SHEETS (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 26,116
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 26,231
<CASH> 4,129
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,116
<TOTAL-ASSETS> 47,838
<POLICY-LOSSES> 4,723
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 24,668
<TOTAL-LIABILITY-AND-EQUITY> 47,838
0
<INVESTMENT-INCOME> 867
<INVESTMENT-GAINS> 24
<OTHER-INCOME> 77
<BENEFITS> 128
<UNDERWRITING-AMORTIZATION> 26
<UNDERWRITING-OTHER> 178
<INCOME-PRETAX> 636
<INCOME-TAX> 223
<INCOME-CONTINUING> 413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
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<PAYMENTS-PRIOR> 0
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</TABLE>
