<PAGE>
PROSPECTUS SUPPLEMENT
Supplement to the
Prospectuses dated May 1, 1995,
DEFERRED VARIABLE ANNUITY CONTRACTS issued
by Golden American Life Insurance Company
(the "GoldenSelect DVA Prospectus")
------------------
THIS SUPPLEMENT SHOULD BE RETAINED WITH YOUR PROSPECTUS.
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A new Fixed Interest Division option is now available through the group and
individual deferred variable annuity contracts offered by Golden American
Life Insurance Company. Interests in the Fixed Interest Division have not
been registered under the Securities Act of 1933, and neither the Fixed
Interest Division nor the General Account are registered under the Investment
Company Act of 1940.
Interests in the Fixed Interest Division are offered through an Offering
Brochure, dated Febraury 13, 1995. When reading through the GoldenSelect DVA
Prospectus, the Fixed Interest Division should be counted among the various
divisions available for the allocation of your premiums. The Fixed Interest
Division may not be available in some states. Some restrictions may apply.
More complete information relating to the Fixed Interest Division is found in
the Offering Brochure. Please read it carefully before you send money.
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED COMBINATION VARIABLE AND
FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA PLUS
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This prospectus describes group and individual deferred variable annuity
Contracts (the "Contract") offered by Golden American Life Insurance Company
("Golden American," "we," "our" or "us"). The Owner ("you" or "your") purchases
the Contract with an Initial Premium and is permitted to make additional premium
payments.
The Contract is funded by three accounts, Separate Account B ("Account B") and
Separate Account D ("Account D") and the Fixed Account (collectively, the
"Accounts").
Twelve Divisions of Account B are currently available under the Contract. The
investments available through the Divisions of Account B include mutual fund
portfolios (the "Series") of The GCG Trust (the "Trust"). Account D is an
open-end management investment company. The only Division of Account D available
for investment is The Managed Global Account (the "Global Account") which
invests directly in securities. The investments available through the Fixed
Account include various Fixed Allocations which we credit with fixed rates of
interest for the Guarantee Periods you select. We currently offer Guarantee
Periods with durations of 1, 3, 5, 7 and 10 years. We reserve the right at any
time to increase or decrease the number of Guarantee Periods offered. Not all
Guarantee Periods may be available for new allocations.
Part I of this prospectus describes the Contract and provides background
information regarding Account B, Account D and the Fixed Account. Part II of
this prospectus provides information regarding the investment activities of
Account D and the Global Account, including its investment policies. The
prospectus for the Trust, which must accompany this prospectus, provides
information regarding investment activities and policies of the Trust.
You may allocate your premiums among the thirteen Divisions and the Fixed
Allocations available under the Contract in any way you choose, subject to
certain restrictions. You may change the allocation of your Accumulation Value
during a Contract Year free of charge. We reserve the right, however, to assess
a charge for each allocation change after the twelfth allocation change in a
Contract Year.
Your Accumulation Value in Account B and Account D will vary in accordance with
the investment performance of the Divisions selected by you. Therefore, you bear
the entire investment risk for all amounts allocated to Account B and Account D.
You also bear the investment risk with respect to surrenders, partial
withdrawals, transfers and annuitization from a Fixed Allocation prior to the
end of the applicable Guarantee Period. Such surrender, partial withdrawal,
transfer or annuitization may be subject to a Market Value Adjustment, which
could have the effect of either increasing or decreasing your Accumulation
Value.
We will pay a death benefit to the Beneficiary if the Owner dies prior to the
Annuity Commencement Date or the Annuitant dies prior to the Annuity
Commencement Date when the Owner is other than an individual.
This prospectus describes your principal rights and limitations and sets forth
the information concerning the Accounts that investors should know before
investing. A Statement of Additional Information, dated October 2, 1995, about
Account B and Account D has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon request. To obtain a
copy of this document call or write our Customer Service Center. The Table of
Contents of the Statement of Additional Information may be found on the last
page of this prospectus. The Statement of Additional Information is incorporated
herein by reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST.
THE FIXED ACCOUNT AND ENHANCED DEATH BENEFITS MAY NOT AVAILABLE IN ALL STATES.
YOU MAY CONTACT OUR CUSTOMER SERVICE CENTER TO FIND OUT ABOUT STATE
AVAILABILITY.
<TABLE>
<S> <C> <C>
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: OCTOBER 2, 1995
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
DEFINITION OF TERMS..................................... 3
SUMMARY OF THE CONTRACT................................. 6
FEE TABLE............................................... 8
CONDENSED FINANCIAL AND OTHER INFORMATION............... 10
Index of Investment Experience
Financial Statements
Performance Related Information
PART I
INTRODUCTION............................................ 12
FACTS ABOUT THE COMPANY AND THE ACCOUNTS................ 13
Golden American
The GCG Trust
Separate Accounts B and D
Account B Divisions
The Managed Global Account of Account D
Changes Within Account B and D
The Fixed Account
FACTS ABOUT THE CONTRACT................................ 20
The Owner
The Annuitant
The Beneficiary
Change of Owner or Beneficiary
Availability of the Contract
Types of Contracts
Your Right to Select or Change Contract Options
Premiums
Making Additional Premium Payments
Crediting Premium Payments
Restrictions on Allocation of Premium Payments
Exchange and Update Programs
Your Right to Reallocate
Dollar Cost Averaging
What Happens if a Division is Not Available
Your Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Cash Surrender Value
Surrendering to Receive the Cash Surrender Value
Partial Withdrawals
Automatic Rebalancing
Proceeds Payable to the Beneficiary
Death Benefit Options
Reports to Owners
When We Make Payments
CHARGES AND FEES........................................ 30
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
Operating Expenses of Account D
CHOOSING YOUR ANNUITIZATION OPTIONS..................... 33
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PAGE
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Annuitization of Your Contract
Annuity Commencement Date Selection
Frequency Selection
The Annuity Options
Payment When Named Person Dies
OTHER CONTRACT PROVISIONS............................... 34
In Case of Errors in Application Information
Contract Changes -- Applicable Tax Law
Your Right to Cancel or Exchange Your Contract
Other Contract Changes
Group or Sponsored Arrangements
Selling the Contract
REGULATORY INFORMATION.................................. 36
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE
COMPANY................................................ 37
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Directors and Executive Officers
Compensation Tables and Other Information
FEDERAL TAX CONSIDERATIONS.............................. 44
Introduction
Tax Status of Golden American
Taxation on Non-Qualified Annuities
IRA Contracts and Other Qualified Retirement Plans
Federal Income Tax Withholding
PART II
INTRODUCTION............................................ 53
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D................. 54
The Global Account
Investment Objective and Policies of the Global
Account
Non-Diversified
Risk Factors
Board of Governors of Account D
The Manager
The Portfolio Manager
Securities and Investment Techniques
Investment Restrictions
Brokerage Services
UNAUDITED AND AUDITED FINANCIAL STATEMENTS OF GOLDEN
AMERICAN LIFE INSURANCE COMPANY........................ 65
STATEMENT OF ADDITIONAL INFORMATION..................... 92
Table of Contents
APPENDIX A.............................................. A1
Market Value Adjustment Examples
APPENDIX B.............................................. B1
GoldenSelect Service Forms
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
DEFINITION OF TERMS
ACCOUNTS
Separate Account B, Separate Account D, and the Fixed Account.
ACCUMULATION VALUE
The total amount invested under the Contract. Initially, this amount is equal to
the premium paid. Thereafter, the Accumulation Value will reflect the premiums
paid, investment experience of the Divisions and interest credited to your Fixed
Allocations, charges deducted and any partial withdrawals.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION
An enhanced death benefit option that may be elected only at issue and only if
the Owner or Annuitant (when the Owner is other than an individual) is age 79 or
younger. The enhanced death benefit provided by this option is the highest
Accumulation Value on any Contract Anniversary on or prior to the Owner turning
age 80, as adjusted for additional premiums and partial withdrawals.
ANNUITANT
The person designated by the Owner to be the measuring life in determining
Annuity Payments.
ANNUITY COMMENCEMENT DATE
The date on which Annuity Payments begin.
ANNUITY OPTIONS
Options the Owner selects that determine the form and amount of Annuity
Payments.
ANNUITY PAYMENT
The periodic payment an Owner receives. It may be either a fixed or a variable
amount based on the Annuity Option chosen.
ATTAINED AGE
The Issue Age of the Owner or Annuitant plus the number of full years elapsed
since the Contract Date.
BENEFICIARY
The person designated to receive benefits in the case of the death of the Owner
or the Annuitant (when the Owner is other than an individual).
BUSINESS DAY
Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of
Federal holidays, or any day on which the SEC requires that mutual funds, unit
investment trusts or other investment portfolios be valued.
CASH SURRENDER VALUE
The amount the Owner receives upon surrender of the Contract, including any
Market Value Adjustment.
CHARGE DEDUCTION DIVISION
The Division from which all charges are deducted if so designated by you. The
Charge Deduction Division currently is the Liquid Asset Division.
CONTINGENT ANNUITANT
The person designated by the Owner who, upon the Annuitant's death prior to the
Annuity Commencement Date, becomes the Annuitant.
CONTRACT
The entire Contract consisting of the basic Contract and any riders or
endorsements.
CONTRACT ANNIVERSARY
The anniversary of the Contract Date.
CONTRACT DATE
The date on which we have received the Initial Premium and upon which we begin
determining the Contract values. It may or may not be the same as the Issue
Date. This date is used to determine Contract months, processing dates, years
and anniversaries.
CONTRACT PROCESSING DATES
The days when we deduct certain charges from the Accumulation Value. If the
Contract Processing Date is not a Valuation Date, it will be on the next
succeeding Valuation Date. The Contract Processing Dates will be once each year
on the Contract Anniversary.
CONTRACT PROCESSING PERIOD
The first Contract processing period begins with the Contract Date and ends at
the close of business on the first Contract Processing Date. All subsequent
Contract processing periods begin at the close of business on the most recent
Contract Processing Date and extend to the close of business on the next
Contract Processing Date. There is one Contract processing period each year.
CONTRACT YEAR
The period between Contract anniversaries.
3
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DEFINITION OF TERMS (CONTINUED)
CUSTOMER SERVICE CENTER
Where service is provided to you. The mailing address and telephone number of
the Customer Service Center are shown on the cover.
DIVISIONS
The investment options available under Account B and Account D.
ENDORSEMENTS
An endorsement changes or adds provisions to the Contract.
EXCHANGE CONTRACTS
Contracts issued by insurance companies not affiliated with Golden American.
EXPERIENCE FACTOR
The factor which reflects the investment experience of the portfolio in which a
Division invests and also reflects the charges assessed against the Division for
a Valuation Period.
FIXED ACCOUNT
An Account which contains all of our assets that support Owner Fixed Allocations
and any interest credited thereto.
FIXED ALLOCATION
An amount allocated to the Fixed Account that is credited with a Guaranteed
Interest Rate for a specified Guarantee Period.
FREE LOOK PERIOD
The period of time within which the Owner may examine the Contract and return it
for a refund.
GUARANTEED INTEREST RATE
The effective annual interest rate which we will credit for a specified
Guarantee Period. The Guaranteed Interest Rate will never be less than 3%.
GUARANTEE PERIOD
The period of time for which a rate of interest is guaranteed to be credited to
a Fixed Allocation. We currently offer Guarantee Periods with durations of 1, 3,
5, 7 and 10 years.
INDEX OF INVESTMENT EXPERIENCE
The index that measures the performance of a Division.
INITIAL PREMIUM
The payment required to put a Contract into effect.
ISSUE AGE
The Owner's or Annuitant's age on his or her last birthday on or before the
Contract Date.
ISSUE DATE
The date the Contract is issued at our Customer Service Center.
MARKET VALUE ADJUSTMENT
A positive or negative adjustment made to a Fixed Allocation. It may apply to
certain withdrawals and transfers, whether in whole or in part, and
annuitizations of all or part of a Fixed Allocation prior to the end of a
Guarantee Period.
MATURITY DATE
The date on which a Guarantee Period matures.
OWNER
The person who owns the Contract and is entitled to exercise all rights under
the Contract. This person's death also initiates payment of the death benefit.
RIDER
A rider amends the Contract, in certain instances adding benefits.
7% SOLUTION ENHANCED DEATH BENEFIT OPTION
An enhanced death benefit option that may be elected only at issue and only if
the Owner or Annuitant (when the Owner is other than an individual) is age 75 or
younger. The enhanced death benefit provided by this option is equal to an
annual rate of return of 7% on all assets, except those invested in the Liquid
Asset Division, Limited Maturity Bond Division, and the Fixed Account, as
adjusted for additional premiums and partial withdrawals. Each accumulated
initial or additional premium payment reduced by any partial withdrawals taken
will continue to grow at 7% until it doubles.
SPECIALLY DESIGNATED DIVISION
The Division to which distributions from a portfolio underlying a Division in
which reinvestment is not available will be allocated unless you specify
otherwise. The Specially Designated Division currently is the Liquid Asset
Division.
4
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DEFINITION OF TERMS (CONTINUED)
STANDARD DEATH BENEFIT OPTION
The death benefit option that you will receive under the Contact unless one of
the enhanced death benefit options is elected. The death benefit provided by
this option is equal to the greatest of (i) Accumulation Value; (ii) total
premium payments less any partial withdrawals; and (iii) Cash Surrender Value.
VALUATION DATE
The day at the end of a Valuation Period when each Division is valued.
VALUATION PERIOD
Each business day together with any non-business days before it.
5
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SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding the
Contract and the Accounts which fund the Contract. Information concerning the
Divisions of Account B and the Fixed Account is set forth in Part I of this
prospectus. Part II of this prospectus pertains to Account D which invests
directly in securities.
This summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. Further detail is provided in this
prospectus and in the Contract. The Contract, together with any riders or
endorsements, constitutes the entire agreement between you and us and should be
retained.
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing the Contract. You have a choice of investments.
We do not promise that your Accumulation Value will increase. Depending on the
investment experience of the Divisions and interest credited to the Fixed
Allocations in which you are invested, your Accumulation Value, Cash Surrender
Value and death benefit may increase or decrease on any day. You bear the
investment risk.
DESCRIPTION OF THE CONTRACT
The Contract is designed to establish retirement benefits for two types of
purchasers. The first type of purchaser is one who is eligible to participate
in, and purchases a Contract for use with, an individual retirement annuity
("IRA") meeting the requirements of section 408(b) of the Internal Revenue Code
of 1986 ("qualified plan"). For a Contract funding a qualified plan,
distributions may be made to you to satisfy requirements imposed by Federal tax
law. The second type of purchaser is one who purchases a Contract outside of a
qualified plan ("non-qualified plan").
The Contract also offers a choice of Annuity Options to which you may apply all
or a portion of the Accumulation Value on the annuity commencement date or the
Cash Surrender Value upon surrender of the Contract. See Choosing Your Annuity
Options.
AVAILABILITY
We can issue a Contract if both the Annuitant and the Owner are not older than
age 85 and accept additional premium payments until either the Annuitant or
Owner reaches the Attained Age of 85 for non-qualified plans (age 70 for
qualified plans, except for rollover contributions). The minimum Initial Premium
is $10,000 for a non-qualified plan and $1,500 for a qualified plan. We may
change the minimum initial or additional premium requirements for certain group
or sponsored arrangements. See Part I, Group or Sponsored Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. You must receive our prior
approval before making a premium payment that causes the Accumulation Value of
all annuities that you maintain with us to exceed $1,000,000.
THE DIVISIONS
Each of the thirteen Divisions offered under this prospectus has its own
distinct investment objectives and policies. There are twelve Divisions of
Account B. Each Division of Account B invests in a corresponding Series of the
Trust, managed by Directed Services, Inc. ("DSI" or the "Manager"). The Trust
and DSI have retained several portfolio managers to manage the assets of each
Series. The Division of Account D is The Managed Global Account. DSI is the
Manager and Warburg, Pincus Counsellors, Inc. ("Warburg, Pincus") is the
portfolio manager (the "Portfolio Manager"). See Part I, Facts About the Company
and the Accounts, Account B Divisions, and The Managed Global Account of Account
D.
HOW THE ACCUMULATION VALUE VARIES
The Accumulation Value in the Divisions varies each day based on investment
results. You bear the risk of poor investment performance and you receive the
benefits from favorable investment performance. The Accumulation Value also
reflects premium payments, charges deducted and partial withdrawals. See Part I,
Accumulation Value in Each Division.
THE FIXED ACCOUNT
The investments available through the Fixed Account include various Fixed
Allocations which we credit with fixed rates of interest for the Guarantee
Periods you select. We reset the interest rates for new Guarantee Periods
periodically based on our sole discretion. We may offer Guarantee Periods from
one to ten years. We currently offer Guarantee Periods with durations of 1, 3,
5, 7 and 10 years.
You bear the investment risk with respect to surrenders, partial withdrawals,
transfers and annuitization from your Fixed Allocations. A surrender, partial
withdrawal, transfer or annuitization made prior to the end of a Guarantee
Period may be subject to a Market Value Adjustment, which could have the effect
of either increasing or decreasing your Accumulation Value. We will not apply a
Market Value Adjustment on a surrender, partial withdrawal, transfer or
annuitization made within 30 days prior to the Maturity Date of the applicable
Guarantee Period or certain transfers made in connection with the dollar cost
averaging program. Systematic withdrawals from a Fixed Allocation also are not
subject to a Market Value Adjustment.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment, subject to certain exceptions, to a
surrender, partial withdrawal, transfer or annuitization from a Fixed Allocation
made prior to the end of a Guarantee Period. The Market Value Adjustment does
not apply to amounts invested in either Account B or Account D.
SURRENDERING YOUR CONTRACT
You may surrender the Contract and receive its Cash Surrender Value at any time
while both the Annuitant
6
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SUMMARY OF THE CONTRACT (CONTINUED)
and Owner are living and before the Annuity Commencement Date. See Part I, Cash
Surrender Value and Surrendering to Receive the Cash Surrender Value.
TAKING PARTIAL WITHDRAWALS
After the Free Look Period, prior to the annuity commencement date and while the
Contract is in effect, you may take partial withdrawals from the Accumulation
Value of your Contract. You may elect in advance to take systematic partial
withdrawals on a monthly or quarterly basis. If you have an IRA Contract, you
may elect IRA partial withdrawals on a monthly, quarterly or annual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus, including a surrender charge and a Market Value Adjustment. Partial
withdrawals above a specified percentage of your Accumulation Value may be
subject to a surrender charge. See Part I, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount transferred
from either the Limited Maturity Bond Division, Liquid Asset Division or a Fixed
Allocation with a one year Guarantee Period to the other Divisions of Account B
and Account D on a monthly basis with the objective of shielding your investment
from short term price fluctuations. See Part I, dollar cost averaging.
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel your Contract within the Free Look Period which is a ten day
period of time beginning once you receive the Contract. For purposes of
administering our allocation and certain other administrative rules, we deem
this period to end 15 days after the Contract is mailed from our Customer
Service Center. Some states may require that we provide a longer free look
period. In some states we restrict the Initial Premium allocation during the
Free Look Period. See Part I, Your Right to Cancel or Exchange Your Contract.
YOUR RIGHT TO CHANGE THE CONTRACT
The Contract may be changed to another annuity plan subject to our rules at the
time of the change. See Part I, Other Contract Changes.
DEATH BENEFIT OPTIONS
The Contract provides a death benefit to the beneficiary if the Owner dies prior
to the Annuity Commencement Date. Subject to our rules, there are three death
benefit options that may be available to you under the Contract: the Standard
Death Benefit Option; the 7% Solution Enhanced Death Benefit Option; and the
Annual Ratchet Enhanced Death Benefit Option. See Facts About the Contract,
Death Benefit Options. We may offer a reduced death benefit under certain group
and sponsored arrangements. See Part I, Group or Sponsored Arrangements.
DEDUCTIONS FOR CHARGES AND FEES
We invest the entire amount of the initial and any additional premium payments
in the Divisions and the Fixed Allocations you select, subject to certain
restrictions we impose. See Part I, Restrictions on Allocation of Premium
Payments. We then may deduct an annual Contract fee from your Accumulation
Value. See Part I, Charges and Fees. We may reduce certain charges under group
or sponsored arrangements. See Part I, Group or Sponsored Arrangements. Unless
you have elected the Charge Deduction Division, charges are deducted
proportionately from all Account B and Account D Divisions in which you are
invested. If there is no Accumulation Value in these Divisions, charges will be
deducted from your Fixed Allocations starting with Guarantee Periods nearest
their Maturity Dates until such charges have been deducted.
FEDERAL INCOME TAXES
The ultimate effect of Federal income taxes on the amounts held under an annuity
Contract, on Annuity Payments and on the economic benefits to the Owner,
Annuitant or Beneficiary depends on Golden American's tax status and upon the
tax status of the individuals concerned. In general, an Owner is not taxed on
increases in value under an annuity Contract until some form of distribution is
made under it. There may be tax penalties if you make a withdrawal or surrender
the Contract before reaching age 59 1/2. See Part I, Federal Tax Considerations.
EXCHANGE AND UPDATE PROGRAMS
From time to time, we may offer two programs that allow you to elect to exchange
or update a contract that you currently own for GoldenSelect DVA PLUS. Our
External Exchange Program is available only where your current contract was
issued by an insurance company not affiliated with us. Our DVA Update Program is
available only where your current contract is GoldenSelect DVA. See Facts About
the Contract, Exchange and Update Programs.
7
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FEE TABLE
TRANSACTION EXPENSES(1)
Contingent Deferred Sales Charge(2) (imposed as a percentage of premium
payments withdrawn upon excess partial withdrawal or surrender):(3)
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COMPLETE YEARS ELAPSED SURRENDER
SINCE PREMIUM PAYMENT CHARGE
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0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 1%
7+ 0%
</TABLE>
<TABLE>
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Excess Allocation Charge...................................................................................$0(4)
</TABLE>
ANNUAL CONTRACT FEES:
<TABLE>
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Administrative Charge........................................................................................$40
(Waived if the Accumulation Value equals or exceeds $100,000 at the end of the Contract Year, or once the sum of
premiums paid equals or exceeds $100,000.)
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each Division)(5):
<TABLE>
<CAPTION>
STANDARD
----------- ENHANCED DEATH BENEFIT
------------------------------------
ANNUAL RATCHET 7% SOLUTION
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Mortality and Expense Risk Charge............................ 1.10% 1.25% 1.40%
Asset Based Administrative Charge............................ 0.15% 0.15% 0.15%
----------- ------- -------
Total Separate Account Expenses.............................. 1.25% 1.40% 1.55%
</TABLE>
TRUST ANNUAL EXPENSES(6) (based on combined net assets of the indicated groups
of Series):
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TOTAL
SERIES FEES OTHER EXPENSES(7) EXPENSES
- ------------------------------------------------------ ---------- ----------------- -------------
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Multiple Allocation, Fully Managed, Capital
Appreciation, 1.00% 0.00% 1.00%
Rising Dividends, All-Growth, Real Estate, Natural
Resources, Value Equity, and Strategic Equity Series:
Emerging Markets Series: 1.50% 0.02% 1.52%
Limited Maturity Bond Series: 0.60% 0.00% 0.60%
Liquid Asset Series: 0.60% 0.01% 0.61%
</TABLE>
THE MANAGED GLOBAL ACCOUNT ANNUAL EXPENSES AFTER REIMBURSEMENT (percentage of
average net assets):
<TABLE>
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MANAGEMENT AND OTHER TOTAL ANNUAL
ASSETS ADVISORY FEES EXPENSES EXPENSES(8)
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$0 to $500 million................................................... 1.00% 0.25% 1.25%
in excess of $500 million............................................ 0.80% 0.25% 1.05%
</TABLE>
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(1) A Market Value Adjustment, which may increase or decrease your Accumulation
Value, may apply to certain transactions. See Market Value Adjustment.
(2) We also deduct a charge for premium taxes (which can range from 0% to 3.5%
of premium) from your Accumulation Value upon surrender, excess partial
withdrawals or on the Annuity Commencement Date. See Premium Taxes.
(3) For purposes of calculating the surrender charge for the excess partial
withdrawal, (i) we treat premium payments as being withdrawn on a first-in
first-out basis, and (ii) amounts withdrawn which are not considered an
excess partial withdrawal are not treated as a withdrawal of any premium
payments. See Charges Deducted from the Accumulation Value, Surrender Charge
for Excess Partial Withdrawals.
(4) We reserve the right to impose a charge in the future at a maximum of $25
for each allocation change in excess of twelve per Contract Year. See Excess
Allocation Charge.
(5) See Facts About the Contract, Death Benefit Options, for a description of
the Contract's Standard and Enhanced Death Benefit Options.
(6) Fees decline as combined assets increase (see Part I, Account B Divisions
and the Trust prospectus for details).
(7) Other Expenses generally consist of independent trustees fees and expenses.
In 1994, the Emerging Markets Series incurred transfer and repatriation
taxes of 0.21% of average daily net assets which are not reflected as Other
Expenses in this Fee Table.
(8) Reflects an expense reimbursement or waiver through December 31, 1994.
8
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FEE TABLE (CONTINUED)
EXAMPLES:
The examples do not take into account any deduction for premium taxes. Premium
taxes currently range from 0% to 3.5% of premium payments. There may be
surrender charges if you choose to annuitize within the first three Contract
Years.
If at issue you elect the 7% Solution Enhanced Death Benefit Option and you
surrender your Contract at the end of the applicable time period, you would pay
the following expenses for each $1,000 of Initial Premium assuming a 5% annual
return on assets:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $ 96.92 $ 142.58 $ 180.77 $ 298.11
Fully Managed........................................................... $ 96.92 $ 142.58 $ 180.77 $ 298.11
Capital Appreciation.................................................... $ 96.92 $ 142.58 $ 180.77 $ 298.11
Rising Dividends........................................................ $ 96.92 $ 142.58 $ 180.77 $ 298.11
All-Growth.............................................................. $ 96.92 $ 142.58 $ 180.77 $ 298.11
Real Estate............................................................. $ 96.92 $ 142.58 $ 180.77 $ 298.11
Natural Resources....................................................... $ 96.92 $ 142.58 $ 180.77 $ 298.11
Value Equity............................................................ $ 96.92 $ 142.58 $ 180.77 $ 298.11
Strategic Equity........................................................ $ 96.92 $ 142.58 $ 180.77 $ 298.11
Emerging Markets........................................................ $ 102.04 $ 157.81 $ 205.91 $ 346.93
Global Account.......................................................... $ 99.38 $ 149.92 $ 192.92 $ 321.89
Limited Maturity Bond................................................... $ 93.08 $ 130.75 $ 161.06 $ 258.87
Liquid Asset............................................................ $ 93.08 $ 131.05 $ 161.56 $ 259.87
</TABLE>
- --------------------------------------------------------------------------------
If at issue you elect the 7% Solution Enhanced Death Benefit Option and you do
not surrender your Contract or if you annuitize on the Annuity Commencement
Date, you would pay the following expenses for each $1,000 of initial premium
assuming a 5% annual return on assets:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $ 26.92 $ 82.58 $ 140.77 $ 298.11
Fully Managed........................................................... $ 26.92 $ 82.58 $ 140.77 $ 298.11
Capital Appreciation.................................................... $ 26.92 $ 82.58 $ 140.77 $ 298.11
Rising Dividends........................................................ $ 26.92 $ 82.58 $ 140.77 $ 298.11
All-Growth.............................................................. $ 26.92 $ 82.58 $ 140.77 $ 298.11
Real Estate............................................................. $ 26.92 $ 82.58 $ 140.77 $ 298.11
Natural Resources....................................................... $ 26.92 $ 82.58 $ 140.77 $ 298.11
Value Equity............................................................ $ 26.92 $ 82.58 $ 140.77 $ 298.11
Strategic Equity........................................................ $ 26.92 $ 82.58 $ 140.77 $ 298.11
Emerging Markets........................................................ $ 32.04 $ 97.81 $ 165.91 $ 346.93
Global Account.......................................................... $ 29.38 $ 89.92 $ 152.92 $ 321.89
Limited Maturity Bond................................................... $ 23.08 $ 70.75 $ 121.06 $ 258.87
Liquid Asset............................................................ $ 23.08 $ 71.05 $ 121.56 $ 259.87
</TABLE>
- --------------------------------------------------------------------------------
The purpose of the Fee Table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly. For purposes of
computing the annual per Contract administrative charge, the dollar amounts
shown in the examples are based on an Initial Premium of $50,000.
In the absence of expense reimbursement or waiver from Management and Advisory
Fees, the Total Annual Expenses for the Global Account would have been 1.40% of
the Global Account's average daily net assets for 1994. This figure includes
non-recurring expenses of approximately 0.06% of average daily net assets which
were not reimbursed.
The examples reflect the election at issue of the 7% Solution Enhanced Death
Benefit Option. If the Standard Death Benefit Option or the Annual Ratchet
Enhanced Death Benefit Option is elected, the actual expenses incurred will be
less than those represented in the Examples.
In the examples, the numbers for the Global Account reflect expenses based on
assumed assets in the Global Account of $500 million or less. If the Global
Account's assets exceed $500 million, these expenses will decrease.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES UNDER THE CONTRACT.
9
<PAGE>
CONDENSED FINANCIAL AND OTHER INFORMATION
INDEX OF INVESTMENT EXPERIENCE
Commencing on the date hereof, we will calculate the index of investment
experience for each Division of Account B and for the Global Account. The index
of investment experience is equal to the value of a unit for each Division of
the Accounts. We will also calculate the total value of each Division.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years ended
December 31, 1994 and 1993 (as well as the auditors' report thereon) and the
audited financial statements of The Managed Global Account of separate Account D
for the years ended December 31, 1994 and 1993 (as well as the auditors' report
thereon) appear in the Statement of Additional Information. The audited
financial statements of Golden American prepared in accordance with statutory
accounting practices for the years ended December 31, 1994 and 1993 (as well as
the auditors' report thereon) and the audited financial statements of Golden
American prepared in accordance with generally accepted accounting principles
for the years ended December 31, 1994 and 1993 and the period September 30, 1992
to December 31, 1992 (as well as the auditors' report thereon) are contained in
the Prospectus.
The unaudited June 30, 1995 financial statements of Golden American prepared in
accordance with generally accepted accounting principles are contained in the
Prospectus.
PERFORMANCE RELATED INFORMATION
Performance information for the Divisions of Account B and Account D, including
the yield and effective yield of the Liquid Asset Division, the yield of the
remaining Divisions, and the total return of all Divisions may appear in reports
and promotional literature to current or prospective Owners.
Current yield for the Liquid Asset Division will be based on income received by
a hypothetical investment over a given 7-day period (less expenses accrued
during the period), and then "annualized" (i.e., assuming that the 7-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Division is
calculated in a manner similar to that used to calculate yield, but when
annualized, the income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of earnings.
For the remaining Divisions, quotations of yield will be based on all investment
income per unit (Accumulation Value divided by the index of investment
experience, see Part I, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE) earned during a given 30-day period, less
expenses accrued during the period ("net investment income"). Quotations of
average annual total return for any Division will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
Contract over a period of one, five, and ten years (or, if less, up to the life
of the Division), and will reflect the deduction of the applicable surrender
charge, the administrative charge and the applicable mortality and expense risk
charge. See Charges and Fees. Quotations of total return may simultaneously be
shown for other periods that do not take into account certain contractual
charges, such as the surrender charge for example.
Performance information for a Division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a Division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, including VARDS, companies, publications, or persons
who rank separate accounts or other investment products on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the Contract. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for any Division reflects only the performance of a
hypothetical Contract under which the Accumulation Value is allocated to a
Division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Division invests or, the securities in which
Account D invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Divisions, see the Statement of Additional Information.
Reports and promotional literature may also contain other information including
the ranking of any Division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria.
10
<PAGE>
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11
<PAGE>
PART I
INTRODUCTION THE FOLLOWING INFORMATION IN PART I DESCRIBES THE CONTRACT AND
THE ACCOUNTS WHICH FUND THE CONTRACT, ACCOUNT B AND ACCOUNT D AND THE FIXED
ACCOUNT. ACCOUNT B INVESTS IN MUTUAL FUND PORTFOLIOS OF THE TRUST. ACCOUNT D
INVESTS DIRECTLY IN SECURITIES. THE FIXED ACCOUNT CONTAINS ALL OF THE ASSETS
THAT SUPPORT OWNER FIXED ALLOCATIONS WHICH WE CREDIT WITH GUARANTEED INTEREST
RATES FOR THE GUARANTEE PERIODS YOU SELECT.
12
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in all jurisdictions except New York. We offer
variable annuities and variable life insurance. Administrative services for the
Contract are provided at our Customer Service Center, the address is shown on
the cover.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, New York 10017. As of December 31, 1994, Bankers
Trust New York Corporation, parent of Bankers Trust Company, was the seventh
largest bank holding company in the United States with total assets of
approximately $98 billion. Bankers Trust Company conducts a variety of general
banking and trust activities and is a leading wholesale supplier of financial
services to the domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and DSI, an affiliate of Golden American, and related assets.
The transaction involved settlement of pre-existing claims of Bankers Trust
Company against the former parent company of Golden American and DSI. Under
applicable banking law, stock so acquired is subject to various divestiture
requirements. While Bankers Trust Company has no immediate intent to divest its
ownership of the stock of Golden American and DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either Federal or state banking statutes
or regulations, could prevent Bankers Trust Company from continuing to own the
stock of Golden American or DSI.
For more information about Golden American, see Part I, More Information About
Golden American Life Insurance Company.
THE GCG TRUST
The Trust is an open-end management investment company, more commonly called a
mutual fund. The Trust's shares may also be available to certain separate
accounts funding variable life insurance policies offered by Golden American.
This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although we do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
Owners of various Contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager, and we and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policy Owners and pension and
retirement plans. For more information about the risks of mixed and shared
funding, please refer to the Trust prospectus.
You will find complete information about the Trust, including the risks
associated with each Series, in the accompanying Trust prospectus. You should
read it carefully in conjunction with this prospectus before investing.
Additional copies of the Trust prospectus may be obtained by contacting our
Customer Service Center.
SEPARATE ACCOUNTS B AND D
All obligations under the Contract are general obligations of Golden American.
Account B and Account D are separate investment accounts used to support our
variable annuity Contracts and for other purposes as permitted by applicable
laws and regulations. The assets of Account B and Account D are kept separate
from our general account and any other separate accounts we may have. We may
offer other variable annuity Contracts investing in Account B and Account D
which are not discussed in this prospectus. Account B and Account D may also
invest in other series which are not available to the Contract described in this
prospectus.
We own all the assets in Account B and Account D. Income and realized and
unrealized gains or losses from assets in each account is credited to or charged
against that account without regard to other income, gains or losses in our
other investment accounts. As required, the assets in Account B and Account D
are at least equal to the reserves and other liabilities of that account. These
assets may not be charged with liabilities from any other business we conduct.
13
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
They may, however, be subject to liabilities arising from Divisions whose assets
are attributable to other variable annuity Contracts supported by Account B and
Account D. If the assets exceed the required reserves and other liabilities, we
may transfer the excess to our general account.
ACCOUNT B
Account B was established on July 14, 1988, and may invest in mutual funds,
unit investment trusts or other investment portfolios which we determine to be
suitable for the Contract's purposes. Account B is treated as a unit
investment trust under Federal securities laws. It is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act") as an investment
company and meets the definition of a separate account under the Federal
securities laws. It is governed by the laws of Delaware, our state of
domicile, and may also be governed by the laws of other states in which we do
business. Registration with the SEC does not involve any supervision by the
SEC of the management or investment policies or practices of Account B.
ACCOUNT D
Account D was established on April 18, 1990 and invests directly in securities
in accordance with the investment objectives and policies of Account D.
Account D is registered with the SEC under the 1940 Act as an open-end
management investment company and meets the definition of a separate account
under the federal securities laws. It is governed by the laws of Delaware, our
state of domicile, and may also be governed by laws of other states in which
we do business. Registration with the SEC does not involve any supervision by
the SEC of the management or investment policies or practices of Account D.
ACCOUNT B DIVISIONS
Account B is divided into Divisions. Currently, each Division of Account B
offered under this prospectus invests in a portfolio of The GCG Trust (the
"Trust"). DSI serves as the Manager to each Series of the Trust. See the Trust
prospectus for details. The Trust and DSI have retained several portfolio
managers to manage the assets of each Series as indicated below. There may be
restrictions on the amount of the allocation to certain Divisions based on state
laws and regulations. The investment objectives of the various Series in the
Trust are described below. There is no guarantee that any portfolio or Series
will meet its investment objectives. Meeting objectives depends on various
factors, including, in certain cases, how well the portfolio managers anticipate
changing economic and market conditions. Account B also has other Divisions
investing in other series which are not available to the Contract described in
this prospectus.
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The table below shows the monthly fee that the Trust pays DSI for its services
as a percentage of the average daily net assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, Natural Resources, Value Equity, and 0.90% of next $1.5 billion; and
Strategic Equity Series: 0.85% of amount in excess of $3.5 billion
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
The following Divisions invest in designated Series of the Trust.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Pursues an active asset allocation strategy whereby investments are allocated,
based upon an evaluation of economic and market trends and the anticipated
relative total return available, among three asset classes -- debt securities,
equity securities and money market instruments.
PORTFOLIO MANAGER
T. Rowe Price Associates, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's judgement, offer an optimum combination of current
dividend yield, expected dividend growth, and discount to current real estate
value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
E.I.I. Realty Securities, Inc.
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
15
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation with a secondary objective of dividend income.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the Portfolio Manager
to indicate above average financial soundness and high intrinsic value
relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
STRATEGIC EQUITY DIVISION
STRATEGIC EQUITY SERIES
OBJECTIVE
Long term capital appreciation.
INVESTMENTS
Investment primarily in equity securities based on various equity market
timing techniques. The amount of the Series' assets allocated to equities
shall vary from time to time to seek positive investment performance from
advancing equity markets and to reduce exposures to equities when risk/reward
characteristics are believed to be less attractive.
PORTFOLIO MANAGER
Zweig Advisors Inc.
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short-term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
The Global Account is the only portfolio of Account D available under the
Contract. The Global Account is a non-diversified investment company which
invests directly in securities. There can be no assurance that the Global
Account will meet its investment objective. Account D may also offer other
portfolios which are not available through the purchase of the Contract offered
by this prospectus. DSI serves as Manager of Account D and Warburg, Pincus
serves as Portfolio Manager of the Global Account.
THE MANAGED GLOBAL ACCOUNT DIVISION
THE MANAGED GLOBAL ACCOUNT PORTFOLIO
OBJECTIVE
High total investment return, consistent with a prudent regard for capital
preservation.
INVESTMENTS
Investment in a wide range of equity and debt securities and money market
instruments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
ADVISORY FEE
0.60% of the first $500 million of average daily net assets on an annual
basis; and 0.50% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global
16
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
Account reimburses Golden American for such expenses, which are amortized over
five years from the date of the Global Account's commencement of operations.
FOR MORE COMPLETE INFORMATION ABOUT THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D,
INCLUDING THE RISKS ASSOCIATED WITH ITS INVESTMENTS, SEE PART II, INVESTMENT
OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT.
CHANGES WITHIN ACCOUNT B AND ACCOUNT D
We may from time to time make additional Divisions available. These Divisions
will invest in investment portfolios we find suitable for the Contract. We also
have the right to eliminate investment Divisions from Account B and Account D,
to combine two or more Divisions, or to substitute a new portfolio for the
portfolio in which a Division invests. A substitution may become necessary if,
in our judgment, a portfolio no longer suits the purposes of the Contract. This
may happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. In addition, we reserve the
right to transfer assets of Account B and Account D, which we determine to be
associated with the class of Contracts to which your Contract belongs, to
another account. If necessary, we will get prior approval from the insurance
department of our state of domicile before making such a substitution or
transfer. We will also get any required approval from the SEC and any other
required approvals before making such a substitution or transfer. We will notify
you as soon as practicable of any proposed changes.
When permitted by law, We reserve the right to:
(1) deregister an account under the 1940 Act;
(2) operate an account as a management company
under the 1940 Act if it is operating as a unit investment trust;
(3) operate an account as a unit investment trust
under the 1940 Act if it is operating as a managed separate account;
(4) restrict or eliminate any voting rights as to the
accounts; and
(5) combine an account with other accounts.
THE FIXED ACCOUNT
Premium payments may be allocated to the Fixed Account at the time of the
Initial Premium payment or as subsequently made. In addition, all or part of
your Accumulation Value may be transferred to the Fixed Account. Assets
supporting amounts allocated to the Fixed Account are available to fund the
claims of all classes of our customers, Owners and other creditors. Interests
under your Contract relating to the Fixed Account are registered under the
Securities Act of 1933 but the Fixed Account is not registered under the 1940
Act.
SELECTING A GUARANTEE PERIOD
You may select one or more Fixed Allocations with specified Guarantee Periods
for investment. We currently offer Guarantee Periods with durations of 1, 3,
5, 7 and 10 years. We reserve the right at any time to decrease or increase
the number of Guarantee Periods offered. Not all Guarantee Periods may be
available for new allocations. Each Fixed Allocation will have a Maturity Date
corresponding to the last day of the calendar month of the applicable
Guarantee Period.
Your Accumulation Value in the Fixed Account equals the sum of your Fixed
Allocations plus the interest credited thereto, as adjusted for any partial
withdrawals, reallocations or other charges we may impose. Your Fixed
Allocation will be credited with the Guaranteed Interest Rate in effect on the
date we receive and accept your premium or reallocation of Accumulation Value.
The Guaranteed Interest Rate will be credited daily to yield the quoted
Guaranteed Interest Rate.
GUARANTEED INTEREST RATES
Each Guarantee Period will have an interest rate that is guaranteed. We do not
have a specific formula for establishing the Guaranteed Interest Rates for the
different Guarantee Periods. The determination made will be influenced by, but
not necessarily correspond to, interest rates available on fixed income
investments which we may acquire with the amounts we receive as premium
payments or reallocations of Accumulation Value under the Contracts. These
amounts will be invested primarily in investment-grade fixed income securities
including: securities issued by the United States Government or its agencies
or instrumentalities, which issues may or may not be guaranteed by the United
States Government; debt securities that have an investment grade rating, at
the time of purchase, within the four highest grades assigned by Moody's
Investor Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation
(AAA, AA, A or BBB) or any other nationally recognized rating service;
mortgage-backed securities collateralized by the Federal Home Loan Mortgage
Association, the Federal National Mortgage Association or the Government
National Mortgage Association, or
17
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
that have an investment grade rating at the time of purchase within the four
highest grades described above; other debt investments; commercial paper; and
cash or cash equivalents. You will have no direct or indirect interest in
these investments. We will also consider other factors in determining the
Guaranteed Interest Rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by us, general economic trends
and competitive factors. We cannot predict or guarantee the level of future
interest rates. However, no Fixed Allocation will ever have a Guaranteed
Interest Rate of less than 3% per year.
While the foregoing generally describes our investment strategy with respect
to the Fixed Account, we are not obligated to invest according to any
particular strategy, except as may be required by Delaware and other state
insurance laws.
TRANSFERS FROM A FIXED ALLOCATION
You may transfer your Accumulation Value from a Fixed Allocation to one or
more new Fixed Allocations with new Guarantee Periods of any length offered by
us or to the Divisions of Account B or Account D. Unless you specify in
writing the Fixed Allocations from which such transfers will be made, we will
transfer amounts from the Fixed Allocations starting with the Guarantee Period
nearest its Maturity Date, until we have honored your transfer request.
Transfers from a Fixed Allocation made within 30 days prior to the Maturity
Date of the applicable Guarantee Period or pursuant to the dollar cost
averaging program will not be subject to a Market Value Adjustment. All other
transfers from your Fixed Allocations will be subject to a Market Value
Adjustment. The minimum amount that can be transferred to or from any Fixed
Allocation is $250. If a transfer request would reduce the Accumulation Value
remaining in your Fixed Allocation to less than $250, we will treat such
transfer request as a request to transfer the entire Accumulation Value in
such Fixed Allocation.
At the end of a Fixed Allocation's Guarantee Period, you may transfer amounts
in that Fixed Allocation to the Divisions and one or more new Fixed
Allocations with Guarantee Periods of any length then offered by us. You may
not, however, transfer amounts to any Fixed Allocation with a Guarantee Period
that extends beyond your Annuity Commencement Date.
At least 30 calendar days prior to a Maturity Date of any of your Fixed
Allocations, or earlier if required by state law, we will send you a notice of
the Guarantee Periods then available. Prior to the Maturity Date of your Fixed
Allocations you must notify us as to which Division or new Guarantee Period
you have selected. If timely instructions are not received, we will transfer
your Accumulation Value in the maturing Fixed Allocation to a Fixed Allocation
with a Guarantee Period equal in length to the expiring Guarantee Period. If
such Guarantee Period is not available or extends beyond your annuity
commencement date, we will transfer your Accumulation Value in the maturing
Fixed Allocation to the next shortest Guarantee Period which does not extend
beyond the Annuity Commencement Date. If no such Guarantee Period is
available, we will transfer your Accumulation Value to the Specially
Designated Division.
PARTIAL WITHDRAWALS FROM A FIXED ALLOCATION
Prior to the Annuity Commencement Date and while your Contract is in effect,
you may take partial withdrawals from the Accumulation Value in a Fixed
Allocation by sending satisfactory notice to our Customer Service Center. You
may make systematic withdrawals of interest earnings only from a Fixed
Allocation under our Systematic Partial Withdrawal Option. (See, Partial
Withdrawals, Systematic Partial Withdrawal Option.) Systematic withdrawals
from a Fixed Allocation are not permitted if such Fixed Allocation
participates in the dollar cost averaging program. Withdrawals from a Fixed
Allocation taken within 30 days prior to the Maturity Date and systematic
withdrawals are not subject to a Market Value Adjustment; however, a surrender
charge may be imposed. Withdrawals may have federal income tax consequences,
including a 10% penalty tax. See Surrender Charge, Surrender Charge for Excess
Partial Withdrawals and Federal Tax Considerations.
If you specify a Fixed Allocation from which your partial withdrawal will be
made, we will assess the partial withdrawal against that Fixed Allocation. If
you do not specify the investment option from which the partial withdrawal
will be taken, we will not assess your partial withdrawal against any Fixed
Allocations unless the partial withdrawal exceeds the Accumulation Value in
the Divisions of Account B and Account D. If there is no Accumulation Value in
those Divisions, partial withdrawals will be deducted from your Fixed
Allocations starting with the Guarantee Periods nearest their Maturity Dates
until we have honored your request.
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment, determined by application of the
formula described below, in the following circumstances: (i) whenever you make
a withdrawal or transfer from a Fixed Allocation, other than withdrawals or
transfers made within 30 days prior to the Maturity Date of the applicable
Guarantee Period, systematic partial withdrawals, or pursuant to the dollar
cost averaging program; and (ii) on the Annuity Commencement Date with respect
to any Fixed Allocation having a Guarantee Period that does not end on or
within 30 days after the annuity commencement date.
The Market Value Adjustment is determined by multiplying the amount withdrawn,
transferred or annuitized by the following factor:
<TABLE>
<C> <C> <S> <C>
( 1+I )N/365
1+J+.0025 -1
</TABLE>
Where "I" is the Index Rate for a Fixed Allocation as of the first day of the
applicable Guarantee Period; "J" is the Index Rate for new Fixed Allocations
with Guarantee Periods equal to the number of years (fractional years are
rounded up to the next full year except in Pennsylvania) remaining in the
Guarantee Period at the time of the withdrawal, transfer or annuitization; and
"N" is the remaining number of days in the Guarantee Period at the time of the
withdrawal, transfer or annuitization.
The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as
reported by a national quoting service for the applicable maturity. The
average currently is based on the period from the 22nd day of the calendar
month two months prior to the calendar month of the Index Rate determination
to the 21st day of the calendar month immediately prior to the month of
determination. The applicable maturity is the maturity date for these U.S.
Treasury Strips on or next following the last day of the Guarantee Period. If
the Ask Yields are no longer available, the Index Rate will be determined
using a suitable replacement method approved where required.
We currently calculate the Index Rate once each calendar month. However, we
reserve the right to calculate the Index Rate more frequently than monthly,
but in no event will such Index Rate be based upon a period of less than 28
days.
The Market Value Adjustment may result in either an increase or decrease in
the Accumulation Value of your Fixed Allocation. If a full surrender, transfer
or annuitization from the Fixed Allocation has been requested, the balance of
the Market Value Adjustment will be added to or subtracted from the amount
surrendered, transferred or annuitized. If a partial withdrawal, transfer or
annuitization has been requested, the Market Value Adjustment will be
calculated on the total amount that must be withdrawn, transferred or
annuitized in order to provide the amount requested. If a negative Market
Value Adjustment exceeds the Accumulation Value in the Fixed Allocation, such
transaction will be considered a full surrender, transfer or annuitization.
The Appendix contains several examples which illustrate the application of the
Market Value Adjustment.
Because of the Market Value Adjustment provision of the Contract, you bear the
investment risk that the Guaranteed Interest Rates offered by us at the time
you make a withdrawal or transfer from a Fixed Allocation or start receiving
annuity payments may be higher or lower than the Guaranteed Interest Rate of
the Fixed Allocation to which the Market Value Adjustment is applied, with the
result that the Accumulation Value of your Fixed Allocation may be
substantially reduced or increased. This will depend on the relationship of
(1) the Guaranteed Interest Rate credited to the Fixed Allocation from which
the withdrawal, transfer or annuitization is made to (2) the current
Guaranteed Interest Rate offered by us for the Guarantee Period equal to the
number of years remaining in the Guarantee Period as of such date. If the
Guaranteed Interest Rate of (1) is higher than the then current Guaranteed
Interest Rate of (2) plus .0025, application of the Market Value Adjustment
will result in an increase in your Accumulation Value. If the Guaranteed
Interest Rate of (1) is lower than the then current Guaranteed Interest Rate
of (2) plus .0025, application of the Market Value Adjustment will result in a
decrease in your Accumulation Value.
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<PAGE>
FACTS ABOUT THE CONTRACT
THE OWNER
You are the Owner. You are also the Annuitant unless another Annuitant is named
in the application or enrollment form. You have the rights and options described
in the Contract. One or more persons may own the Contract. If there are multiple
Owners named, the age of the oldest Owner shall determine the applicable death
benefit.
Death of an Owner activates the death benefit provision. In the case of a sole
Owner who dies prior to the annuity commencement date, we will pay the
Beneficiary the death benefit when due. The sole Owner's estate will be the
Beneficiary if no Beneficiary designation is in effect, or if the designated
Beneficiary has predeceased the Owner. In the case of a joint Owner of the
Contract dying prior to the annuity commencement date, we will designate the
surviving Owner(s) as the Beneficiary(ies). This supersedes any previous
Beneficiary designation.
In the case where the Owner is a trust and a beneficial Owner of the trust has
been designated, the beneficial Owner will be treated as the Owner of the
Contract solely for the purpose of determining the death benefit provisions. If
a beneficial Owner is changed or added after the Contract Date, this will be
treated as a change of Owner for purposes of determining the death benefit. See
Change of Owner or Beneficiary. If no beneficial Owner of the Trust has been
designated, the availability of enhanced death benefits will be determined by
the age of the Annuitant at issue.
THE ANNUITANT
The Annuitant is the person designated by the Owner to be the measuring life in
determining Annuity Payments. The Owner will receive the annuity benefits of the
Contract if the Annuitant is living on the Annuity Commencement Date. If the
Annuitant dies before the Annuity Commencement Date, and a contingent Annuitant
has been named, the contingent Annuitant becomes the Annuitant (unless the Owner
is not an individual, in which case the death benefit becomes payable). Once
named, the Annuitant may not be changed at any time.
If there is no contingent Annuitant when the Annuitant dies prior to the Annuity
Commencement Date, the Owner will become the Annuitant. The Owner may designate
a new Annuitant within 60 days of the death of the Annuitant.
If there is no contingent Annuitant when the Annuitant dies prior to the Annuity
Commencement Date and the Owner is not an individual, we will pay the
Beneficiary the death benefit then due. The Beneficiary will be as provided in
the Beneficiary designation then in effect. If no Beneficiary designation is in
effect, or if there is no designated Beneficiary living, the Owner will be the
Beneficiary. If the Annuitant was the sole Owner and there is no Beneficiary
designation, the Annuitant's estate will be the Beneficiary.
Regardless of whether a death benefit is payable, if the Annuitant dies and any
Owner is not an individual, such death will trigger application of the
distribution rules imposed by Federal tax law.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death benefit proceeds and who
becomes the successor Owner if the Owner dies prior to the annuity commencement
date. We pay death benefit proceeds to the primary Beneficiary (unless there are
joint Owners, in which case death proceeds are payable to the surviving
Owner(s)). See Proceeds Payable to the Beneficiary.
If the Beneficiary dies before the Annuitant or Owner, the death benefit
proceeds are paid to the contingent Beneficiary, if any. If there is no
surviving Beneficiary, we pay the death benefit proceeds to the Owner's estate.
One or more persons may be named as Beneficiary or contingent Beneficiary. In
the case of more than one Beneficiary, unless otherwise specified, we will
assume any death benefit proceeds are to be paid in equal shares to the
surviving beneficiaries.
You have the right to change beneficiaries during the Annuitant's lifetime
unless you have designated an irrevocable Beneficiary. When an irrevocable
Beneficiary has been designated, you and the irrevocable Beneficiary may have to
act together to exercise certain rights and options under the Contract.
CHANGE OF OWNER OR BENEFICIARY
During the Annuitant's lifetime and while your Contract is in effect, you may
transfer ownership of the Contract (if purchased in connection with a
non-qualified plan) subject to our published rules at the time of the change. A
change in Ownership may affect the amount of the death benefit and the
guaranteed death benefit. You may also change the Beneficiary. To make either of
these changes, you must send us written notice of the change in a form
satisfactory to us. The change will take effect as of the day the notice is
signed. The change will not affect any payment made or action taken by us before
recording the change at our Customer Service Center. See Federal Tax
Considerations, Transfer of Annuity Contracts, and Assignments.
AVAILABILITY OF THE CONTRACT
We can issue a Contract if both the Annuitant and the Owner are not older than
age 85.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The Contract may be issued as an Individual Retirement Annuity or in
connection with an individual retirement account. In the latter case, the
Contract will be issued without an Individual Retirement Annuity endorsement,
and the rights of the participant under the Contract will be affected by the
terms and conditions of the particular individual retirement trust or
custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial account
will impose minimum distribution rules, which may require distributions to
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. For both Individual Retirement Annuities
and individual retirement accounts, the minimum Initial Premium is $1,500.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN, DISTRIBUTION MUST
COMMENCE NOT LATER THAN APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH YOU ATTAIN AGE 70 1/2. IF YOU OWN MORE THAN ONE QUALIFIED PLAN,
YOU SHOULD CONSULT YOUR TAX ADVISOR.
NON-QUALIFIED CONTRACTS
The Contract may fund any non-qualified plan. Non-qualified Contracts do not
qualify for any tax-favored treatment other than the benefits provided for by
annuities.
YOUR RIGHT TO SELECT OR CHANGE CONTRACT OPTIONS
Before the Annuity Commencement Date, you may change the Annuity Commencement
Date, frequency of Annuity Payments or the Annuity Option by sending a written
request to our Customer Service Center. The Annuitant may not be changed at any
time.
PREMIUMS
You purchase the Contract with an Initial Premium. After the end of the Free
Look Period, you may make additional premium payments. See Making Additional
Premium Payments. The minimum Initial Premium is $10,000 for a non-qualified
Contract and $1,500 for a qualified Contract.
You must receive our prior approval before making a premium payment that causes
the Accumulation Value of all annuities that you maintain with us to exceed
$1,000,000. We may change the minimum initial or additional premium requirements
for certain group or sponsored arrangements. See Group or Sponsored
Arrangements.
QUALIFIED PLANS
For IRA Contracts, the annual premium on behalf of any individual Contract may
not exceed $2,000. Provided your spouse does not make a contribution to an
IRA, you may set up a spousal IRA even if your spouse has earned some
compensation during the year. The maximum deductible amount for a spousal IRA
program is the lesser of $2,250 or 100% of your compensation reduced by the
contribution (if any) made by you for the taxable year to your own IRA.
However, no more than $2,000 can go to either your or your spouse's IRA in any
one year. For example, $1,750 may go to your IRA and $500 to your spouse's
IRA. These maximums are not applicable if the premium is the result of a
rollover from another qualified plan.
WHERE TO MAKE PAYMENTS
Remit premium payments to our Customer Service Center. The address is shown on
the cover. We will send you a confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the Free Look Period.
We can accept additional premium payments until either the Annuitant or Owner
reaches the Attained Age of 85 under non-qualified plans. For qualified plans,
no contributions may be made to an IRA Contract for the taxable year in which
you attain age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a non-qualified
plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The Initial Premium will be accepted or rejected within two business days of
receipt by us if accompanied by information sufficient to permit us to determine
if we are able to issue a Contract. We may retain an Initial Premium for up to
five business days while attempting to obtain information sufficient to enable
us to issue the Contract. If we are unable to do so within five business days,
the applicant or enrollee will be informed of the reasons for the delay and the
Initial Premium will be returned immediately unless the applicant or enrollee
consents to our retaining the Initial Premium until we have received the
information we require. Thereafter, all additional premiums will be accepted on
the day received.
In certain states we will also accept, by agreement with broker-dealers,
transmittal of initial and additional premium payments by wire order from the
broker-dealer to our Customer Service Center. Such transmittals must be
accompanied by a simultaneous telephone facsimile or other electronic data
transmission containing the essential information we require to open an
21
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
account and allocate the premium payment. Contact our Customer Service Center to
find out about state availability and broker-dealer requirements.
Upon our acceptance of premium payments received via wire order and accompanied
by sufficient electronically transmitted data, we will issue the Contract,
allocate the premium payment according to your instructions, and invest the
payment at the value next determined following receipt. See Restrictions on
Allocation of Premium Payments. Wire orders not accompanied by sufficient data
to enable us to accept the premium payment may be retained for up to five
business days while we attempt to obtain information sufficient to enable us to
issue the Contract. If we are unable to do so, our Customer Service Center will
inform the broker-dealer, on behalf of the applicant or enrollee, of the reasons
for the delay and return the premium payment immediately to the broker-dealer
for return to the applicant or enrollee, unless the applicant or enrollee
specifically consents to allow us to retain the premium payment until our
Customer Service Center receives the required information.
On the date we receive and accept your initial or additional premium payment:
(1) We allocate the Initial Premium among the
Divisions and Fixed Allocations according to your instructions, subject to any
restrictions. See Restrictions on Allocation of Premium Payments. For
additional premium payments, the Accumulation Value will increase by the
amount of the premium. If we do not receive instructions from you, the
increase in the Accumulation Value will be allocated among the Divisions in
proportion to the amount of Accumulation Value in each Division as of the
date we receive and accept the additional premium payment. If there is no
Accumulation Value in the Divisions, the increase in the Accumulation Value
will be allocated to a Fixed Allocation with the shortest Guarantee Period
then available.
(2) For an Initial Premium, we calculate your
applicable death benefit. When an additional premium payment is made, we
increase your applicable death benefit in accordance with the death benefit
option in effect for your Contract.
Following receipt and acceptance of the wire order and accompanying data, and
investment of the premium payment, we will follow one of the two procedures set
forth below. The one we follow is determined by state availability and the
procedures of the broker-dealer which submitted the wire order.
(1) We will issue the Contract. However, until we
have received and accepted a properly completed application or enrollment
form, we reserve the right to rescind the Contract. If the form is not
received within fifteen days of receipt of the premium payment, we will
refund the Accumulation Value plus any charges we deducted, and the Contract
will be voided. Some states require that we return the premium paid. In
these states, different rules will apply.
(2) Based on the information provided, we will issue
the Contract. We will mail the Contract to you, together with an Application
Acknowledgement Statement. You must execute the Application Acknowledgement
Statement and return it to us at our Customer Service Center. Until we
receive the executed Application Acknowledgement Statement, neither you nor
the broker-dealer may execute any financial transactions with respect to the
Contract unless such transactions are appropriately requested in writing by
you.
RESTRICTIONS ON ALLOCATION OF PREMIUM PAYMENTS
We may require that an Initial Premium designated for a Division of either
Account B or Account D be allocated to the Specially Designated Division during
the Free Look Period for Initial Premiums received from some states. After the
free look period, if your Initial Premium was allocated to the Specially
Designated Division, we will transfer the Accumulation Value to the Divisions
you previously selected based on the index of investment experience next
computed for each Division. See Part I, Measurement of Investment Experience,
Index of Investment Experience and Unit Value. Initial premiums designated for
the Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen.
EXCHANGE AND UPDATE PROGRAMS
We may offer two programs that allow you to elect to exchange or update a
contract that you currently own for GoldenSelect DVA PLUS. Our External Exchange
Program is available only where your current contract was issued by an insurance
company not affiliated with us. Our DVA Update Program is available only to
current owners of GoldenSelect DVA contracts issued by Golden American since May
1, 1991. The DVA Update Program is scheduled to terminate on December 31, 1995.
The External Exchange Program and the DVA Update Program (together, the
"Programs") are described below. For a more complete description of the
Programs, including any restrictions and limits that may apply, please call our
Customer Service Center.
Both Programs are available through participating broker-dealers only where
permitted by applicable law and certain restrictions may apply. We reserve the
right to modify, suspend, or terminate either or both of
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
the Programs at any time or from time to time without notice. You should consult
with your tax advisor as to the tax consequences of participating in either of
the Programs. See Federal Tax Considerations. Different rules may apply in
connection with qualified plans.
EXTERNAL EXCHANGE PROGRAM
When available, the External Exchange Program allows you to exchange contracts
issued by insurance companies not affiliated with us ("Exchange Contracts")
for GoldenSelect DVA PLUS. Under the External Exchange Program you may elect
to receive external exchange credits ("Credits") in an amount equal to any
surrender charge you pay, currently up to 5.00% (for issue ages 0-79) and
2.50% (for issue ages 80 and over) of the amount transferred to GoldenSelect
DVA PLUS. Such Credits are added to the amount applied from the Exchange
Contract with funds from our general account in a manner specified by our
rules. In effect, such Credits permit a Contract issued pursuant to the
External Exchange Program to have an Accumulation Value equal to that of the
Exchange Contract, subject to our current rules as to the amount and
availability of Credits. Credits are not considered premium for purposes of
calculating your guaranteed death benefit but will be treated as premium with
respect to all applicable fees, charges (including surrender charges), and
taxes. Credits added to the amount applied from the Exchange Contract will not
be returned to you if you surrender your Contract during the Free Look Period.
You should carefully evaluate whether the External Exchange Program benefits
you more than if you continue to hold your Exchange Contract. Factors to
consider include, but are not limited to: (a) the amount of surrender charges
under your Exchange Contract; (b) the time remaining under your Exchange
Contract during which surrender charges apply; (c) the on-going charges, if
any, under your Exchange Contract versus the on-going charges under our
Contract; (d) the surrender charges under our Contract; (e) the amount and
timing of any benefits under the External Exchange Program; (f) the
potentially greater cost to you if the surrender charge on our Contract or the
surrender charge on your Exchange Contract exceeds the benefits under the
External Exchange Program; and (g) the loss of tax benefits that are not
available to newly issued Contracts under the Federal tax laws.
DVA UPDATE PROGRAM
The DVA Update Program is available only to current owners of GoldenSelect
DVA. The DVA Update Program is scheduled to terminate on December 31, 1995.
Under the DVA Update Program owners of existing GoldenSelect DVA contracts
issued by Golden American since May 1, 1991 may elect to update their current
contract to receive the additional benefits described below contained in
GoldenSelect DVA PLUS. Such benefits are only effective upon the date your
contract is modified and are not retroactive.
By electing to participate in the DVA Update Program you will receive the
following benefits offered by GoldenSelect DVA PLUS:
(1) your unaccrued Distribution Fee (annual sales
load) of 1.00% per year payable over six years will be eliminated;
(2) your current Administrative Charge of $40 will
be waived if your Accumulation Value equals or exceeds $100,000 at the end
of the contract year or once the sum of premiums paid equals or exceeds
$100,000;
(3) your current Excess Allocation Charge of $25
for each allocation change in excess of five per contact year is waived,
subject to our reserved right to charge $25 if more than 12 allocation
changes are made per contract year;
(4) your current Partial Withdrawal Charge of
2.0% of the amount withdrawn for each additional conventional partial
withdrawal after the first in a contract year up to $25 is eliminated; and
(5) you will be eligible for the waiver of surrender
charge described in this prospectus under caption, Charges and Fees,
Charges Deducted From Accumulation Value, Surrender Charge.
If you participate in the DVA Update Program your Separate Account Annual
Expenses will be adjusted based on your guaranteed death benefit. If your
current GoldenSelect DVA was issued to you with a death benefit that included a
guaranteed death benefit interest rate calculated at an annual rate of 7%, your
Mortality and Expense Risk Charge will be increased from 0.90% to 1.40% and your
Asset Based Administrative Charge will be increased from 0.10% to 0.15%. If your
current GoldenSelect DVA was issued without a guaranteed death benefit interest
rate, your Mortality and Expense Risk Charge will be increased from 0.90% to
1.10% and your Asset Based Administrative Charge will be increased from 0.10% to
0.15%.
Except as detailed in the two paragraphs above, all terms and conditions of your
GoldenSelect DVA remain in full force and effect, and you should refer to your
GoldenSelect DVA prospectus for a description of
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
your contract. Additionally please note that your surrender charge schedule
remains the same and the issue date of your GoldenSelect DVA contract for
purposes of calculating any surrender charge is unchanged.
YOUR RIGHT TO REALLOCATE
You may reallocate your Accumulation Value among the Divisions and Fixed
Allocations at the end of the free look period. We currently do not assess a
charge for allocation changes made during a Contract Year. We reserve the right,
however, to assess a $25 charge for each allocation change after the twelfth
allocation change in a Contract Year. We require that each reallocation of your
Accumulation Value equal at least $250 or, if less, your entire Accumulation
Value within a Division or Fixed Allocation. We reserve the right to limit, upon
notice, the maximum number of reallocations you may make within a Contract Year.
In addition, we reserve the right to defer the reallocation privilege at any
time we are unable to purchase or redeem shares of The GCG Trust or Account D.
We also reserve the right to modify or terminate your right to reallocate your
Accumulation Value at any time in accordance with applicable law. Reallocations
from the Fixed Account are subject to the Market Value Adjustment unless taken
as part of the dollar cost averaging program or within 30 days prior to the
Maturity Date of the applicable Guarantee Period. To make a reallocation change,
you must provide us with satisfactory notice at our Customer Service Center.
We reserve the right to limit the number of reallocations of your Accumulation
Value among the Divisions and Fixed Allocations or refuse any reallocation
request if we believe that: (a) excessive trading by you or a specific
reallocation request may have a detrimental effect on unit values or the share
prices of the underlying Series; or (b) we are informed by The GCG Trust or
Account D that the purchase or redemption of shares is to be restricted because
of excessive trading or a specific reallocation or group of reallocations is
deemed to have a detrimental effect on share prices of The GCG Trust or Account
D.
Where permitted by law, we may accept your authorization of third party
reallocation on your behalf, subject to our rules. We may suspend or cancel such
acceptance at any time. We will notify you of any such suspension or
cancellation. We may restrict the Divisions and Fixed Allocations that will be
available to you for reallocations of premiums during any period in which you
authorize such third party to act on your behalf. We will give you prior
notification of any such restrictions. However, we will not enforce such
restrictions if we are provided evidence satisfactory to us that: (a) such third
party has been appointed by a court of competent jurisdiction to act on your
behalf; or (b) such third party has been appointed by you to act on your behalf
for all your financial affairs.
Some restrictions may apply based on the free look provisions of the state where
the Contract is issued. See Your Right to Cancel or Exchange Your Contract.
DOLLAR COST AVERAGING
If you have at least $10,000 of Accumulation Value in the Limited Maturity Bond
Division, the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period, you may elect the dollar cost averaging program and have a
specified dollar amount transferred from those Divisions or such Fixed
Allocation on a monthly basis.
The main objective of dollar cost averaging is to attempt to shield your
investment from short term price fluctuations. Since the same dollar amount is
transferred to other Divisions each month, more units are purchased in a
Division if the value per unit is low and less units are purchased if the value
per unit is high.
Therefore, a lower than average value per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in declining
markets.
Dollar cost averaging may be elected at issue or at a later date. The minimum
amount that may be transferred each month is $250. The maximum amount which may
be transferred is equal to your Accumulation Value in the Limited Maturity Bond
Division, the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period when you elect the dollar cost averaging program, divided by
12.
The transfer date will be the same calendar day each month as the Contract Date.
The dollar amount will be allocated to the Divisions in which you are invested
in proportion to your Accumulation Value in each Division unless you specify
otherwise. If, on any transfer date, your Accumulation Value is equal to or less
than the amount you have elected to have transferred, the entire amount will be
transferred and the program will end. You may change the transfer amount once
each Contract Year, or cancel this program by sending satisfactory notice to our
Customer Service Center at least seven days before the next transfer date. Any
allocation under this program will not be included in determining if the excess
allocation charge will apply. We currently do not permit transfers under the
dollar cost averaging program from Fixed Allocations with other than one year
Guarantee Periods. Transfers from a Fixed Allocation under the dollar cost
averaging program will not be subject to a Market Value
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
Adjustment. See, Market Value Adjustment. A Fixed Allocation may not participate
simultaneously in both the dollar cost averaging program and the Systematic
Partial Withdrawal Option.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a Division
of Account B or The Managed Global Account Division of Account D in which
reinvestment is not available, we will allocate the distribution, unless you
specify otherwise, to the Specially Designated Division.
Such a distribution can occur when (a) an investment portfolio matures, or (b) a
distribution from a portfolio or Division cannot be reinvested in the portfolio
or Division due to the unavailability of securities for acquisition. When an
investment portfolio matures, we will notify you in writing 30 days in advance
of that date. To elect an allocation of the distribution to other than the
Specially Designated Division, you must provide satisfactory notice to us at
least seven days prior to the date the portfolio matures. Such allocations are
not counted for purposes of the number of free allocation changes permitted.
When a distribution from a portfolio or Division cannot be reinvested in the
portfolio due to the unavailability of securities for acquisition, we will
notify you promptly after the allocation has occurred. If within 30 days you
allocate the Accumulation Value from the Specially Designated Division to other
Divisions or Fixed Allocations of your choice, such allocations will not be
included in determining if the excess allocation charge will apply.
YOUR ACCUMULATION VALUE
Your Accumulation Value is the sum of the amounts in each of the Divisions and
the Fixed Allocations in which you are invested, and is the amount available for
investment at any time. You select the Divisions and Fixed Allocations to which
to allocate your Accumulation Value. We adjust your Accumulation Value on each
Valuation Date to reflect the Divisions' investment performance and interest
credited to your Fixed Allocations, any additional premium payments or partial
withdrawals since the previous Valuation Date, and on each Contract processing
date to reflect any deduction of the annual Contract fee. Your Accumulation
Value is applied to your choice of an Annuity Option on the Annuity Commencement
Date subject to our published rules at such time. See Choosing an Income Plan.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE
On the Contract Date, your Accumulation Value is allocated to each Division as
you have specified, unless the Contract is issued in a state that requires the
return of premium payments during the Free Look Period, in which case, the
portion of your Initial Premium not allocated to a Fixed Allocation will be
allocated to the Specially Designated Division during the Free Look Period.
See Your Right to Cancel or Exchange Your Contract.
ON EACH VALUATION DATE
At the end of each subsequent Valuation Period, the amount of Accumulation
Value in each Division will be calculated as follows:
(1) We take the Accumulation Value in the Division
at the end of the preceding Valuation Period.
(2) We multiply (1) by the Division's net rate of
return for the current Valuation Period.
(3) We add (1) and (2).
(4) We add to (3) any additional premium
payments allocated to the Division during the current Valuation Period.
(5) We add or subtract allocations to or from that
Division during the current Valuation Period.
(6) We subtract from (5) any partial withdrawals
and any associated charges allocated to that Division during the current
Valuation Period.
(7) We subtract from (6) the amounts allocated to
that Division for:
(a) any Contract fees; and
(b) any charge for premium taxes.
All amounts in (7) are allocated to each Division in the proportion that (6)
bears to the Accumulation Value in Account B and Account D, unless the Charge
Deduction Division has been specified. See Charges Deducted from the
Accumulation Value.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE
AND UNIT VALUE
The investment experience of a Division is determined on each Valuation Date.
We use an index to measure changes in each Division's experience during a
Valuation Period. We set the index at $10 when the first investments in a
Division are made. The index for a current Valuation Period equals the index
for the preceding Valuation Period multiplied by the experience factor for the
current Valuation Period.
We may express the value of amounts allocated to the Divisions in terms of
units. We determine the number of units for a given amount on a Valuation Date
by dividing the dollar value of that amount by
25
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
the index of investment experience for that date. The index of investment
experience is equal to the value of a unit.
HOW WE DETERMINE THE EXPERIENCE FACTOR
For Divisions of Account B the experience factor reflects the investment
experience of the Series of the Trust in which a Division invests as well as
the charges assessed against the Division for a Valuation Period. The factor
is calculated as follows:
(1) We take the net asset value of the portfolio in
which the Division invests at the end of the current Valuation Period.
(2) We add to (1) the amount of any dividend or
capital gains distribution declared for the investment portfolio and
reinvested in such portfolio during the current Valuation Period. We
subtract from that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the
portfolio at the end of the preceding Valuation Period.
(4) We subtract the applicable daily mortality and
expense risk charge from each Division for each day in the valuation
period.
(5) We subtract the daily asset based
administrative charge from each Division for each day in the valuation period.
Calculations for Divisions investing in a Series are made on a per share
basis.
For the Global Account the experience factor reflects the investment
experience of the Global Account as well as the charges assessed against the
Global Account for a valuation period. The factor is calculated as follows:
(1) We take the value of the assets in the Global
Account at the end of the preceding Valuation Period.
(2) We add to (1) any investment income and
capital gains, realized or unrealized, credited to the assets during the current
Valuation Period.
(3) We subtract from (2) any capital losses, realized
or unrealized, charged against the assets during the current Valuation
Period.
(4) We subtract from (3) any amount charged
against the Global Account for any taxes.
(5) We divide (4) by the value of the assets in the
Global Account at the end of the preceding Valuation Period.
(6) We subtract from (5) the daily charge for
management and investment advice for each day in the valuation period.
(7) We subtract from (6) a daily charge for
estimated operating expenses for each day in the valuation period.
(8) We subtract from (7) the applicable daily charge
for mortality and expense risks for each day in the Valuation Period.
(9) We subtract from (8) the daily asset based
administrative charge for each day in the valuation period.
NET RATE OF RETURN FOR A DIVISION
The net rate of return for a Division during a valuation period is the
experience factor for that Valuation Period minus one.
CASH SURRENDER VALUE
Your Contract's Cash Surrender Value fluctuates daily with the investment
results of the Divisions, interest credited to Fixed Allocations and any Market
Value Adjustment. We do not guarantee any minimum Cash Surrender Value. On any
date before the Annuity Commencement Date while the Contract is in effect, the
cash surrender value is calculated as follows:
(1) We take the Contract's Accumulation Value;
(2) We deduct from (1) any surrender charge and
any charge for premium taxes;
(3) We deduct from (2) any charges incurred but
not yet deducted; and
(4) We adjust (3) for any Market Value Adjustment.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
The Contract may be surrendered by the Owner at any time while the Annuitant is
living and before the Annuity Commencement Date.
A surrender will be effective on the date your written request and the Contract
are received at our Customer Service Center. The Cash Surrender Value is
determined and all benefits under the Contract will then be terminated, as of
that date. You may receive the Cash Surrender Value in a single sum payment or
apply it under one or more Annuity Options. See The Annuity Options. We will
usually pay the Cash Surrender Value within seven days but we may delay payment.
See When We Make Payments.
PARTIAL WITHDRAWALS
Prior to the Annuity Commencement Date, while the Annuitant is living and the
Contract is in effect, you
26
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
may take partial withdrawals from the Accumulation Value by sending satisfactory
notice to our Customer Service Center. Unless you specify otherwise, the amount
of the withdrawal, including any surrender charge and Market Value Adjustment,
will be taken in proportion to the amount of Accumulation Value in each Division
in which you are invested. If there is no Accumulation Value in those Divisions,
partial withdrawals will be deducted from your Fixed Allocations starting with
the Guarantee Periods nearest their Maturity Dates until we have honored your
request.
There are three options available for selecting partial withdrawals, the
Conventional Partial Withdrawal Option, the Systematic Partial Withdrawal Option
and the IRA Partial Withdrawal Option. All three options are described below.
The maximum amount you may withdraw each Contract Year without incurring a
surrender charge is 15% of your Accumulation Value. See Surrender Charge for
Excess Partial Withdrawals. Partial withdrawals may not be repaid. A partial
withdrawal request for an amount in excess of 90% of the Cash Surrender Value
will be treated as a request to surrender the Contract.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the Free Look Period, you may take conventional partial withdrawals. The
minimum amount you may withdraw under this option is $1,000. A conventional
partial withdrawal from a Fixed Allocation may be subject to a Market Value
Adjustment.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION
This option may be elected at the time you apply for a Contract, or at a later
date. This option may be elected to commence in a Contract Year where a
conventional partial withdrawal has been taken. However, it may not be elected
while the IRA Partial Withdrawal Option is in effect.
You may choose to receive systematic partial withdrawals on a monthly or
quarterly basis from your Accumulation Value in the Divisions or the Fixed
Allocations. The commencement of payments under this option may not be elected
to start sooner than 28 days after the Contract Issue Date. You select the
date of the quarter or month when the withdrawals will be made but no later
than the 28th day of the month. If no date is selected, the withdrawals will
be made on the same calendar day of each month as the Contract Date.
You may select a dollar amount or a percentage of the Accumulation Value from
the Divisions in which you are invested as the amount of your withdrawal
subject to the following maximums, but in no event can a payment be less than
$100:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
- ------------ -----------------------
<S> <C>
Monthly 1.25%
Quarterly... 3.75%
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of your Accumulation Value on
the withdrawal date, the amount withdrawn will be reduced so that it equals
such percentage. For example, if a $500 monthly withdrawal was elected and on
the withdrawal date 1.25% of the Accumulation Value equaled $300, the
withdrawal amount would be reduced to $300. If a percentage is selected and
the amount to be systematically withdrawn based on that percentage would be
less than the minimum of $100, we would increase the amount to $100 provided
it does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum percentage we
will send the amount and then cancel the option. For example, if you selected
1.0% to be systematically withdrawn on a monthly basis and that amount equaled
$90, and since $100 is less than 1.25% of the Accumulation Value, we would
send $100. If 1.0% equaled $75, and since $100 is more than 1.25% of the
Accumulation Value we would send $75 and then cancel the option. In such a
case, in order to receive systematic partial withdrawals in the future, you
would be required to submit a new notice to our Customer Service Center.
Systematic Partial Withdrawals from Fixed Allocations are limited to interest
earnings during the prior month or quarter, depending on whether you have
chosen a monthly or quarterly frequency, respectively. Systematic withdrawals
are not subject to a Market Value Adjustment. A Fixed Allocation, however, may
not participate simultaneously in both the dollar cost averaging program and
the Systematic Partial Withdrawal Option.
You may change the amount or percentage of your withdrawal once each Contract
Year or cancel this option at any time by sending satisfactory notice to our
Customer Service Center at least seven days prior to the next scheduled
withdrawal date. However, you may not change the amount or percentage of your
withdrawals in any Contract Year during which you have previously taken a
conventional partial withdrawal.
27
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA Contract and will attain age 70 1/2 in the current calendar
year, distributions may be made to you to satisfy requirements imposed by
Federal tax law. IRA partial withdrawals provide payout of amounts required to
be distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations. We will
send you a notice before your distributions commence, and you may elect this
option at that time, or at a later date. You may not elect IRA partial
withdrawals while the Systematic Partial Withdrawal Option is in effect. If
you do not elect the IRA Partial Withdrawal Option, and distributions are
required by Federal tax law, distributions adequate to satisfy the
requirements imposed by Federal tax law may be made. Thus, if the Systematic
Partial Withdrawal Option is in effect, distributions under that option must
be adequate to satisfy the mandatory distribution rules imposed by Federal tax
law.
You may choose to receive IRA partial withdrawals on a monthly, quarterly or
annual frequency. You select the day of the month when the withdrawals will be
made, but it cannot be later than the 28th day of the month. If no date is
selected, the withdrawals will be made on the same calendar day of the month
as the Contract Date.
At your request, we will determine the amount that is required to be withdrawn
from your Contract each year based on the information you give us and various
choices you make. For information regarding the calculation and choices you
have to make, see the Statement of Additional Information. The minimum dollar
amount you can withdraw is $100. At the time we determine the required partial
withdrawal amount for a taxable year based on the frequency you select, if
that amount is less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the Accumulation Value, we will cancel the
Contract and send you the amount of the Cash Surrender Value.
You may change the payment frequency of your withdrawals once each Contract
Year or cancel this option at any time by sending us satisfactory notice to
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date.
An IRA partial withdrawal in excess of the amount allowed under the Systematic
Partial Withdrawal Option may be subject to a Market Value Adjustment.
PARTIAL WITHDRAWALS IN GENERAL
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
PARTIAL WITHDRAWALS. A partial withdrawal made before the taxpayer reaches age
59 1/2 may result in imposition of a tax penalty of 10% of the taxable portion
withdrawn. See Federal Tax Considerations for more details.
AUTOMATIC REBALANCING
If you have at least $10,000 of Accumulation Value invested in the Divisions,
you may elect to participate in our automatic rebalancing program. Automatic
rebalancing provides you with an easy way to maintain the particular asset
allocation that you and your financial advisor have determined are most suitable
for your individual long-term investment goals. We do not charge a fee for
participating in our automatic rebalancing program.
Under the program you may elect to have all your allocations among the Divisions
rebalanced on a quarterly, semi-annual, or annual calendar basis. The minimum
size of an allocation to a Division must be in full percentage points.
Rebalancing does not affect any amounts that you have allocated to the Fixed
Account. The program may be used in conjunction with the systematic partial
withdrawal option only where such withdrawals are taken pro rata. Automatic
rebalancing is not available if you participate in dollar cost averaging.
Automatic rebalancing will not take place during the free look period.
To participate in automatic rebalancing you must submit to our Customer Service
Center written notice in a form satisfactory to us. We will begin the program on
the last Valuation Date of the applicable calendar period in which we receive
the notice. You may cancel the program at any time. The program will
automatically terminate if you choose to reallocate your Accumulation Value
among the Divisions or if you make an additional premium payment or partial
withdrawal on other than a pro rata basis. Additional premium payments and
partial withdrawals effected on a pro rata basis will not cause the automatic
rebalancing program to terminate.
PROCEEDS PAYABLE TO THE BENEFICIARY
If the Owner or the Annuitant (when the Owner is other than an individual) dies
prior to the annuity commencement date, we will pay the Beneficiary the death
benefit proceeds under the Contract. Such amount may be received in a single sum
or applied to any of the Annuity Options. See The Annuity Options. If we do not
receive a request to apply the death benefit proceeds to an Annuity Option, a
single sum distribution will be made. Any distributions from non-qualified
Contracts must comply with applicable Federal tax law distribution requirements.
28
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
DEATH BENEFIT OPTIONS
Subject to our rules, there are three death benefit options that may be elected
by you at issue under the Contract: the Standard Death Benefit Option; the 7%
Solution Enhanced Death Benefit Option; and the Annual Ratchet Enhanced Death
Benefit Option.
The 7% Solution enhanced Death Benefit Option may only be elected at issue and
only if the Owner or Annuitant (when the Owner is other than an individual) is
age 75 or younger at issue. The Annual Ratchet Enhanced Death Benefit Option may
only be elected at issue and only if the Owner or Annuitant (when the Owner is
other than an individual) is age 79 or younger at issue.
If an enhanced death benefit is elected, the death benefit under the Contract is
equal to the greatest of: (i) the Accumulation Value; (ii) total premium
payments less any partial withdrawals; (iii) the Cash Surrender Value; and (iv)
the enhanced death benefit (see below).
We may offer a reduced death benefit under certain group and sponsored
arrangements. See Part I, Group or Sponsored Arrangements.
STANDARD DEATH BENEFIT OPTION
You will automatically receive the Standard Death Benefit Option unless you
elect one of the enhanced death benefits. The Standard Death Benefit Option
for the Contract is equal to the greatest of: (i) your Accumulation Value;
(ii) total premiums less any partial withdrawals; and (iii) the Cash Surrender
Value.
7% SOLUTION ENHANCED DEATH BENEFIT OPTION
(1) We take the enhanced death benefit from the
prior Valuation Date. On the Contract Date, the enhanced death benefit is
equal to the Initial Premium.
(2) We calculate interest on (1) for the current
valuation period at THE ENHANCED DEATH BENEFIT INTEREST RATE, which rate is an
annual rate of 7%; except that with respect to amounts in the Liquid Asset
Division and Limited Maturity Bond Division, the interest rate applied to
such amounts will be the respective net rate of return for such Divisions
during the current Valuation Period, if it is less than an annual rate of
7%; and except with respect to amounts in a Fixed Allocation, the interest
rate applied to such amounts will be the interest credited to such Fixed
Allocation during the current Valuation Period, if it is less than an annual
rate of 7%.
Each accumulated initial or additional premium payment reduced by any
partial withdrawals (including any associated Market Value Adjustment and
surrender charge incurred) allocated to such premium will continue to grow
at the enhanced death benefit interest rate until reaching the maximum
enhanced death benefit. Such maximum enhanced death benefit is equal to two
times the initial or each additional premium paid, as reduced by partial
withdrawals. Each partial withdrawal reduces the maximum enhanced death
benefit as follows: first, the maximum enhanced death benefit is reduced by
the amount of any partial withdrawal of earnings; second, the maximum
enhanced death benefit is reduced in proportion to the reduction in the
Accumulation Value for any partial withdrawal of premium (in each case,
including any associated market value adjustment and surrender charge
incurred).
(3) We add (1) and (2).
(4) We add to (3) any additional premiums paid
during the current Valuation Period.
(5) We subtract from (4) any partial withdrawals
(including any Market Value Adjustments and surrender charges incurred) made
during the current Valuation Period.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION
(1) We take the enhanced death benefit from the
prior Valuation Date. On the Contract Date, the enhanced death benefit is
equal to the Initial Premium.
(2) We add to (1) any additional premiums paid since
the prior Valuation Date and subtract from (1) any partial withdrawals
(including any Market Value Adjustments and surrender charges incurred)
taken since the prior Valuation Date.
(3) On a Valuation Date that occurs on or prior to the
Owner's Attained Age 80 which is also a Contract Anniversary, we set the
enhanced death benefit equal to the greater of (2) or the Accumulation Value
as of such date.
On all other Valuation Dates, the enhanced death benefit is equal to (2).
HOW TO CLAIM PAYMENTS TO BENEFICIARY
We must receive due proof of the death of the Owner or the Annuitant (if the
Owner is other than an individual) (such as an official death certificate) at
our Customer Service Center before we will make any payments to the
Beneficiary. We will calculate the death benefit as of the date we receive due
proof of death. The Beneficiary should contact our Customer Service Center for
instructions.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
REPORTS TO OWNERS
We will send you a report once each calendar quarter within 31 days after the
end of each calendar quarter. The report will show the Accumulation Value, the
Cash Surrender Value, and the death benefit as of the end of the calendar
quarter. The report will also show the allocation of your Accumulation Value as
of such date and the amounts deducted from or added to the Accumulation Value
since the last report. The report will also include any other information that
may be currently required by the insurance supervisory official of the
jurisdiction in which the Contract is delivered.
We will also send you copies of any shareholder reports of the portfolios or
securities in which Account B and Account D invest, as well as any other
reports, notices or documents required by law to be furnished to Owners.
WHEN WE MAKE PAYMENTS
We will generally pay death benefit proceeds and the cash surrender value within
seven days after our Customer Service Center receives all the information needed
to process the payment.
However, we may delay payment of amounts derived from the Divisions if it is not
practical for us to value or dispose of shares of Account B or Account D
because:
(1) The NYSE is closed for trading;
(2) The SEC determines that a state of emergency
exists;
(3) An order or pronouncement of the SEC permits a
delay for the protection of Owners; or,
(4) The check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
During such times, as to amounts allocated to the Divisions, we may delay:
(1) Determination and payment of any Cash
Surrender Value;
(2) Determination and payment of any death benefit
if death occurs before the Annuity Commencement Date;
(3) Allocation changes of the Accumulation Value; or,
(4) Application under an Annuity Option of the
Accumulation Value.
We reserve the right to delay payment of amounts from the Fixed Account for up
to six months.
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to have all charges against the
Accumulation Value deducted from the Liquid Asset Division. We call this the
Charge Deduction Division Option, and within this context refer to the Liquid
Asset Division as the Charge Deduction Division. If you do not elect this
option, or if the amount of the charges is greater than the amount in the
Division, the charges will be deducted as discussed below. You may also choose
to elect or cancel this option while the Contract is in force by sending
satisfactory notice to our Customer Service Center.
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium payments
in the Divisions and the Fixed Allocations you select, subject to certain
restrictions. See Restrictions on Allocation of Premium Payments. We then may
deduct certain amounts from your Accumulation Value. We may reduce certain fees
and charges, including any surrender, administration, and mortality and expense
risk charges, under group or sponsored arrangements. See Group or Sponsored
Arrangements. Unless you have elected the Charge Deduction Division, charges are
deducted proportionately from all affected Divisions in which you are invested.
If there is no Accumulation Value in those Divisions, we will deduct charges
from your Fixed Allocations starting with the Guarantee Periods nearest their
Maturity Dates until such charges have been paid. The charges we deduct are:
SURRENDER CHARGE
A contingent deferred sales charge ("Surrender Charge") is imposed as a
percentage of each premium payment if the Contract is surrendered or an excess
partial withdrawal is taken during the seven year period from the date we
receive and accept such premium payment. The percentage of premium payments
deducted at the time of surrender or excess partial withdrawal depends upon
the number of complete years that have elapsed since that
30
<PAGE>
CHARGES AND FEES (CONTINUED)
premium payment was made. We determine the surrender charge as a percentage of
each premium payment as follows:
<TABLE>
<CAPTION>
COMPLETE YEARS ELAPSED SURRENDER
SINCE PREMIUM PAYMENT CHARGE
- ----------------------------------------- -----------------
<S> <C>
0 7%
1 7%
2 6%
3 5%
4 4%
5 3%
6 1%
7+ 0%
</TABLE>
Subject to our rules and as described in the Contract, the surrender charge
arising from a surrender or excess partial withdrawal will be waived in the
following events:
(1) you begin receiving qualified extended medical
care on or after the first certificate anniversary for at least 45 days
during any continuous sixty-day period, and your request for the surrender
or withdrawal, together with all required proof of such qualified extended
medical care, must be received at our Customer Service Center during the
term of such care or within ninety days after the last day upon which you
received such care.
(2) you are first diagnosed by a qualifying medical
professional, on or after the first Certificate Anniversary, as having a
Qualifying Terminal Illness. Written proof of terminal illness,
satisfactory to us, must be received at our Customer Service Center. We
reserve the right to require an examination by a physician of our choice.
See your Contract for more information. The waiver of surrender charge may not
be available in all states.
SURRENDER CHARGE FOR EXCESS PARTIAL WITHDRAWALS
There is considered to be an excess partial withdrawal in any Contract Year in
which the amount withdrawn exceeds 15% of your Accumulation Value on the date
of the withdrawal minus any amount withdrawn during that Contract Year. Where
you are receiving systematic partial withdrawals, any combination of
conventional partial withdrawals taken and any systematic partial withdrawals
expected to be received in a Contract Year will be considered in determining
the amount of the excess partial withdrawal. Such a withdrawal will be
considered a partial surrender of the Contract and we will impose a surrender
charge and any associated premium tax. See Facts About the Contract, The Fixed
Account, Market Value Adjustment. Such charges will be deducted from the
Accumulation Value in proportion to the Accumulation Value in each Division or
Fixed Allocation from which the excess partial withdrawal was taken. In
instances where the excess partial withdrawal equals the entire Accumulation
Value in each such Division or Fixed Allocation, charges will be deducted
proportionately from all other Divisions and Fixed Allocations in which you
are invested.
For purposes of calculating the surrender charge for the excess partial
withdrawal, (i) we treat premium payments as being withdrawn on a first-in
first-out basis, and (ii) amounts withdrawn which are not considered an excess
partial withdrawal are not treated as a withdrawal of any premium payments.
Although we treat premium payments as being withdrawn before earnings for
purposes of calculating the surrender charge for excess partial withdrawals,
the Federal income tax law treats earnings as withdrawn first. See Federal Tax
Considerations, Taxation of Non-Qualified Annuities.
For example, the following assumes an Initial Premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third
Contract Years, for total premium payments under the Contract of $30,000. It
also assumes a partial withdrawal at the beginning of the fourth Contract Year
of 20% of the Accumulation Value of $35,000.
In this example, $5,250 ($35,000 x .15) is the maximum partial withdrawal that
may be withdrawn during the Contract Year without the imposition of a
surrender charge. The total partial withdrawal would be $7,000 ($35,000 x .2).
Therefore, $1,750 ($7,000 - $5,250) is considered an excess partial withdrawal
of a part of the Initial Premium payment of $10,000 and would be subject to a
5% surrender charge of $87.50 ($1,750 x .05). This example does not take into
account any Market Value Adjustment or deduction of any premium taxes.
PREMIUM TAXES
We make a charge for state and local premium taxes in certain states which can
range from 0% to 3.5% of premium. The charge depends on the Owner's state of
residence. We reserve the right to change this amount to conform with changes
in the law or if the Owner changes state of residence.
Premium taxes are generally incurred on the annuity commencement date and a
charge for such premium taxes is then deducted from your Accumulation Value on
such date. However, some jurisdictions impose a premium tax at the time that
initial and additional premiums are paid, regardless of the Annuity
Commencement Date. In those states we may initially defer collection of the
amount of the charge for premium taxes from your
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<PAGE>
CHARGES AND FEES (CONTINUED)
Accumulation Value and deduct it against Accumulation Value on surrender of
the Contract, excess partial withdrawals or on the Annuity Commencement Date.
ADMINISTRATIVE CHARGE
The administrative charge is incurred at the beginning of the Contract
processing period and deducted at the end of each Contract processing period.
We deduct this charge when determining the Cash Surrender Value payable if you
surrender the Contract prior to the end of a Contract processing period. If
the Accumulation Value at the end of the Contract processing period equals or
exceeds $100,000 or the sum of the premiums paid equals or exceeds $100,000,
the charge is zero. Otherwise, the amount deducted is $40 per Contract Year.
This charge is to cover a portion of our administrative expenses. See ASSET
BASED ADMINISTRATIVE CHARGE, below.
EXCESS ALLOCATION CHARGE
We currently do not assess a charge for allocation changes made during a
Contract Year. We reserve the right, however, to assess a $25 charge for each
allocation change after the twelfth allocation change in a Contract Year. This
amount represents the maximum we will charge. The charge would be deducted
from the Divisions and the Fixed Allocations from which each such reallocation
is made in proportion to the amount being transferred from each such Division
and Fixed Allocation unless you have chosen to use the Charge Deduction
Division. The excess allocation charge is set at a level that is not designed
to produce profit for Golden American or any affiliate. Any allocations or
transfers due to the election of dollar cost averaging and reallocation under
the provision WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE will not be included
in determining if the excess allocation charge should apply.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE
The amount of the mortality and expense risk charge depends on the death
benefit option that has been elected. If the Standard Death Benefit Option is
elected, the charge is equivalent, on an annual basis, to 1.10% of the assets
in each Division. The charge is deducted on each Valuation Date at the rate of
.003030% for each day in the Valuation Period. Approximately .75% is allocated
to the mortality risk and .35% is allocated to the expense risk. If an
enhanced death benefit is elected, the charge is equivalent, on an annual
basis, to 1.25% for the Annual Ratchet Death Benefit Option, or 1.40% for the
7% Solution Death Benefit Option, of the assets in each Division. The charge
is deducted on each Valuation Date at the rate of .003446% or .003863%,
respectively, for each day in the Valuation Period. For the Annual Ratchet
approximately .90%, or for the 7% Solution approximately 1.05%, is allocated
to the mortality risk.
This charge will compensate us for mortality and expense risks we assume under
the Contract. We will realize a gain from this charge to the extent it is not
needed to provide for benefits and expenses under the Contract. We will use
any gain for any lawful purpose including any shortfalls on paying
distribution expenses.
The mortality risk assumed is the risk that Annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. Golden American also assumes a
risk under the Contract for paying a guaranteed death benefit.
The expense risk assumed is the risk that it will cost us more to issue and
administer the Contract than we expect.
ASSET BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets in each Division, to compensate
us for a portion of the administrative expenses under the Contract. The daily
charge is at a rate of 0.000411% (equivalent to an annual rate of 0.15%) on
the assets in each Division.
This asset based administrative charge plus the administrative charge above
will not exceed the cost of the services to be provided over the life of the
Contract.
TRUST EXPENSES
There are fees and charges deducted from each Series. Please read the Trust
prospectus for details.
OPERATING EXPENSES OF ACCOUNT D
There are additional fees and charges to the Global Account in Account D for
management and advisory services as well as other operational expenses of the
Global Account. DSI as the Manager of Account D receives a monthly fee equal to
an annual rate based upon the following percentages of the Global Account's
average daily net assets: 0.40% of the first $500 million and 0.30% of the
amount over $500 million. Warburg, Pincus as the Portfolio Manager receives a
monthly fee equal to an annual rate based upon the following percentages of the
Global Account's average daily net assets: 0.60% of the first
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CHARGES AND FEES (CONTINUED)
$500 million and 0.50% of the amount over $500 million. The total fees for
management and advisory services exceed the fees for similar services paid by
some other registered investment companies with similar objectives.
The Global Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, and legal and auditing services.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
The Global Account and DSI have agreed to limit the total expenses of the Global
Account. See Part I, The Managed Global Account of Account D.
CHOOSING YOUR ANNUITIZATION OPTIONS
ANNUITIZATION OF YOUR CONTRACT
If the Annuitant and Owner are living on the Annuity Commencement Date, we will
begin making payments to the Owner under an income plan. We will make these
payments under the Annuity Option chosen. You may change an Annuity Option by
making a written request to us at least 30 days prior to the Annuity
Commencement Date of the Contract. The amount of the payments will be determined
by applying your Accumulation Value adjusted for any applicable Market Value
Adjustment on the Annuity Commencement Date in accordance with The Annuity
Options section below, subject to our published rules at such time. See When We
Make Payments.
You may also elect an Annuity Option on surrender of the Contract for its Cash
Surrender Value or you may choose one or more Annuity Options for the payment of
death benefit proceeds while it is in effect and before the Annuity Commencement
Date. If, at the time of the Owner's death or the Annuitant's death (if the
Owner is not an individual), no option has been chosen for paying death benefit
proceeds, the Beneficiary may choose an option within 60 days. In all events,
payments of death benefit proceeds must comply with the distribution
requirements of applicable Federal tax law.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the Accumulation Value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each option we will issue a separate written agreement putting the option
into effect. Before we pay any annuity benefits, we require the return of the
Contract. If your Contract has been lost, we will require that you complete and
return the applicable Contract form. Various factors will affect the level of
annuity benefits including the Annuity Option chosen, the applicable payment
rate used and the investment results of the Divisions and interest credited to
the Fixed Allocations in which the Accumulation Value has been invested.
Some annuity options may provide only for fixed payments. Fixed Annuity Payments
are regular payments, the amount of which is fixed and guaranteed by us. The
amount of the payments will depend only on the form and duration of payments
chosen, the age of the Annuitant or Beneficiary (and sex, where appropriate),
the total Accumulation Value applied to purchase the fixed option, and the
applicable payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other
than the Owner or Beneficiary;
(2) The person named is not a natural person, such as
a corporation; or
(3) Any income payment would be less than the
minimum annuity income payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the Annuity Commencement Date. You may select any date following the
third Contract Anniversary but before the Contract Processing Date in the month
following the Annuitant's 90th birthday. If you do not select a date, the
annuity commencement date will be in the month following the Annuitant's 90th
birthday. However, in the state of Pennsylvania the annuity commencement date
may not be later than in the month following the Annuitant's 85th birthday for
Annuitants with an Issue Age of 80 and under. If the Annuity Commencement Date
occurs when the Annuitant is at an advanced age, such as over age 85, it is
possible that the Contract will not be considered an annuity for Federal tax
purposes. See Federal Tax Considerations. For a Contract purchased in connection
with a qualified plan, distribution must commence not later than April 1st of
the calendar year following the calendar year in which you attain age 70 1/2.
Consult your tax advisor.
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CHOOSING YOUR ANNUITIZATION OPTIONS (CONTINUED)
FREQUENCY SELECTION
You choose the frequency of the Annuity Payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, the payments will be made monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITIZATION OPTIONS
There are four options to choose from as shown below. Options 1 through 3 are
fixed and option 4 may be fixed or variable. For a fixed option, the
Accumulation Value in the Divisions is transferred to the general account.
OPTION 1. INCOME FOR A FIXED PERIOD
Payment is made in equal installments for a fixed number of years based on the
Accumulation Value as of the annuity commencement date. We guarantee that each
monthly payment will be at least the amount set forth in the Contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If the Cash
Surrender Value or Accumulation Value is applied under this option, a 10%
penalty tax may apply to the taxable portion of each income payment until the
Owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE
Payment is made in equal monthly installments and guaranteed for at least a
period certain. The period certain can be 10 or 20 years. Other periods
certain may be available on request. A refund certain may be chosen instead.
Under this arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period, payments
continue until his or her death. We guarantee that each payment will be at
least the amount set forth in the Contract corresponding to the person's age
on his or her last birthday before the option's effective date. Amounts for
ages not shown in the Contract are available upon request.
OPTION 3. JOINT LIFE INCOME
This option is available if there are two persons named to receive payments.
At least one of the persons named must be either the Owner or Beneficiary of
the Contract. Monthly payments are guaranteed and are made as long as at least
one of the named persons is living. There is no minimum number of payments.
Monthly payment amounts are available upon request.
OPTION 4. ANNUITY PLAN
An amount can be used to buy any single premium annuity we offer on the
option's effective date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided by the option agreement. The amounts still due are determined as
follows:
(1) For option 1, or any remaining guaranteed
payments under option 2, payments will be continued. Under options 1 and 2, the
discounted values of the remaining guaranteed payments may be paid in a
single sum. This means we deduct the amount of the interest each remaining
guaranteed payment would have earned had it not been paid out early. The
discount interest rate is never less than 3% for option 1 and 3.50% for
option 2 per year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for options 1 and 2 if such
payments were not based on the tables in the Contract.
(2) For option 3, no amounts are payable after both
named persons have died.
(3) For option 4, the annuity agreement will state the
amount due, if any.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN APPLICATION INFORMATION
If an age or sex given in the application or enrollment form is misstated, the
amounts payable or benefits provided by the Contract shall be those that the
premium payment would have bought at the correct age or sex.
SENDING NOTICE TO US
Any written notices, inquiries or requests should be sent to our Customer
Service Center. Please include your name, your Contract number and, if you are
not the Annuitant, the name of the Annuitant.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan or
other obligation. This does not change the Ownership. However, your rights and
any Beneficiary's rights are subject to the terms of the assignment. See
Transfer of Annuity Contracts, and Assignments. An assignment may have Federal
tax consequences. See Federal Tax Considerations.
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OTHER CONTRACT PROVISIONS (CONTINUED)
You must give us satisfactory written notice at our Customer Service Center in
order to make or release an assignment. We are not responsible for the
validity of any assignment.
NON-PARTICIPATING
The Contract does not participate in the divisible surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
insurance agent or broker, can change any of the Contract's terms, make any
agreements binding on us or extend the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the Contract to the extent we deem it
necessary to continue to qualify the Contract as an annuity. Any such changes
will apply uniformly to all Contracts that are affected. You will be given
advance written notice of such changes.
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT
You may cancel your Contract within your Free Look Period, which is ten days
after you receive your Contract. For purposes of administering our allocation
and administrative rules, we deem this period to expire 15 days after the
Contract is mailed to you. Some states may require a longer Free Look Period.
If you decide to cancel, you may mail or deliver the Contract to our Customer
Service Center. We will refund the Accumulation Value plus any charges we
deducted, and the Contract will be voided as of the date we receive the
Contract and your request. Some states require that we return the premium
paid. In these states, we require your premiums designated for investment in
the Divisions of Account B and Account D be allocated to the Specially
Designated Division during the Free Look Period. Premiums designated for the
Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen. If you do not choose to exercise your right to cancel
during the Free Look Period, then at the end of the Free Look Period your
money will be invested in the Divisions chosen by you, based on the index of
investment experience next computed for each Division. See Measurement of
Investment Experience, INDEX OF EXPERIENCE AND UNIT VALUE.
EXCHANGING YOUR CONTRACT
For information regarding Section1035 exchanges, see Federal Tax
Considerations.
OTHER CONTRACT CHANGES
You may change the Contract to another annuity plan subject to our rules at the
time of the change.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any surrender,
administration, and mortality and expense risk charges. We may also change the
minimum initial and additional premium requirements, or offer a reduced death
benefit. Group arrangements include those in which a trustee or an employer, for
example, purchases Contracts covering a group of individuals on a group basis.
Sponsored arrangements include those in which an employer allows us to sell
Contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy Contracts or that have been in existence less
than six months will not qualify for reduced charges.
We will make these and any similar reductions according to our rules in effect
when an application or enrollment form for a Contract is approved. We may change
these rules from time to time. Any variation in the administrative charge will
reflect differences in costs or services and will not be unfairly
discriminatory.
SELLING THE CONTRACT
DSI is also principal underwriter and distributor of the Contract as well as for
other Contracts issued through Account B and Account D and other separate
accounts of Golden American. We pay DSI for acting as principal underwriter
under a distribution agreement. The offering of the Contract will be continuous.
DSI has entered into and will continue to enter into sales agreements with
broker-dealers to solicit for the sale of the Contract through registered
representatives who are licensed to sell securities and variable insurance
products including variable annuities. These agreements provide that
applications for Contracts may be solicited by registered representatives of the
broker-dealers appointed by Golden American to sell its variable life insurance
and variable annuities. These broker-dealers are registered with the SEC and are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state regulations to
sell variable life insurance and variable annuities. The writing agent will
receive commissions of up to 6.0% of any initial or additional premium payments
made.
REGULATORY INFORMATION
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VOTING RIGHTS
ACCOUNT B
We will vote the shares of the Trust owned by Account B according to your
instructions. However, if the Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it or related regulations
should change, and we decide that we are permitted to vote the shares of the
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a Division by dividing the
Contract's Accumulation Value in that Division by the net asset value of one
share of the portfolio in which a Division invests. Fractional votes will be
counted. We will determine the number of shares you can instruct us to vote
180 days or less before the Trust's meeting. We will ask you for voting
instructions by mail at least 10 days before the meeting.
If we do not get your instructions in time, we will vote the shares in the
same proportion as the instructions received from all Contracts in that
Division.We will also vote shares we hold in Account B which are not
attributable to Owners in the same proportion.
ACCOUNT D
Owners with Accumulation Value in the Global Account have certain voting
rights. Each such Owner will be given one vote for every $1.00 of Accumulation
Value in the Global Account with fractional interests counted, unless a
different allocation of voting rights is required under applicable law for an
investment medium for variable annuity Contracts. Account D's rules do not
require Account D to hold annual meetings of Owners of interests in Account D,
although special meetings may be called for Account D for purposes such as
electing or removing members of the Board of Governors, changing fundamental
policies, or approving a Contract for investment advisory services. When
required, "the vote of a majority of the outstanding voting securities" of the
Global Account of Account D means the lesser of:
(1) The holders of more than 50% of all votes
entitled to be cast in respect to Account D; or,
(2) The holders of at least 67% of the votes which
are present at a meeting of such persons are the holders of more than 50%
of all votes entitled to be cast in respect to Account D are present or
represented by proxy.
We will determine the number of votes you can instruct us to vote 90 days or
less before Account D's meeting. We will ask you for voting instructions by mail
at least 14 days before the meeting.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where we do business. The variable Contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Departments of other jurisdictions. We are required to submit annual
statements of our operations, including financial statements, to the Insurance
Departments of the various jurisdictions in which we do business to determine
solvency and compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
Golden American, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material and we do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the Contract described in this prospectus has been passed
on by Myles R. Tashman, Esquire, Senior Vice President of Golden American.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to Federal securities laws.
EXPERTS
The audited financial statements of Golden American Life Insurance Company,
Separate Account B and The Managed Global Account of Separate Account D
appearing or incorporated by reference in the Statement of Additional
Information and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing or
incorporated by reference in the Statement of Additional Information and in the
Registration Statement and are included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
SELECTED FINANCIAL DATA
The following selected financial data prepared in accordance with generally
accepted accounting principles ("GAAP") for Golden American should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
SELECTED GAAP FINANCIAL DATA
--------------------------------------------------------
FOR THE PERIODS FOR THE FISCAL YEARS ENDED
ENDED JUNE 30 DECEMBER 31
---------------------- --------------------------------
(IN THOUSANDS) 1995 1994 1994 1993 1992(A)
- ------------------------------------------------------------------ ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Variable Life and Annuity Product Fees and Policy Changes......... $ 9,084 $ 7,947 $ 17,519 $ 10,192 $ 694
Net Income before Federal Income Tax.............................. $ 1,111 $ 937 $ 2,222 $ (1,793) $ (508)
Net Income (Loss)................................................. $ 1,111 $ 937 $ 2,222 $ (1,793) $ (508)
Total Assets...................................................... $1,105,319 $1,000,964 $1,044,760 $ 886,155 $ 320,539
Total Liabilities................................................. $1,014,766 $ 969,477 $ 955,254 $ 857,558 $ 306,197
Total Stockholder's Equity........................................ $ 90,553 $ 31,487 $ 89,506 $ 28,597 $ 14,342
</TABLE>
(a) Results for 1992 are for the period September 30, 1992 (date of
acquisition) to December 31, 1992.
The following selected financial data was prepared on the basis of statutory
accounting practices ("SAP"), which have been prescribed or permitted by the
Department of Insurance of the State of Delaware and the National Association of
Insurance Commissioners. These practices differ in certain respects from GAAP.
The selected financial data should be read in conjunction with the financial
statements and notes thereto included in this Prospectus, which describe the
differences between SAP and GAAP.
<TABLE>
<CAPTION>
SELECTED STATUTORY FINANCIAL DATA
-----------------------------------------------------------------------------
FOR THE PERIODS
ENDED JUNE 30 FOR THE FISCAL YEARS ENDED DECEMBER 31
---------------------- -----------------------------------------------------
(IN THOUSANDS) 1995 1994 1994 1993 1992 1991 1990
- ---------------------------------------------- ---------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums & Annuity Considerations............. $ 54,559 $ 218,629 $ 294,550 $ 505,465 $ 191,039 $ 41,615 $ 29,739
Net Income before Federal Income Tax.......... $ (2,498) $ (7,298) $ (11,260) $ (9,417) $ (4,225) $ (2,086) $ (1,566)
Net Income (Loss)............................. $ (2,498) $ (7,298) $ (11,260) $ (9,401) $ (3,986) $ (1,752) $ (1,566)
Total Assets.................................. $1,036,366 $ 933,986 $ 988,180 $ 834,123 $ 302,200 $ 119,652 $ 74,271
Total Liabilities............................. $ 973,103 $ 920,588 $ 921,888 $ 815,301 $ 289,995 $ 106,199 $ 58,573
Total Capital & Surplus....................... $ 63,263 $ 13,398 $ 66,292 $ 18,822 $ 12,205 $ 13,453 $ 15,698
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for the
insurance industry. On the whole, more Americans have started to take a
proactive view toward their own retirement planning. Additionally, with the
fear that people will outlive their savings, many Americans have shifted their
resources from purchasing death benefit type products such as life insurance
to living benefit products such as annuities. As a result of this trend,
annuities have sustained a long growth phase. In recent years, variable
products provided contractholders with the opportunity to achieve diversified
investing in mutual fund type investments. The following factors provided a
positive impact on variable annuity premiums over the past three years: low
interest rates, strong stock market performance and demand for investment
alternatives. However, during 1994, the Federal Reserve Board began raising
interest rates pre-emptively to slow the growth of the economy to a more
sustainable rate and avoid a late-cycle outbreak of inflation. In part and as
a result of an increase in interest rates, fixed annuities and market value
adjusted annuity products gained popularity in many distribution networks as
variable annuities lost market share.
SUMMARY
During 1994, the rise in interest rates and stock market volatility
contributed to the slow-down in Golden American's premium growth as the
company was marketing exclusively variable annuity and life products tied to
mutual fund investing. Consequently, during 1995, the Company intends to
expand its strategic marketing emphasis by offering fixed rate investment
options in life and annuity products.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
RESULTS OF OPERATIONS
THE FIRST SIX MONTHS OF 1995 COMPARED TO
THE FIRST SIX MONTHS OF 1994
Net income for the first six months of 1995 was $1.11 million, an increase
of $.17 million or 18% from the first six months of 1994. New premium
receipts for the first six months of 1995 were $61 million, a decrease of
$159 million or 72% from the comparative period in 1994.
Variable life and annuity product fees and policy charges increased from
$7.9 million for the first six months of 1994 to $9.1 million for the first
six months of 1995, an increase of $1.2 million or 14%. The increase is
primarily due to fees earned from the increasing block of business under
management in the Separate Accounts and an increase in the collection of
surrender charges, primarily in the first quarter 1995.
Operating and administrative expenses were $7.7 million for the first six
months of 1995, an increase of $2.9 million or 61% from the comparable 1994
period. The increased expenses were due in part to a decline in fund values
in 1994. This decline in fund values increased the Company's net amount at
risk, which in turn resulted in an increase in reinsurance fees of $.8
million for the first six months of 1995 as compared to the first six months
of 1994. Net operating expenses have also been adversely affected by the
lower level of production achieved in 1995, which has led to lower
capitalization of the Company's acquisition costs. Partially offsetting
these increases was a decrease in interest expense of $.8 million for the
first six months of 1995 compared to the first six months of 1994. The
elimination of interest expense in 1995 resulted from the retirement of the
Company's debt in December 1994 with the proceeds from the issuance of
preferred stock. As of June 30, 1995, the Company has declared dividends on
preferred stock of $1.8 million. There had been no preferred stock issued as
of June 30, 1994.
1994 COMPARED TO 1993
Golden American realized net GAAP income (loss) of $2.22 million and $(1.79)
million for 1994 and 1993, respectively. The increase in net GAAP earnings
for 1994 is attributable to the increase in average Separate Account assets
in 1994, as compared to 1993.
Variable life and annuity product fees and policy charges were $17.52
million for 1994 as compared to $10.19 million for 1993. The increase is
primarily attributable to increased fees from the increasing block of
business under management in the Separate Accounts. Separate Account assets
have increased from $295 million at December 31, 1992 to $810 million at
December 31, 1993 to $950 million at December 31, 1994. The increase in
Separate Account assets and liabilities of $515 million during 1993 was
primarily due to 1993 premiums and annuity considerations of $505 million.
1993 COMPARED TO THE THREE MONTH PERIOD ENDED DECEMBER 31, 1992
Golden American on a GAAP basis realized a net loss of $1.79 million for the
year ending December 31, 1993, as compared to a net loss of $0.52 million
for the three month period ending December 31, 1992 (the Company's date of
acquisition by Bankers Trust Company). Variable life and annuity product
fees and policy charges increased from $0.69 million for the three month
period ending December 31, 1992 to $10.19 million for the year ending
December 31, 1993. The increase is attributable to 1993 results including
twelve months versus three months for 1992 and the increasing block of
business under management in the Separate Accounts. Separate Account assets
increased from $295 million at December 31, 1992 to $810 million at December
31, 1993.
Total GAAP benefits and expenses in 1993 and 1992, respectively, were $12.24
million and $1.27 million. This increase is attributable to 1993 results
including twelve months versus three months for 1992 and an increase in
expenses associated with new sales and the increase in benefits costs and
the expenses associated with a growing block of business.
Golden American's earnings are principally derived from the charges imposed on
variable annuity products and, to a lesser extent, variable life products. The
primary revenues from these products consist of charges for mortality and
expense risk, the cost of insurance and Contract administration charges that
have been assessed against account balances during the period. In addition, a
sales load ranging from 3% to 7.5% is assessed to premium payments and
collected over a number of years for certain other GoldenSelect variable
annuity and life products. These sales loads are earned over the life of the
insurance Contract in relation to estimated future gross profits. Sales loads
that have been deducted but not yet earned are not recognized in current
income and are reported as unearned revenue. The costs associated with
acquiring new business are deferred at issue and amortized over the lives of
the policies in relation to the present value of estimated
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
future gross profits. Golden American also incurs expenses associated with the
maintenance of in-force Contracts.
Cash required to fund the acquisition costs associated with deferred sales
load products written in 1992, 1993 and 1994 was provided by short-term
borrowings with an unaffiliated bank. Accordingly, the cost of these borrowed
funds increased in line with the general increase in the Federal Funds rates.
In 1994, the insurance industry saw a slow-down in the recent trend of
individuals moving away from traditional fixed products and into variable
products. Golden American experienced a similar slow-down as sales for 1994
were down 39% compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
Golden American's liquidity requirements include the payment of sales
commissions, and other acquisition and underwriting expenses on the annuity
and life business that it writes. Overall, the Company had negative cash flow
from operations in 1994 because it sold variable products exclusively; total
premiums received were invested immediately in the Company's Separate Accounts
which purchased shares of portfolios of The GCG Trust, an open-end, management
investment company, or directly purchased portfolio securities. Because 100%
of the premium was invested as described above, the payment of commissions and
other acquisition costs resulted in negative cash flow from operations during
the Company's early growth years.
Positive cash flow elements from operations are produced primarily from two
sources. Fees are collected from the in-force book of business. In addition,
during 1995, Golden American began to distribute a fixed account option with
its variable annuity product. Premium amounts directed to the fixed account
option produce positive cash flow from operations as amounts are retained
within the general account of the Company and are used to fund an investment
portfolio that finances future benefit payments. Investments are made in
fixed-rate investments such as bonds, and short-term investments in order to
provide a sufficient return as well as to match the duration of the obligation
for future benefit payments. Golden American products also contain surrender
charge features which reward persistency and penalize the early withdrawal of
funds.
Golden American has developed and utilizes a projection system which forecasts
cash flow. Cash flow from operations will vary depending on the amount of
premium written and the product mix. The Company also periodically performs
asset/liability matching in the management of its asset and liability
portfolios. Those matching practices involve the monitoring of asset and
liability durations for various product lines, cash flow testing under various
interest rate scenarios, and the continuous rebalancing of assets and
liabilities with respect to yield, risk, and cash flow characteristics.
Golden American has funded those past expenses described above for its
variable annuity and life business currently in-force at the beginning of 1995
by the issuance of $50 million redeemable preferred stock with its immediate
parent, BT Variable, Inc. on December 30, 1994. This $50 million preferred
stock transaction accounts for a majority of the large increase in total
Stockholder's Equity (as reported on a GAAP basis) from 1993 to 1994. The
short-term debt discussed previously in the Results of Operations was retired
by Golden American and assumed by BT Variable, Inc. as of December 30, 1994.
Dividends on this preferred stock issue are payable on the last business day
of each quarter, beginning March 31, 1995. Through June 30, 1995, $1.77
million of preferred stock dividends have been declared. To the extent that
Golden American has funds available, Golden American may redeem at its option
the preferred stock in cash. Any redemption requires the prior approval of the
California Department of Insurance and may require approval of the Delaware
Department of Insurance. Funds will become available for redemptions from
future statutory earnings as well as the collection of deferred sales loads.
The outstanding amount of deferred sales load to be collected as of December
31, 1994 was $48.9 million.
The NAIC has developed and implemented the Risk Based Capital "RBC" adequacy
monitoring system. The RBC calculates the amount of adjusted capital which a
life insurance company should have based upon that company's risk profile. The
NAIC has established four different levels of regulatory action with respect
to the RBC adequacy monitoring system. Each of these levels may be triggered
if an insurer's total adjusted capital is less than a corresponding level of
RBC. As of December 31, 1994, based on the RBC formula, Golden American's
total adjusted capital level exceeded the minimum amount of capital required
to avoid regulatory action. Under currently effective funding agreements,
expected RBC levels will remain well in excess of levels required to avoid
regulatory actions. There is no assurance, however, that Golden American will
continue to maintain its current RBC level.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
During 1994, BT Variable, Inc. made capital contributions to Golden American of
$8.75 million. Golden American believes that it will be able to fund the capital
and surplus required for projected new business from existing statutory capital
and surplus, statutory earnings on the existing book of business as well as
future surplus contributions from its parent. Golden American also believes that
it will be able to fund the above liquidity requirements of sales commissions
and acquisition costs of projected new business from affiliated borrowings
and/or borrowings with non-affiliated banks. Golden American expects to continue
to receive capital contributions from BT Variable if necessary. Golden
American's future marketing efforts could be hampered should its parent and/or
affiliates be unable to provide additional funding.
Pursuant to the terms of an escrow agreement entered into in connection with the
purchase of Golden American from Mutual Benefit by Bankers Trust Company, Golden
American is obligated to fund up to $5.0 million into an escrow account pending
final resolution of a dispute concerning the final terms of the agreements
consummating the purchase of Golden American, which dispute is before the
Chancery Court of New Jersey. Any amounts assessed against Golden American upon
final adjudication of such dispute would be paid from the escrow account.
Management believes that the likelihood of any judgment against Golden American
with respect to the escrow account is unlikely and would not have a material
impact on Golden American. As of December 31, 1994, $2,675,000 has been
deposited into the escrow account. Golden American's obligation is secured by a
pledge of its right to receive certain deferred sales loads. Bankers Trust has
estimated that the contingent liability due from Golden American amounted to
$438,636 at December 31, 1994 and 1993, and has been so accrued in the
accompanying financial statements.
SEGMENT INFORMATION
During the period since the acquisition by Bankers Trust, September 30, 1992
to date of this Prospectus, Golden American's operations consisted of one
business segment, the sale of annuity and life insurance products. Golden
American and its affiliate Directed Services, Inc., are party to 127 sales
agreements with broker-dealers. Two of those broker-dealers sell a substantial
portion of its business.
REINSURANCE
Golden American reinsures its mortality risk associated with the Contract's
guaranteed death benefit with one or more appropriately licensed insurance
companies. Golden American also, effective June 1, 1994, entered into a
reinsurance agreement on a modified coinsurance basis with an affiliate of a
broker-dealer which distributes Golden American's products with respect to 25%
of the business produced by that broker-dealer.
RESERVES
In accordance with the life insurance laws and regulations under which Golden
American operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
Contracts. Reserves, based on valuation mortality tables in general use in the
United States, where applicable, are computed to equal amounts which, together
with interest on such reserves computed annually at certain assumed rates,
make adequate provision according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual
obligations and related expenses of Golden American.
INVESTMENTS
Golden American's assets are invested in accordance with applicable state
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. All of Golden American's assets, except for assets held in escrow
and variable separate account assets supporting variable products, are
available to meet its obligations under the Contracts.
Golden American makes investments in accordance with investment guidelines
that take into account investment quality, liquidity and diversification, and
invests assets supporting the Contract guarantees primarily in fixed income
assets issued or guaranteed by the U.S. government or its agencies and
instrumentalities. At December 31, 1994, Golden American had invested assets
of $17.2 million consisting of $13.9 million of short-term securities and $3.3
million of bonds and other long-term investments.
At December 31, 1994, 100% of Golden American's invested assets and cash
equivalents supporting Contract guarantees consisted of liquid and readily
marketable securities.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
At December 31, 1994, 100% of the total invested assets were invested in
investment grade bonds and 0% were invested in non-investment grade
securities. Golden American defines non-investment grade as unsecured
corporate debt obligations which do not have a rating equivalent to Standard
and Poor's (or similar rating agency) BBB or higher and are not guaranteed by
an agency of the federal government.
COMPETITION
Golden American 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 products comparable to those of Golden American.
There are approximately 2,350 stock, mutual and other types of insurers in the
life insurance business in the United States, a substantial number of which
are significantly larger than Golden American.
CERTAIN AGREEMENTS
During 1994, Bankers Trust (Delaware), a subsidiary of Bankers Trust New York
Corporation, and Golden American became parties to a service agreement
pursuant to which Bankers Trust (Delaware) has agreed to provide certain
accounting, actuarial, tax, underwriting, sales, management and other services
to Golden American. Expenses incurred by Bankers Trust (Delaware) in relation
to this service agreement are reimbursed by Golden American on an allocated
cost basis. Charges billed to Golden American by Bankers Trust (Delaware)
pursuant to the service agreement were $816,264 for 1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and adminstration of its products. For the
year 1993 and the period from September 30, 1992 to December 31, 1992, fees
earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel
to perform management, administrative and clerical services and the use of
certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis of
direct charges when identifiable, and second allocated based on the estimated
amount of time spent by BT Variable's employees on behalf of Golden American.
For the year 1993 and the period from September 30, 1992 to December 31, 1992,
BT Variable allocated to Golden American $1,503,000 and $450,000,
respectively. The agreement was terminated on January 1, 1994. During 1994,
such expenses were allocated directly by BT New York Corporation to Golden
American and totaled $1,395,966 for the year.
DISTRIBUTION AGREEMENT
Prior to 1994, Golden American had entered into agreements with DSI to perform
services related to the management of its investments and the distribution of
its products. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years ended
1994 and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other
general and adminstrative costs, first on the basis of direct charges when
identifiable, and the remainder allocated based on the estimated amount of
time spent by Golden American's employees on behalf of DSI. In the opinion of
management, this method of cost allocation is reasonable. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000 and
$2,013,000, respectively.
EMPLOYEES
Golden American, as a result of its Service Agreements with each of Bankers
Trust (Delaware) and BT Variable, has very few direct employees. Instead,
various management services are provided by Bankers Trust (Delaware), BT
Variable and Bankers Trust New York Corporation, as described above under
"Certain Agreements." The cost of these services is allocated to Golden
American.
Certain officers of Golden American are also officers of BT Variable and DSI,
and their salaries are allocated among the three companies. One officer of
Golden American is also an officer of Bankers Trust New York Corporation, and
his salary is allocated solely to Bankers Trust New York Corporation. See
"Directors and Executive Officers."
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
PROPERTIES
Golden American's principal office is located at 1001 Jefferson Street, Suite
400, Wilmington, Delaware 19801, where all of Golden American's records are
maintained. This office space is sub-leased from Bankers Trust (Delaware)
under the service agreement described above. In addition, certain legal,
sales, product development and corporate communications personnel operate in a
Bankers Trust New York managed facility at 280 Park Avenue, 14 West, New York,
New York 10017. An allocable share of this property's cost is paid by Golden
American based on square feet.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME (AGE) POSITIONS(S) WITH THE COMPANY
- ---------------------------- -----------------------------
<S> <C>
Terry L. Kendall (48) Chairman, President and Chief
Executive Officer
John Herron, Jr. (43) Director
Richard A. Marin (41) Director
Barnett Chernow (44) Executive Vice President
Mitchell R. Katcher (41) Executive Vice President
David L. Jacobson (45) Senior Vice President and
Assistant Secretary
Stephen J. Preston (37) Senior Vice President, Chief
Actuary and Controller
Myles R. Tashman (52) Senior Vice President
Mary B. Wilkinson (38) Senior Vice President and
Treasurer
</TABLE>
Each director is elected to serve for one year or until the next annual meeting
of shareholders or until his or her successor is elected. Some directors are
directors of insurance company subsidiaries of Golden American's ultimate
parent, Banker's Trust, New York.
The principal positions of Golden American's directors and executive officers
for the past five years are listed below:
MR. KENDALL joined Bankers Trust Company in September 1993 as Managing Director.
He is Chairman of the Board, President and Chief Executive Officer of the Golden
American. From 1982 through June 1993, he was President and Chief Executive
Officer of United Pacific Life Insurance Company.
MR. MARIN joined Bankers Trust Company in 1978 and is a Managing Director. He
has been a director of Golden American since 1992.
MR. HERRON joined Banker Trust Company in 1978 and is a Managing Director. He
has been a director of Golden American since 1993.
MR. CHERNOW joined Golden American in October 1993 as Executive Vice President.
From 1977 through 1993 he held various positions with Reliance Insurance
Companies and was Senior Vice President and Chief Financial Officer of United
Pacific Life Insurance Company from 1984 through 1993.
MR. KATCHER joined Golden American in July 1993 as Executive Vice President.
From 1991 through 1993 he was a Consulting Actuary for Tillinghast. Prior to
1991 he was Senior Vice President and Chief Actuary with Monarch Financial
Services, Inc.
MR. TASHMAN joined Golden American in August 1994 as Senior Vice President. From
1986 through 1993 he was Senior Vice President and General Counsel of United
Pacific Life Insurance Company.
MR. JACOBSON joined Golden American in November 1993 as Senior Vice President
and Assistant Secretary. From April 1974 through November 1993 he held various
positions with United Pacific Life Insurance Company and was Vice President upon
leaving.
MS. WILKINSON joined Golden American in November 1993 as Senior Vice President.
From August 1993 through October 1993 she was an Assistant Vice President with
CIGNA Insurance Companies. From January 1987 through July 1993 she held various
positions with United Pacific Life Insurance Company and was Vice President and
Controller upon leaving.
MR. PRESTON joined Golden American in December 1993 as Senior Vice President,
Chief Actuary and Controller. From September 1993 through November 1993 he was
Senior Vice President and Actuary for Mutual of America Insurance Company. From
July 1987 through August 1993 he held various positions with United Pacific Life
Insurance Company and was Vice President and Actuary upon leaving.
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Officer
of Golden American as well as the annual salary and bonus for the next four most
highly compensated executive officers for the fiscal year ended December 31,
1994. Certain executive officers of Golden American are also officers of
Directed Services, Inc. ("DSI"). The salaries of such individuals are allocated
between Golden American and DSI. With the exception of Mr. Kendall, executive
officers of Golden American are also officers of BT Variable and DSI. The
salaries of such individuals are allocated between Golden American, BT Variable
and DSI pursuant to an arrangement among these companies. Mr. Kendall also
serves as a Managing Director at Bankers Trust New York Corporation.
Compensation amounts for Mr. Kendall which are reflected throughout these tables
are not charged to Golden American, but are instead absorbed by Bankers Trust
New York Corporation.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the former Chief
Executive Officer of GALIC as well as the annual salary and bonus for the next
four most highly compensated executive officers for the fiscal year ended
December 31, 1994.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
RESTRICTED SECURITIES
NAME AND ---------------------- STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)(3) OPTIONS COMPENSATION
- --------------------------------------------- ----- --------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terry Lee Kendall, .......................... 1994 $ 250,000 $ 400,000 $ 276,030 11,000
Chairman, President and Chief Executive
Officer (6) (September 1993 to Present)
Barnett Chernow, ............................ 1994 $ 185,000 $ 165,000 $ 1,800 500 $98,212(4)
Executive Vice President
Mitchell Katcher, ........................... 1994 $ 175,000 $ 150,000
Executive Vice President
Robert Benjamin Langel, ..................... 1994 $ 150,000 $ 213,000 $18,750(5)
Former Executive Vice President
Fred H. Davidson, ........................... 1994 $ 164,766 $25,125(5)
Former Executive Vice President
Stephen Preston, ............................ 1994 $ 131,667 $ 50,000 $4,721(4)
Senior Vice President and Chief Actuary and
Controller
</TABLE>
- ------------------------------
(1) 1994 bonuses are paid in January 1995. The amount shown does not include
bonuses paid in January 1994 for performance in 1993.
(2) Amounts shown are for awards granted and exercisable in 1994. This table
does not reflect shares granted in 1993 exercisable in 1996. All awards have
been valued for this table using closing prices of the common stock of
Bankers Trust New York Corporation as of December 31, 1994 using a Bloomberg
system. Shares of restricted stock have a three year vesting period. The
number and value of Restricted Shares and Restricted Units held by executive
officers as of December 31, 1994 is Mr. Kendall 3,000 shares and 3,000 units
-- $166,125 and Mr. Chernow: 500 shares and 500 units -- $27,688.
(3) Dividends are paid on unvested Restricted Shares and dividend equivalents
are paid on unvested Restricted units. Such dividends and dividend
equivalents are equal in amount to the dividends paid on shares on Bankers
Trust New York Corporation Common Stock.
(4) Amounts shown for 1994 represent relocation expenses paid on behalf of the
employee.
(5) Contributions are made by the Company on behalf of the employee to
PartnerShare, the deferred compensation plan sponsored by Bankers Trust New
York Corporation and its affiliates for the benefit of all Bankers Trust
employees, in February of the current year to employees on record as of
December 31 of the previous year, after the employee completes one year of
service with the company. This contribution may be in the form of deferred
compensation and/or a cash payment. In 1994, Mr. Langel received $16,495 of
deferred compensation and $2,250 of cash payment from the plan. Mr. Davidson
received $19,044 of deferred compensation and $6,081 of cash payment from
the plan. All other executives listed above were not eligible for
contributions to the PartnerShare Plan in 1994.
(6) Mr. Kendall has served as Chairman, President and Chief Executive Officer of
Golden American since September of 1993. Mr. Kendall's salary and bonuses
are paid directly by Bankers Trust New York Corporation.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXPIRATION
UNDERLYING EMPLOYEES IN EXERCISE PRICE DATE
FISCAL YEAR OPTIONS GRANTED FISCAL YEAR ($ PER SHARE) ($ PER SHARE)
----------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Terry Lee Kendall........................ 1994 8,000 .0003268 68.625 6-21-2004
<CAPTION>
GRANT DATE
PRESENT
VALUE(3)
-----------
<S> <C>
Terry Lee Kendall........................ $ 161,680
</TABLE>
(1) Option grants in 1994 relate to performance in 1994. This table does not
include option grants in 1993 related to performance in 1993.
(2) All options on Bankers Trust New York Corporation common stock are
exercisable on June 21, 1995.
(3) Valued using a Black-Scholes style valuation. The assumptions used for the
variables in the model were: 27% volatility (which is the volatility of the
Common Stock for the 36 months preceding grant); an 8.29% rate of return
(which is the rate as of February 10, 1995 adjusted by 41 basis points to
represent the LIBOR rate as of the grant date for zero coupon bond expiring
June 2004); a 5.25% dividend yield; and a 10-year option term (which is the
term of the option granted). The actual gain Mr. Kendall will realize on the
options will depend on the future price of the Common Stock and cannot be
accurately forecast by application of an option valuation.
Directors of Golden American receive no additional compensation for serving as a
director.
OTHER COMPENSATION
On November 29, 1993, Mr. Jerome Golden resigned as President of Golden
American. He had served as President from July 1987 through November 29, 1993.
In accordance with the terms of a Separation Agreement between Mr. Golden and
the Company, Mr. Golden was paid $425,000 in 1994 and again in 1995. The
amounts represent a full settlement with no future payments required.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract is
not exhaustive, does not purport to cover all situations, and is not intended as
tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and a qualified tax adviser should always be consulted
with regard to the application of the tax law to individual circumstances. This
discussion is based on the Internal Revenue Code of 1986, as amended ("Code").
Treasury Department regulations, and interpretations existing on the date of
this prospectus. These authorities, however, are subject to change by Congress,
the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated with
the purchase of the contract. In addition, GOLDEN AMERICAN MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY CONTRACT OR OF
ANY TRANSACTION INVOLVING A CONTRACT.
TAX STATUS OF GOLDEN AMERICAN
Golden American is taxed as a life insurance company under the Code. Since the
operations of Account B and Account D are a part of, and are taxed with, the
operations of Golden American, Account B and Account D are not separately taxed
as "regulated investment companies" under the Code. Under existing federal
income tax laws, investment income and capital gains of Account B and Account D
are not taxed to Golden American to the extent they are applied to increase
reserves under a contract. Since, under the contracts, investment income and
realized capital gains of Account B and Account D attributable to contract
obligations are automatically applied to increase reserves, Golden American does
not anticipate that it will incur any federal income tax liability in Account B
or Account D attributable to contract obligations, and therefore Golden American
does not intend to make provision for any such taxes. If Golden American is
taxed on investment income or capital gains of Account B or Account D, then
Golden American may impose a charge against Account B or Account D, as
appropriate, in order to make provision for such taxes.
TAXATION OF NON-QUALIFIED ANNUITIES
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any increase
in an owner's Accumulation Value is generally not taxable to the owner until
amounts are received from the Contract, either in the form of annuity payments
as contemplated by the Contract, or in some other form of distribution.
However, this rule allowing deferral applies only if (1) the investments of
Account B and Account D are "adequately diversified"
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
in accordance with Treasury Department regulations, (2) Golden American,
rather than the owner, is considered the owner of the assets of Account B and
Account D for federal income tax purposes, and (3) the owner is an individual.
In addition to the foregoing, if the Contract's annuity commencement date
occurs at a time when the annuitant is at an advanced age, such as over age
85, it is possible that the owner will be taxable currently on the annual
increase in the Accumulation Value.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department
regulations prescribe the manner in which the investments of a segregated
asset account, such as the Divisions of Account B and Account D, are to be
"adequately diversified." If a Division of Account B or Account D failed
to comply with these diversification standards, contracts based on that
segregated asset account would not be treated as an annuity contract for
federal income tax purposes and the owner would generally be taxable
currently on the income on the contract (as defined in the tax law)
beginning with the period of non-diversification. Golden American expects
that the Divisions of Account B and Account D will comply with the
diversification requirements prescribed by the Code and Treasury
Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for federal income tax purposes, of
the assets of a segregated asset account, such as the Divisions of Account
B or Account D, used to support their contracts. In those circumstances,
income and gains from the segregated asset account would be includible in
the contract owners' gross income. The Internal Revenue Service (the
"IRS") has stated in published rulings that a variable contract owner will
be considered the owner of the assets of a segregated asset account if the
owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. In addition, the
Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations
"do not provide guidance concerning the circumstances in which investor
control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts (of
a segregated asset account) without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance
has been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it
was determined that contract owners were not owners of the assets of a
segregated asset account. For example, the owner of this Contract has the
choice of more investment options to which to allocate purchase payments
and the Accumulation Value, and may be able to transfer among investment
options more frequently, than in such rulings. These differences could
result in the owner being treated as the owner of all or a portion of the
assets of Account B and Account D. In addition, Golden American does not
know what standards will be set forth in the regulations or rulings which
the Treasury Department has stated it expects to issue. Golden American
therefore reserves the right to modify the Contract as necessary to
attempt to prevent Contract owners from being considered the owners of the
assets of Account B or Account D. However, there is no assurance that such
efforts would be successful.
Frequently, if the IRS or the Treasury Department sets forth a new
position which is adverse to taxpayers, the position is applied on a
prospective basis only. Thus, if the IRS or the Treasury Department were
to issue regulations or a ruling which treated an owner of this Contract
as the owner of Account B or Account D, that treatment might apply on a
prospective basis. However, if the regulations or ruling were not
considered to set forth a new position, an owner might retroactively be
determined to be the owner of the assets of Account B and Account D.
NON-NATURAL OWNER. As a general rule, contracts held by "non-natural
persons" such as a corporation, trust or other similar entity, as opposed
to a natural person, are not treated as annuity contracts for federal tax
purposes. The income on such contracts (as defined in the tax law) is
taxed as ordinary income that is received or accrued by the owner of the
contract during the taxable year. There are several exceptions to this
general rule for non-natural owners.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
First, contracts will generally be treated as held by a natural person if
the nominal owner is a trust or other entity which holds the contract as
an agent for a natural person. However, this special exception will not
apply in the case of any employer who is the nominal owner of a contract
under a non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural owners will
apply with respect to (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain contracts issued in
connection with qualified retirement plans, (3) contracts purchased by
employers upon the termination of certain qualified retirement plans, (4)
certain contracts used in connection with structured settlement
agreements, and (5) contracts purchased with a single purchase payment
when the annuity starting date (as defined in the tax law) is no later
than a year from purchase of the contract and substantially equal periodic
payments are made, not less frequently than annually, during the annuity
period.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL WITHDRAWALS AND SURRENDERS
In the case of a partial withdrawal prior to the annuity commencement date,
amounts received generally are includible in income to the extent the owner's
cash value (determined without regard to any surrender charge, within the
meaning of the tax law) before the surrender exceeds his or her "investment in
the contract." In the case of a surrender of the Contract for the cash
surrender value, amounts received are includible in income to the extent they
exceed the "investment in the contract." For these purposes, the investment in
the Contract at any time equals the total of the premium payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
contributions to IRAs and other qualified retirement plans) less any amounts
previously received from the Contract which were not includible in income.
In the case of systematic partial withdrawals, the amount of each withdrawal
will generally be taxed in the same manner as a partial withdrawal made prior
to the annuity commencement date, as described above. However, there is some
uncertainty regarding the tax treatment of systematic partial withdrawals, and
it is possible that additional amounts may be includible in income.
The Contract provides a death benefit that in certain circumstances may exceed
the greater of the premium payments and the Accumulation Value. As described
elsewhere in this prospectus, Golden American imposes certain charges with
respect to the death benefit. It is possible that some portion of those
charges could be treated for federal tax purposes as a partial withdrawal from
the Contract.
In certain circumstances, surrender charges may be waived because of the
owner's need for extended medical care or because of the owner's terminal
illness. Distributions made in respect of which surrender charges are waived
are treated as partial withdrawals or surrenders, as the case may be, for
income tax purposes.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary income is
equal to the excess of the payment over the exclusion amount. In the case of
fixed annuity payments, the exclusion amount is the amount determined by
multiplying (1) the fixed annuity payment by (2) the ratio of the "investment
in the contract" (defined above), adjusted for any period certain or refund
feature, allocated to the fixed annuity option to the total expected amount of
fixed annuity payments for the period of the Contract (determined under
Treasury Department regulations). In the case of variable annuity payments,
the exclusion amount for each variable annuity payment is a specified dollar
amount equal to the investment in the Contract allocated to the variable
annuity option when payments begin divided by the number of variable payments
expected to be made (determined by Treasury Department regulations).
Once the total amount of the investment in the Contract is excluded using
these formulas, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the Contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant or beneficiary (depending upon the
circumstances).
If any amount is constructively received, within the meaning of the tax law,
from a contract (which may occur when a death benefit becomes payable), such
amount will be treated as a partial withdrawal or surrender for federal income
tax purposes unless it
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
is applied under an annuity option within 60 days after the time when such
amount was constructively received. In any event, however, payments must
comply with applicable Federal tax law distribution requirements.
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the annuity commencement date, amounts may be distributed from a
contract because of the death of an owner or, in certain circumstances, the
death of the annuitant. Such death benefit proceeds are includible in income
as follows: (1) if distributed in a lump sum, they are taxed in the same
manner as a surrender, as described above, or (2) if distributed under an
annuity option, they are taxed in the same manner as annuity payments, as
described above. After the annuity commencement date, where a guaranteed
period exists under an annuity option and the annuitant dies before the end of
that period, payments made to the beneficiary for the remainder of that period
are includible in income as follows: (1) if received in a lump sum, they are
includible in income to the extent that they exceed the unrecovered investment
in the contract at that time, or (2) if distributed in accordance with the
existing annuity option selected, they are fully excludable from income until
the remaining investment in the contract is deemed to be recovered, and all
annuity payments thereafter are fully includible in income.
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of contracts issued as IRAs or in connection with
certain other qualified retirement plans (which generally cannot be assigned
or pledged), any assignment or pledge (or agreement to assign or pledge) of
any portion of the value of the contract is treated for federal income tax
purposes as a partial withdrawal of such amount or portion. The investment in
the Contract is increased by the amount includible as income with respect to
such assignment or pledge, though it is not affected by any other aspect of
the assignment or pledge (including its release). If an owner transfers a
contract without adequate consideration to a person other than the owner's
spouse (or to a former spouse incident to divorce), the owner will be taxed on
the difference between the cash surrender value (within the meaning of the tax
law) and the investment in the contract at the time of transfer. In such case,
the transferee's investment in the contract will be increased to reflect the
increase in the transferor's income.
SECTION 1035 EXCHANGES
Code section 1035 provides that no gain or loss is recognized when an annuity
contract is received in exchange for a life, endowment, or annuity contract,
provided that no cash or other property is received in the exchange
transaction. Special rules and procedures apply in order for an exchange to
meet the requirements of section 1035. Also, there are additional tax
considerations involved when the contracts are issued in connection with
qualified retirement plans. Prospective owners of this Contract should consult
a tax advisor before entering into a section 1035 exchange (with respect to
non-qualified annuity contracts) or a trustee-to-trustee transfer or rollover
(with respect to qualified annuity contracts).
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a contract has not been issued as an IRA or in connection with another
qualified retirement plan, there generally is a 10% penalty tax on the taxable
amount of any payment from the contract unless the payment is: (a) received on
or after the owner reaches age 59 1/2; (b) attributable to the owner's
becoming disabled (as defined in the tax law); (c) made on or after the death
of the owner or, if the owner is not an individual, on or after the death of
the primary annuitant (as defined in the tax law); (d) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and a designated beneficiary (as defined in the tax
law), or (e) made under a contract purchased with a single purchase payment
when the annuity starting date (as defined in the tax law) is no later than a
year from purchase of the contract and substantially equal periodic payments
are made, not less frequently than annually, during the annuity period.
In the case of systematic partial withdrawals, it is unclear whether such
withdrawals will qualify for exception (d) above. (For reporting purposes, we
currently treat such withdrawals as if they do not qualify for this
exception). In addition, if withdrawals are of interest amounts only, as is
the case with systematic partial withdrawals from a Fixed Allocation,
exception (d) will not apply.
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment, withdrawal or
surrender from a contract that is includible in income is determined by
combining some or all of the annuity contracts owned by
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
an individual not issued in connection with qualified retirement plans. For
example, if a person purchases two or more deferred annuity contracts from the
same insurance company (or its affiliates) during any calendar year, all such
contracts will be treated as one contract for purposes of determining whether
any payment not received as an annuity (including withdrawals and surrenders
prior to the annuity commencement date) is includible in income. In addition,
if a person purchases a Contract offered by this prospectus and also purchases
at approximately the same time an immediate annuity, the IRS may treat the two
contracts as one contract. The effects of such aggregation are not clear,
however, it could affect the time when income is taxable and the amount which
might be subject to the 10% penalty tax described above.
IRA CONTRACTS AND OTHER QUALIFIED RETIREMENT PLANS
IN GENERAL
In addition to issuing the Contracts as non-qualified annuities, Golden
American also currently issues the Contracts as IRAs. (As indicated above, in
this prospectus, IRAs are referred to as "qualified plans.") Golden American
may also issue the Contracts in connection with certain other types of
qualified retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the owners under IRAs and other qualified
retirement plans and to the contracts used in connection with such plans.
These tax rules vary according to the type of plan and the terms and
conditions of the plan itself. For example, for both surrenders and annuity
payments under certain contracts issued in connection with qualified
retirement plans, there may be no "investment in the contract" and the total
amount received may be taxable. Also, special rules apply to the time at which
distributions must commence and the form in which the distributions must be
paid. Therefore, no attempt is made to provide more than general information
about the use of contracts with the various types of qualified retirement
plans. A qualified tax advisor should be consulted before purchase of a
Contract in connection with a qualified retirement plan.
When issued in connection with a qualified retirement plan, a Contract will be
amended as necessary to conform to the requirements of the plan. However,
owners, annuitants, and beneficiaries are cautioned that the rights of any
person to any benefits under qualified retirement plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract. In addition, Golden American is not bound by terms
and conditions of qualified retirement plans to the extent such terms and
conditions contradict the Contract, unless Golden American consents.
INDIVIDUAL RETIREMENT ANNUITIES
As indicated above, Golden American currently issues the Contract as an IRA.
If the Contract is used for this purpose, the owner must be the annuitant.
PREMIUM PAYMENTS. Both the premium payments that may be paid, and the tax
deduction that the owner may claim for such premium payments, are limited
under an IRA. In general, the premium payments that may be made for an IRA
for any year are limited to the lesser of $2,000 or 100% of the owner's
earned income for the year. Also, in the case of an individual who has a
noncompensated spouse, premium payments may be made into an IRA for the
benefit of the spouse. In such a case, however, the premium payments that
may be made for the spouse's IRA for any year are limited to the lesser of
$2,000 or the excess of (1) $2,250 (or, if less, 100% of the individual's
earned income) over (2) the individual's premium payments for his or her
own IRA. An excise tax is imposed on IRA contributions that exceed the
law's limits.
The deductible amount of the premium payments made for an IRA for any
taxable year (including a contract for a noncompensated spouse) is limited
to the amount of premium payments that may be paid for the contract for
that year, or a lesser amount where the individual or his or her spouse is
an active participant in certain qualified retirement plans. For a single
person who is an active participant in a qualified retirement plan
(including a qualified pension, profit-sharing, or annuity plan, a
simplified employee pension plan, or a "section 403(b)" annuity plan, as
discussed below) and who has adjusted gross income in excess of $35,000
may not deduct premium payments, and such a person with adjusted gross
income between $25,000 and $35,000 may deduct only a portion of such
payments. Also, married persons who file a joint return, one of whom is an
active participant in a qualified retirement plan, and who have adjusted
gross income in excess of $50,000 may not deduct premium payments, and
those with adjusted gross income between $40,000 and $50,000 may deduct
only
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
a portion of such payments. Married persons filing separately may not
deduct premium payments if either the taxpayer or the taxpayer's spouse is
an active participant in a qualified retirement plan.
In applying these and other rules applicable to an IRA, all individual
retirement accounts and IRAs owned by an individual are treated as one
contract, and all amounts distributed during any taxable year are treated
as one distribution.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Until distributions are made from
an IRA, increases in the Accumulation Value of the contract are not taxed.
IRAs and individual retirement accounts (that may invest in this contract)
generally may not invest in life insurance contracts, but an annuity
contract that is issued as an IRA (or that is purchased by an individual
retirement account) may provide a death benefit that equals the greater of
the premiums paid and the contract's cash value. The Contract provides a
death benefit that in certain circumstances may exceed the greater of the
premium payments and the Accumulation Value. The IRS has approved the use
of the Contract, as to form, as an IRA.
TAXATION OF DISTRIBUTIONS AND ROLLOVERS. If all premium payments made to
an IRA were deductible, all amounts distributed from the Contract are
included in the recipient's income when distributed. However, if
nondeductible premium payments were made to an IRA (within the limits
allowed by the tax laws), a portion of each distribution from the Contract
typically is includible in income when it is distributed. In such a case,
any amount distributed as an annuity payment or in a lump sum upon death
or surrender is taxed as described above in connection with such a
distribution from a non-qualified contract, treating as the investment in
the contract the sum of the nondeductible premium payments at the end of
the taxable year in which the distribution commences or is made (less any
amounts previously distributed that were excluded from income). Also, in
such a case, any amount distributed upon a partial withdrawal is partially
includible in income. The includible amount is the excess of the
distribution over the exclusion amount, which in turn equals the
distribution multiplied by the ratio of the investment in the Contract to
the Accumulation Value.
In any event, subject to the direct rollover and mandatory withholding
requirements (discussed below), amounts may be "rolled over" from certain
qualified retirement plans to an IRA (or from one IRA or individual
retirement account to an IRA) without incurring current income tax if
certain conditions are met. Only certain types of distributions to
eligible individuals from qualified retirement plans, individual
retirement accounts, and IRAs may be rolled over.
PENALTY TAXES. Subject to certain exceptions, a penalty tax is imposed on
distributions from an IRA equal to 10% of the amount of the distribution
includible in income. (Amounts rolled over from an IRA generally are
excludable from income.) The exceptions provide, however, that this
penalty tax does not apply to distributions made to the owner (1) on or
after age 59 1/2, (2) on or after death or because of disability (as
defined in the tax law), or (3) as part of a series of substantially equal
periodic payments over the life (or life expectancy) of the owner or the
joint lives (or joint life expectancies) of the owner and his or her
beneficiary (as defined in the tax law). In addition to the foregoing,
failure to comply with a minimum distribution requirement will result in
the imposition of a penalty tax of 50% of the amount by which a minimum
required distribution exceeds the actual distribution from an IRA. Under
this requirement, distributions of minimum amounts from an IRA as
specified in the tax law must generally commence by April 1 of the
calendar year following the calendar year in which the owner attains age
70 1/2.
OTHER TYPES OF QUALIFIED RETIREMENT PLANS
The following sections describe tax considerations of contracts used in
connection with various types of qualified retirement plans other than IRAs.
Golden American does not currently offer all of the types of qualified
retirement plans described and may not offer them in the future. Prospective
purchasers of contracts for use in connection with such qualified retirement
plans should therefore contact Golden American's Customer Service Center to
ascertain the availability of the Contract for qualified retirement plans at
any given time.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). Section 408(k) of the Code allows
employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain
criteria are met.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers
intending to use the contract in connection with such plans should seek
competent advice.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" OR
"KEOGH") PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of
the Code permit corporate employers to establish various types of
tax-favored retirement plans for employees. The Self-Employed Individuals'
Tax Retirement Act of 1962, as amended, commonly referred to as "H.R. 10"
or "Keogh," permits self-employed individuals also to establish such tax-
favored retirement plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contract in order to
provide benefits under the plans. The contract provides a death benefit
that in certain circumstances may exceed the greater of the premium
payments and the Accumulation Value. It is possible that such death
benefit could be characterized as an incidental death benefit. There are
limitations on the amount of incidental benefits that may be provided
under pension and profit sharing plans. In addition, the provision of such
benefits may result in currently taxable income to participants. Employers
intending to use the contract in connection with such plans should seek
competent advice.
SECTION 403(B) ANNUITY CONTRACTS. Section 403(b) of the Code permits
public school employees, employees of certain types of charitable,
educational and scientific organizations exempt from tax under section
501(c)(3) of the Code, and employees of certain types of State educational
organizations specified in section 170(b)(l)(A)(ii), to have their
employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of premium payments from gross income
for federal income tax purposes. Purchasers of the contracts for use as a
"Section 403(b) Annuity Contract" should seek competent advice as to
eligibility, limitations on permissible amounts of premium payments and
other tax consequences associated with such contacts. In particular,
purchasers and their advisors should consider that this contract provides
a death benefit that in certain circumstances may exceed the greater of
the premium payments and the Accumulation Value. It is possible that such
death benefit could be characterized as an incidental death benefit. If
the death benefit were so characterized, this could result in currently
taxable income to purchasers. In addition, there are limitations on the
amount of incidental death benefits that may be provided under a Section
403(b) Annuity Contract. Even if the death benefit under the contract were
characterized as an incidental death benefit, it is unlikely to violate
those limits unless the purchaser also purchases a life insurance contract
as part of his or her Section 403(b) Annuity Contract.
Section 403(b) Annuity Contracts contain restrictions on withdrawals of
(i) contributions made pursuant to a salary reduction agreement in years
beginning after December 31, 1988, (ii) earnings on those contributions,
and (iii) earnings after 1988 on amounts attributable to salary reduction
contributions (and earnings on those contributions) held as of the last
year beginning before January 1, 1989. These amounts can be paid only if
the employee has reached age 59 1/2, separated from service, died, become
disabled (within the meaning of the tax law), or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited
to actual contributions; earnings thereon cannot be distributed on account
of hardship. (These limitations on withdrawals do not apply to the extent
Golden American is directed to transfer some or all of the Accumulation
Value as a tax-free direct transfer to the issue of another Section 403(b)
Annuity Contract or into a section 403(b)(7) custodial account subject to
withdrawal restrictions which are at least as stringent.)
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND
TAX-EXEMPT ORGANIZATIONS. Section 457 of the Code permits employees of
state and local governments and tax-exempt organizations to defer a
portion of their compensation without paying current federal income taxes.
The employees must be participants in an eligible deferred compensation
plan. To the extent the contract is used in connection with an eligible
plan, the employer as owner of the contract has the sole right to the
proceeds of the contract, until paid or made available to the participant
or other recipient, subject only to the claims of the employer's general
creditors. Generally, a contract purchased by a state or local government
or a tax-exempt organization will not be treated as an annuity
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
contract for federal income tax purposes. Those who intend to use the
contracts in connection with such plans should seek competent advice.
DIRECT ROLLOVERS AND FEDERAL INCOME TAX WITHHOLDING FOR "ELIGIBLE ROLLOVER
DISTRIBUTIONS"
In the case of an annuity contract used in connection with a pension,
profit-sharing, or annuity plan qualified under sections 401(a) or 403(a) of
the Code, or that is a Section 403(b) Annuity Contract, any "eligible rollover
distribution" from the contract will be subject to direct rollover and
mandatory withholding requirements. An eligible rollover distribution
generally is the taxable portion of any distribution from a qualified pension
plan under section 401(a) of the Code, qualified annuity plan under Section
403(a) of the Code, or Section 403(b) Annuity or custodial account, excluding
certain amounts (such as minimum distributions required under section
401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for the life (or life expectancy)
of the employee, or for the joint lives (or joint life expectancies) of the
employee and the employee's designated beneficiary (within the meaning of the
tax law), or for a specified period of 10 years or more).
Under these new requirements, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the contract,
discussed below, the taxpayer cannot elect out of withholding with respect to
an eligible rollover distribution. However, this 20% withholding will not
apply to that portion of the eligible rollover distribution which, instead of
receiving, the taxpayer elects to have directly transferred to certain
eligible retirement plans (such as to this contract when issued as an IRA).
If this contract is issued in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Annuity Contract, then, prior to receiving an eligible rollover
distribution, the owner will receive a notice (from the plan administrator or
Golden American) explaining generally the direct rollover and mandatory
withholding requirements and how to avoid the 20% withholding by electing a
direct transfer.
FEDERAL INCOME TAX WITHHOLDING
Golden American will withhold and remit to the federal government a part of the
taxable portion of each distribution made under the Contract unless the
distributee notifies Golden American at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Golden American may be required to withhold tax, as explained
above. The withholding rates applicable to the taxable portion of periodic
annuity payments (other than eligible rollover distributions) are the same as
the withholding rates generally applicable to payments of wages. In addition,
the withholding rate applicable to the taxable portion of non-periodic payments
(including surrenders prior to the annuity commencement date) is 10%. Regardless
of whether you elect to have federal income tax withheld, you are still liable
for payment of federal income tax on the taxable portion of the payment. As
discussed above, the withholding rate applicable to eligible rollover
distributions is 20%.
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52
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PART II
THE MANAGED GLOBAL
ACCOUNT OF ACCOUNT D
INTRODUCTION PART II GIVES FURTHER BACKGROUND INFORMATION ON ACCOUNT D AND
THE GLOBAL ACCOUNT, INCLUDING ITS INVESTMENT POLICIES AND ACTIVITIES.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
THE GLOBAL ACCOUNT
The Global Account is a non-diversified investment company which invests
directly in securities. There can be no assurance that the Global Account will
meet its investment objective. Account D may also offer other divisions which
are not available through the purchase of the Contract offered by this
prospectus. DSI serves as the Manager of Account D and Warburg, Pincus serves as
the Portfolio Manager of the Global Account.
INVESTMENT OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT
The Global Account's investment objective is to seek high total investment
return consistent with a prudent regard for capital preservation. In seeking
this objective, the Global Account employs an asset allocation strategy
involving shifts among a wide range of investments and market sectors throughout
the world. The Global Account may invest in the following classes of securities:
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities, and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures, asset-backed
securities, and notes; and money market instruments of domestic and foreign
issuers. The Global Account may also use various investment strategies and
techniques in pursuing its investment objective including entering into forward
currency Contracts; purchasing and writing put and call options on securities,
securities indexes, and currencies; purchasing and selling futures Contracts
including interest rate futures Contracts, stock index futures Contracts,
futures Contracts based upon securities, which may be domestic or foreign and
corporate or governmental, foreign exchange futures Contracts, and other
financial futures Contracts; purchasing and writing put and call options on
financial futures Contracts; engaging in short sales of securities; and entering
into repurchase agreements and reverse repurchase agreements.
The total investment return that the Global Account seeks may consist (i) of
capital appreciation from several possible sources, including appreciation in
the value of securities held by the Global Account, the sale of securities whose
market value has changed, the use of futures and options, and the use of forward
currency Contracts; (ii) of interest from underlying securities; and (iii) of
income received from the writing of options. Changes in the value of securities
denominated in foreign currencies may be attributable in whole or in part to
changes in the value of the underlying currency relative to the U.S. dollar.
In pursuing the Global Account's investment objective, the Portfolio Manager
will use an opportunistic approach to allocating the Global Account's assets
through varying economic and financial conditions. The Portfolio Manager
believes that a successful investment approach in the current global environment
must be based upon careful analysis of the global economic and geopolitical
environment with a view to capitalizing upon sector and market opportunities and
to quickly adapting to changing circumstances. Thus, the Portfolio Manager will
allocate the Global Account's assets among securities and currencies based upon
the Portfolio Manager's assessment of the most favorable markets, currencies,
and issuers. In this regard, the percentage of the Global Account's assets
invested in a particular country or denominated in a particular currency will
vary in accordance with the Portfolio Manager's assessment of the appreciation
potential of such assets and the relationship of the country's currency to the
U.S. dollar.
The Portfolio Manager may allocate the Global Account's assets among the various
types of securities and other assets and among issuers located in various
countries and regions as the Portfolio Manager deems appropriate, except that
the Global Account's assets normally will be invested in securities of issuers
domiciled or primarily traded in at least three different countries, which may
include the United States. (Certain additional foreign diversification
requirements apply as described below.) The Portfolio Manager is free to
allocate the Global Account's assets such that, at any time, the Global Account
may be primarily invested in equity securities or, alternatively, the Global
Account may have little or no assets in equity securities. Similarly, at any
time, the Global Account may be primarily invested in securities of issuers
domiciled or primarily traded in one region, such as the United States, Europe,
or the Pacific Basin, or the Global Account may have little or no assets
committed to that region.
In considering equity securities, the Portfolio Manager will emphasize large,
well-capitalized companies with strong balance sheets. The Portfolio Manager may
also consider other factors in selecting equity securities, including
price-earnings ratios, cash flows, and the relationship of an issuer's book
value to its market value.
In selecting debt instruments for the Global Account, the Portfolio Manager
emphasizes credit quality. The Global Account will invest only in the following:
(1) fixed-income instruments issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities ("U.S. Government Securities"); (2) obligations
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supranational
entities ("foreign government securities"), which, at the time of investment,
are rated A or better by Standard & Poor's Corporation ("S&P") or A or better by
Moody's Investors Services, Inc. ("Moody's") or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; and (3) debt
securities of domestic or foreign issuers which, at the time of investment, are
rated A or better by S&P or A or better by Moody's or, if not rated by S&P or
Moody's, determined by the Portfolio Manager to be of equivalent quality. In the
event that a debt security held by the Global Account is downgraded to a rating
that would render the security ineligible for purchase by the Global Account,
the Global Account may nonetheless retain the security.
Debt securities purchased by the Global Account may be of any maturity. It is
anticipated that the weighted average maturity of the debt securities in the
portfolio (excluding money market instruments) generally will be between 5 and
15 years, but may be shorter or longer at the discretion of the Portfolio
Manager.
The Global Account invests only in high-quality money market instruments. These
include the following: (1) short-term U.S. Government securities; (2) short-term
foreign government securities which, at the time of investment, are rated AA or
better by S&P or Aa or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; (3)
certificates of deposit, time deposits, bankers' acceptances, and short-term
obligations of banks and other depository institutions, both U.S. and foreign,
that have total assets of at least $10 billion (U.S.) and are determined by the
Portfolio Manager to be of high quality; and (4) commercial paper and other
short-term corporate obligations which, at the time of investment, are rated A-2
or better by S&P or P-2 or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality.
The Global Account may employ various investment strategies involving
currencies, including entering into forward currency Contracts, foreign exchange
futures Contracts, and options on currencies. (See "Securities and Investment
Techniques," below.) These strategies may be employed for purposes of exposing
the Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another. These strategies may
also be employed as hedging techniques to help pro-
tect against declines in the U.S. dollar (or other currency) value of the Global
Account's assets that might result from adverse changes in currency exchange
rates. The Global Account may engage in forward currency transactions in
anticipation of or to protect itself against fluctuations in currency exchange
rates. The Global Account may purchase put and call options on foreign
currencies as a hedge against changes in the value of the U.S. dollar (or
another currency) in relation to a foreign currency in which securities of the
Global Account may be denominated. Hedging against a change in the value of a
foreign currency in the foregoing manner does not eliminate fluctuations in the
prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions may reduce or
preclude the opportunity for gain if the value of the hedged currency should
change relative to the U.S. dollar.
NON-DIVERSIFIED
The Global Account is classified as a "non-diversified" investment company under
the 1940 Act, as amended, which means that the Global Account is not limited by
the 1940 Act in the amount of its assets that it may invest in the securities of
a single issuer. However, the Global Account will meet the diversification
requirements of Code Section817 (h) and the Treasury Department Regulations
issued thereunder. Under applicable state law requirements, the Global Account
may not acquire the securities of any issuer if, as a result of such investment,
more than 10% of the Global Account's total assets would be invested in the
securities of any one issuer, except that this restriction shall not apply to
U.S. Government securities or foreign government securities, and the Global
Account will not invest in a security if, as a result of such investment, it
would hold more than 10% of the outstanding voting securities of any one issuer.
Nonetheless, because the Global Account, as a non-diversified investment company
under the 1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Global Account may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified company. This risk may include greater exposure to the risk of
poor earnings or default of one issuer than would be the case for a more
diversified fund.
The Global Account is also subject to the following guidelines for
diversification of foreign security investments. If the Global Account has less
then 20% of its assets in foreign issuers, then all of such investment may be in
issuers domiciled or primarily traded in one country. If the Global Account has
at least 20% but less than 40% of its assets in foreign issuers, then
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such investment must be allocated to issuers domiciled or primarily traded in at
least two different countries. Similarly, if the Global Account has at least 40%
but less than 60% of its assets in foreign issuers, such investment must be
allocated in at least three different countries. Foreign investments must be
allocated to at least four different countries if at least 60% of the Global
Account's assets is in foreign issuers, and to at least five different countries
if at least 80% of its assets is in foreign issuers.
The Global Account may have no more than 20% of its net assets invested in
securities of issuers domiciled or primarily traded in any one country, except
that the Global Account may have an additional 15% of its net assets invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Germany, Japan and The United Kingdom. The
Global Account's investments in U.S. issuers are not subject to these foreign
country diversification guidelines.
RISK FACTORS
The Global Account's investment policies and certain of the investment
techniques in which the Global Account may engage involve certain risks. For
instance, the Global Account will invest in non-U.S. dollar-denominated
securities of foreign issuers. Investing in such securities involves different
risk considerations than investing in securities of U.S. issuers, including the
risks of investment in foreign countries, foreign exchange rate fluctuations,
exchange controls, and others. The Global Account may also engage in
transactions in financial futures Contracts, both domestic and foreign, and in
various put and call options. The Global Account may also engage in foreign
currency transactions and options on foreign currencies. Risks associated with
these techniques are described more fully under "Securities and Investment
Techniques."
In general, because investment in foreign issuers will usually involve
currencies of foreign countries, and because the Global Account may be exposed
to currency risk independent of its securities positions, the value of the
assets of the Global Account as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. To the extent that the Global
Account's assets consist of investments denominated in a particular currency,
the Global Account's exposure to adverse developments affecting the value of
that currency will increase. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates, and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks in the availability
of money or interest rates, by the failure to intervene, by currency controls,
or by political and economic developments in the U.S. or abroad. The market in
forward foreign currency exchange Contracts and other privately negotiated
currency instruments offers less protection against defaults by the other party
to such instruments than is available for currency instruments traded on an
exchange. To the extent that a substantial portion of the Global Account's total
assets, adjusted to reflect the Global Account's net position after giving
effect to currency transactions, is denominated in the currencies of foreign
countries, the Global Account will be more susceptible to the risk of adverse
economic and political developments within those countries.
In addition, because of the Global Account's flexible investment policy,
portfolio turnover may be greater than for a portfolio that does not allocate
assets among various types of securities and among various countries and
regions. A higher rate of portfolio turnover involves correspondingly greater
brokerage expenses which must be borne by the Global Account (and indirectly by
investors allocating Accumulation Value to the Global Account), and may under
certain circumstances make it more difficult for the Global Account to qualify
as a regulated investment company under the Code.
There can be no assurance that the Global Account will achieve its investment
objective. Investors should be aware that the value of the Global Account's
assets will fluctuate and a Contract Owner's Accumulation Value will increase
and decrease in value as the market value of the securities and other assets in
which the Global Account invests fluctuates.
The Global Account is intended for long-term investors who can accept the risks
involved in investments in foreign securities. The Global Account does not
purport to offer a complete investment program to which a prudent investor would
commit all of his or her investment capital, nor is it intended for investors
whose principal objective is income.
BOARD OF GOVERNORS OF ACCOUNT D
The business and affairs of Account D are managed under the direction of a Board
of Governors, which
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currently consists of four members. The Board of Governors has responsibility
for the investment management-related operations of Account D and matters
arising under the 1940 Act. The Board of Governors does not have responsibility
for the payment of obligations under the Contract and administration of the
Contract. These matters are Golden American's responsibility. The business and
affairs of Account D are governed under a set of rules adopted by the Board of
Governors called "Rules and Regulations of Separate Account D."
THE MANAGER
DSI serves as Manager to Account D pursuant to a Management Agreement with
Account D. The Manager is a corporation organized under the laws of the State of
New York. Its address is 280 Park Avenue, New York, New York 10017. DSI is a
wholly owned subsidiary of BT Variable, Inc., which is an indirect subsidiary of
Bankers Trust Company. DSI's business activities include those of a distributor
and underwriter of variable insurance products, broker-dealer and investment
manager. DSI is registered with the SEC as a broker-dealer and investment
adviser and is a member of the NASD. It is also registered as a broker-dealer
and/or investment adviser in various states.
U.S. banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System (the
"Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, which may for these purposes include the Global Account, continuously
engaged in the issuance of its securities and, except as otherwise provided by
order of the Board, prohibit banks generally from issuing, underwriting,
selling, or distributing securities. The same laws and regulations generally
permit a bank or bank affiliate to act as investment adviser, transfer, dividend
disbursing, and shareholder servicing agent and custodian to an investment
company and to purchase such shares as agent for and upon the order of a
customer.
Golden American and DSI perform the activities described above in this
prospectus and in Part I, under the caption "Selling the Contracts." As
discussed in Part I, under the caption "Golden American," while Bankers Trust
has no immediate intent to divest its ownership of the stock of Golden American
and DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Golden American
from performing activities with respect to Account D, prevent DSI from
performing the activities described in this prospectus, or prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI. If any such
event were to occur, changes in the operation of Account D and the Global
Account might occur. It is not expected, however, that Account D or the Global
Account would suffer adverse financial consequences as a result of such
occurrence.
As discussed in Part I, DSI also currently provides management and
administrative services to the Trust. DSI's officers have extensive experience
in the development and distribution of investment products, specifically,
variable life insurance policies, variable annuity Contracts, and management
investment companies that serve as investment media for such policies and
Contracts.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Governors, for administering all operations of the
Global Account and for monitoring and evaluating the management of the assets of
the Global Account by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the Global Account. The Management Agreement may be terminated
without penalty by the vote of the Board of Governors or the Contract Owners of
the Global Account, or by the Manager, on 60 days' written notice by the Board
or the Manager and will terminate automatically if assigned as that term is
described in the 1940 Act.
As Manager, DSI provides the overall business management and administrative
services necessary for the Global Account's operation. The Manager furnishes or
procures on behalf of the Global Account the services and information necessary
to the proper conduct of the Global Account's business. The Manager also acts as
liaison among the various service providers to the Global Account, including the
custodian, portfolio accounting personnel, Portfolio Manager, counsel, and
auditors. The Manager is also responsible for ensuring that the Global Account
operates in compliance with applicable legal requirements and for monitoring the
Portfolio Manager for compliance with requirements under applicable law and with
the investment policies and restrictions of the Global Account.
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Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of the Global Account's assets and the purchase and sale of securities for the
Global Account in the event that at any time a portfolio manager is not engaged
to manage the assets of the Global Account. In such event, the Management
Agreement provides that the Manager will be entitled to, in addition to its
usual compensation for services as Manager, as described below, a fee that would
otherwise be paid to the Portfolio Manager. For more information on the
Management Agreement, see the Statement of Additional Information.
For operating expenses under the Management Agreement see Part I, Charges and
Fees, Operating Expenses of Account D.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
October 1, 1993 through December 31, 1994 so that such expenses do not exceed on
an annual basis: 1.25% of the first $500 million of average daily net assets and
1.05% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
THE PORTFOLIO MANAGER
Warburg, Pincus serves as the Portfolio Manager of the Global Account and in
that capacity provides investment advisory services for the Global Account,
including asset allocation and security selection. The Portfolio Manager's
address is 466 Lexington Avenue, New York, New York 10017. The Global Account,
the Manager, and the Portfolio Manager have entered into a Portfolio Management
Agreement under which the Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of the Global Account's
assets and the purchase and sale of securities and other investments. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the Contract Owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Warburg, Pincus was incorporated in Delaware on December 15, 1970. Warburg,
Pincus is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. The Portfolio Manager is
registered with the SEC as an investment adviser.
The individual primarily in charge of portfolio management decisions for the
Global Account is Richard H. King. Mr. King has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("EMW") since 1989, before which time he was senior
vice president of Fiduciary Trust Company International. Harold E. Sharon and
Nicholas P.W. Horsley, both of whom are research analysts and associate
portfolio managers of another investment company advised by Warburg, Pincus,
also exercise significant portfolio management responsibility with respect to
the Global Account. Mr. Sharon has been with EMW since 1990, before which time
he was an investment officer with Credit Suisse Asset Management. Mr. Horsley
has been with EMW since 1993, before which time he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City.
As of January 31, 1994, Warburg, Pincus managed approximately $7.0 billion of
assets and served as investment adviser to thirteen investment companies which
had total assets of approximately $2.0 billion. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership. EMW controls Warburg, Pincus through its ownership of a class of
voting preferred stock of Warburg, Pincus. Warburg, Pincus Counsellors G.P. has
no business other than being a holding company of Warburg, Pincus and its
subsidiaries.
From the commencement of operations of the Global Account through June 30, 1994,
Zulauf Asset Management AG served as portfolio manager for the Global Account.
Warburg, Pincus assumed management of the Global Account on July 1, 1994.
For operating expenses under the Portfolio Management Agreement see Part I,
Charges and Fees, Operating Expenses of Account D.
CUSTODIAN
The Custodian for the Global Account is Bankers Trust Company. DSI provides
portfolio accounting services for the Global Account.
SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes different types of securities and investment
techniques that may be
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used by the Global Account, as well as the risks associated with such securities
and techniques. For more detailed information on these securities and investment
techniques, and for information on other securities and investment techniques
that may be used by the Global Account, including U.S. Government securities,
debt securities, foreign securities, repurchase agreements, short sales, futures
Contracts, options on securities and foreign currency transactions, see the
discussion in the Statement of Additional Information on "Securities and
Investment Techniques."
FOREIGN SECURITIES
The Global Account may invest in equity and debt securities of foreign
issuers, in American Depository Receipts ("ADRs"), in foreign government
securities that are denominated in either U.S. dollars or foreign currencies,
and in foreign branches of commercial banks and foreign banks.
Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of
the United States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls, restrictions on investment or the flow of capital, or other foreign
governmental laws or restrictions. Since the Global Account may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments as denominated in U.S. dollars. While the Global Account may
employ certain investment techniques to hedge its foreign currency exposure,
such techniques also entail certain risks. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. The Global Account might have greater difficulty taking appropriate
legal action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions. Clearance and settlement
procedures in certain foreign countries have not developed at the same pace as
the related securities markets, making it difficult to execute desired
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Global Account are uninvested and no return is
earned thereon. The inability of the Global Account to make intended
investments due to settlement problems could cause it to miss attractive
investment opportunities. Inability to dispose of securities or other
investments due to settlement problems could result either in losses to the
Global Account due to subsequent declines in value of the investment, or
possible liability to a purchaser. Foreign investments also involve the risk
of possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
Interest income and gains from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located.
SHORT SALES
The Global Account may make short sales of securities. A short sale is a
transaction in which the Global Account sells a security it does not own in
anticipation of a decline in market price. The Global Account may make short
sales to offset a potential decline in a long position or a group of long
positions, or if the Portfolio Manager believes that a decline in the price of
a particular security or group of securities is likely.
The Global Account's obligation to replace a security borrowed in connection
with the short sale will
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be secured by collateral deposited with the broker, consisting of cash or U.S.
Government securities or other securities acceptable to the broker. In
addition, with respect to any short sale, other than short sales against the
box, the Global Account will be required to deposit collateral consisting of
cash, cash items, or U.S. Government securities in a segregated account with
its custodian in an amount such that the value of the sum of both collateral
deposits (not including the proceeds from the short sale) is at all times
equal to at least 100% of the current market value of the securities sold
short. The deposits do not necessarily limit the Global Account's potential
loss on a short sale, which may exceed the entire amount of the collateral.
If the price of the security sold short increases between the time of the
short sale and the time the Global Account replaces the borrowed security, the
Global Account will incur a loss, and if the price declines during this
period, the Global Account will realize a capital gain. Any realized gain will
be decreased, and any incurred loss increased, by the amount of transactional
costs and any premium, dividend, or interest which the Global Account may have
to pay in connection with such short sale. Account D may have to pay a premium
to borrow the securities sold short and must pay any dividends or interest
payable on the securities until they are replaced. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from
purchases of a security can equal only the total amount invested.
The Global Account may make a short sale only if, at the time the short sale
is made and after giving effect thereto, the market value of all securities
sold short is 25% or less of the value of its net assets. The Global Account
is not required to liquidate an existing short sale position solely because a
change in market values has caused this percentage limitation to be exceeded.
FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures Contracts,
interest rate futures Contracts, and futures Contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures Contracts and other financial futures Contracts, and may
purchase and write options on such Contracts.
The Global Account may engage in such futures transactions as an adjunct to
its securities activities. The Global Account's transactions in futures
transactions must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"), under which a fund engaging in futures transactions would
not be deemed a "commodity pool." Under these regulations, the Global Account
may enter into futures and options (1) for "bona fide hedging" purposes,
without regard to the percentage of assets committed to initial margin and
options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking
into account unrealized profits and unrealized gains on any such Contracts
entered into. Transactions in futures Contracts and options on futures
Contracts may also be limited by the requirements of the Code for
qualification as a regulated investment company. Other requirements are
described in the Statement of Additional Information.
There are several risks associated with the use of futures and futures
options. While the Global Account's hedging transactions may protect the
Global Account against adverse movements in the general level of interest
rates, securities prices, currency exchange rates, or other economic
conditions, such transactions could also preclude the Global Account from the
opportunity to benefit from favorable movements in the level of interest
rates, securities prices, currency exchange rates, or other economic
conditions. There can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio securities or
currency being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Global Account and the hedging vehicle so that
the Global Account's return might have been better if hedging had not been
attempted. The loss that could be incurred by the Global Account in writing
options on futures is potentially unlimited.
There can be no assurance that a liquid market will exist at a time when the
Global Account seeks to close out a futures Contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures Contract prices during a single day; once the
daily limit has been reached on a particular Contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist.
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The daily limit governs only price movements during a particular trading day
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures Contracts to substantial
losses. Lack of a liquid market for any reason may prevent the Global Account
from liquidating an unfavorable position and the Global Account would remain
obligated to meet margin requirements and continue to incur losses until the
position is closed.
The Global Account will only enter into futures Contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system, or in
the case of futures options, for which an established over-the-counter market
exists.
The Global Account may engage in futures Contracts and options on futures
Contracts not only on U.S. domestic markets, but also on exchanges and other
markets outside of the United States. Foreign markets may offer advantages
such as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity markets is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the Contract. Trading in
foreign futures or foreign options Contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Global Account could incur losses or lose
any profits that had been realized in trading by adverse changes in the
exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Global Account may purchase and write put and call options on securities
and on securities indices. The Global Account will purchase and write only
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Global Account
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
The Global Account may write a call or put option only if the option is
"covered" by the Global Account holding a position in the underlying
securities or by other means that would permit immediate satisfaction of the
Global Account's obligation as writer of the option, typically deposit with
the Global Account's custodian of cash, U.S. Government securities, or other
high grade liquid debt securities with a value at least equal to the exercise
price of the put option, or the price at which a security underlying a call
option can be acquired.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Global Account is not sold
when it has remaining value, and if the market price of the
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underlying security, in the case of a put, remains equal to or greater than
the exercise price or, in the case of a call, remains less than or equal to
the exercise price, the Global Account will lose its entire investment in the
option. Also, where a put or call option on a particular security is purchased
to hedge against price movements in a related security, the price of the put
or call option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out an option position. Furthermore, if trading
restrictions or a suspension is imposed on the options markets, the Global
Account may be unable to close out a position. If the Global Account cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though
it might otherwise be advantageous to do so. The Global Account pays brokerage
commissions or spreads in connection with its options transactions. The
writing of options could significantly increase portfolio turnover rate.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency Contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward
currency Contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward Contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting Contract. The
Global Account may engage in forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates, and
entering into a forward currency Contract will expose the Global Account to
the risk of adverse changes in the exchange rate of the currency that is
subject to the Contract. The Global Account may also enter into a forward
currency Contract for non-hedging purposes. Forward currency Contracts are
further described in the Statement of Additional Information.
If the Global Account engages in an offsetting transaction to terminate its
contractual obligation under a forward currency Contract, the Global Account
will incur a gain or a loss to the extent that there has been movement in
forward Contract prices. For more information on closing a forward currency
position, including information on associated risks, see the Statement of
Additional Information.
In hedging transactions, the precise matching of forward currency Contracts
and the value of the securities involved will not generally be possible since
the future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward Contract is entered into and the date it matures. Projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
While forward foreign currency Contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Forward Contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks
to enter into or close out a forward currency position, in which case the
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering a forward
foreign currency Contract incurs the risk of default by the counter party to
the transaction. Forward currency Contracts offer less protection against
defaults than is available when trading in currencies on an exchange. Because
a forward currency Contract is not guaranteed by an exchange or clearinghouse,
a default on the Contract would deprive the Global Account of unrealized
profits or force the Global Account to cover its commitments for purchase or
resale, if any, at the current market price.
Although the Global Account values its assets daily in terms of U.S. dollars,
it does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Global Account may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Account at one rate, while offering a
lesser rate of exchange should the Global Account desire to resell that
currency to the dealer.
The Global Account will place cash or high grade liquid debt securities into a
segregated account in an amount equal to the value of the Global Account's
total assets committed to the consummation of forward currency Contracts
requiring the Global
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<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
Account to purchase foreign currencies or forward Contracts entered into for
non-hedging purposes. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
on a daily basis so that the value of the account will equal the amount of the
Global Account's commitments with respect to such Contracts. The segregated
account will be marked-to-market on a daily basis. Although the Contracts are
not presently regulated by the CFTC, the CFTC may in the future assert
authority to regulate these Contracts. In such event, the Global Account's
ability to utilize forward currency Contracts may be restricted.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may purchase and write call and put options on foreign
currencies. Such options will expose the Global Account to the risk of adverse
changes in the exchange rate of the currency that is subject to the option.
The Global Account may employ options on foreign currencies to increase or
shift exposure to a currency and as a hedge against changes in the value of
the U.S. dollar (or another currency) in relation to a foreign currency in
which portfolio securities of the Global Account may be denominated. Hedging
against a change in the value of a foreign currency with an option on the
foreign currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Global Account may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits that may limit the ability of the Global Account to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party Contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. There is no assurance that a liquid
secondary market will exist for any particular option, or at any particular
time. In the event no liquid secondary market exists, it might not be possible
to effect closing transactions in particular currency options. If the Global
Account cannot close out an option that it holds, it would have to exercise
its option in order to realize any profit and would incur transactional costs
on the sale of the underlying assets.
BORROWING
The Global Account may borrow up to 10% of the value of its net assets. For
temporary purposes, such as to facilitate redemptions, the Global Account may
increase its borrowings up to 25% of its net assets. Reverse repurchase
agreements, short sales of securities, and sales of securities against the box
will be included as borrowing subject to the borrowing limitations described
above, except that the Global Account is permitted to engage in short sales of
securities with respect to an additional 15% of the Global Account's net
assets in excess of the limits otherwise applicable to borrowing. Securities
purchased on a when-issued or delayed delivery basis will not be subject to
the Global Account's borrowing limitations to the extent that the Global
Account establishes and maintains liquid assets in a segregated account with
the Global Account's custodian equal to the Global Account's obligations under
the when-issued or delayed delivery arrangement.
INVESTMENT RESTRICTIONS
The Global Account is subject to investment restrictions that are described in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective are "fundamental policies" of the Global
Account, which means that they may not be changed without a majority vote of the
Contract Owners with Accumulation Value allocated to the Global Account. Except
for those restrictions specifically identified as fundamental and the Global
Account's investment objective, all other investment policies and practices
described in this prospectus and Statement of Additional Information are not
fundamental, meaning that the Board of Governors may change them without
Contract Owner approval.
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreement, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Global Account
with brokers or dealers selected by the Portfolio Manager in its discretion. In
executing transactions, the Portfolio Manager will attempt to obtain the best
execution. In transactions on stock exchanges in the United States, payment of
brokerage commissions are negotiated. In effecting purchases and sales of
portfolio securities in transactions on U.S. stock exchanges, the Global Account
may pay higher commission rates
63
<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
than the lowest available when the Portfolio Manager believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction. In the case of securities traded on
some foreign stock exchanges, brokerage commissions may be fixed and the
Portfolio Manager may be unable to negotiate commission rates for these
transactions. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup.
Some securities considered for investment by the Global Account may also be
appropriate for other clients served by the Portfolio Manager and/or its
affiliates. If a purchase or sale of securities consistent with the investment
policies of the Global Account and one or more of these clients served by the
Portfolio Manager and/or its affiliates is considered at or about the same time,
transactions in such securities will be allocated among the Global Account and
clients in a manner deemed fair and reasonable by the Portfolio Manager and/or
its affiliates. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Portfolio Manager, and
the results of such allocations, are subject to periodic review by the Manager
and Account D's Board of Governors.
The Portfolio Manager may place orders for the purchase of portfolio securities
with an affiliated broker-dealer where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and an affiliate of the Portfolio Manager.
PORTFOLIO TURNOVER
It is anticipated that the Global Account's annual rate of portfolio turnover
normally will not exceed 100%. Portfolio turnover for the Global Account will
vary from year to year, and depending on market conditions, the portfolio
turnover rate could be greater in periods of unusual market movement. A higher
turnover rate would result in heavier brokerage commissions or other
transactional expenses which must be borne, directly or indirectly, by the
Global Account and ultimately by the Global Account's Contract Owners. For
information on the calculation of the portfolio turnover rate, see the
Statement of Additional Information.
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Fixed maturities available for sale, at market value...... $ 28,311
Short-term investments.................................... 20,423
Equity securities, at market value........................ 18
Policy loans.............................................. 1,208
Cash...................................................... 272
Accrued investment income................................. 539
Deferred policy acquisition costs......................... 64,015
Other assets.............................................. 12,177
Separate account assets................................... 978,356
-----------
Total assets.............................................. $ 1,105,319
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves............................ $ 29,023
Accrued expenses and other liabilities.................... 7,387
Separate account liabilities.............................. 978,356
-----------
Total liabilities......................................... 1,014,766
-----------
STOCKHOLDER'S EQUITY
Common stock.............................................. 2,500
Preferred stock........................................... 50,000
Additional paid-in capital................................ 38,341
Unrealized appreciation of equity securities.............. 1
Unrealized appreciation of fixed maturities
available for sale....................................... 446
Retained earnings......................................... (735)
-----------
Total stockholder's equity................................ 90,553
-----------
Total liabilities and stockholder's equity.................. $ 1,105,319
-----------
-----------
</TABLE>
SEE NOTE TO UNAUDITED FINANCIAL STATEMENTS.
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
REVENUES
Variable Life and annuity product fees and policy charges................ $ 9,084 $ 7,947
Net investment income.................................................... 1,121 211
Realized (gains/losses) on investments................................... (12) 2
------- -------
10,193 8,160
EXPENSES
Operating and administrative............................................. 7,724 4,790
Amortization of deferred policy acquisition costs........................ 1,358 2,433
------- -------
9,082 7,223
------- -------
Net Income................................................................. $ 1,111 $ 937
------- -------
------- -------
</TABLE>
SEE NOTE TO UNAUDITED FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Net cash provided by operating activities.................................. $ 29,072 $ (12,683)
Investing activities:
Purchases of fixed maturities available for sale......................... (32,032) (823)
Sales and redemptions of fixed maturities available for sale............. 7,155 319
Purchase (Sales) of short-term investments, net.......................... (6,490) 10,673
-------- --------
Net cash used in investing activities.................................... (31,352) 10,169
Financing Activities:
Dividends paid on preferred stock........................................ (764) --
-------- --------
Net cash used in financing activities.................................... (764) --
-------- --------
Decrease in cash........................................................... (3,044) (2,514)
Cash at beginning of year.................................................. 3,316 4,076
-------- --------
Cash at end of year........................................................ $ 272 $ 1,562
-------- --------
-------- --------
</TABLE>
SEE NOTE TO UNAUDITED FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTE TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. 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 (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For further
information, refer to the financial statements and footnotes thereto included in
the Golden American Life Insurance Company annual report.
66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We 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 acounting 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.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware. The variances between such practices and generally
accepted accounting principles and the effects on the accompanying financial
statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results of
its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993, and
net income (loss) for the years ended December 31, 1994 and 1993, in conformity
with generally accepted accounting principles.
Also, in our opinion, the statutory-basis financial statements referred to
above present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance of
the State of Delaware for the years ended December 31, 1994 and 1993.
[LOGO]
February 14, 1995,
except for Note 11, as to which the date is
June 29, 1995
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1993
----------------- ----------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds...................................................................... $ 2,673,223 $ 2,127,036
Short-term investments..................................................... 13,933,550 15,231,954
Common stock............................................................... 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement....................... 2,757,467 1,375,000
Cash......................................................................... 3,315,768 4,075,718
Policy loans................................................................. 513,350 144,529
----------------- ----------------
23,208,967 23,276,079
Investment income due and accrued............................................ 92,423 68,002
Due from reinsurers.......................................................... 14,506,893 162,041
Due from parent and affiliates............................................... -- 466,129
Separate account assets...................................................... 950,291,746 810,150,858
Other assets................................................................. 80,119 --
----------------- ----------------
Total admitted assets.................................................... $ 988,180,148 $ 834,123,109
----------------- ----------------
----------------- ----------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves............................................. $ 6,036,021 $ 2,389,726
Due to reinsurers.......................................................... 13,860,267 87,977
----------------- ----------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers............................... (49,758,887) (39,158,451)
Due to parent and affiliates............................................... 232,587 --
Accrued expenses and other liabilities..................................... 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due 1997................ 438,636 438,636
Borrowed money............................................................. -- 40,040,278
Asset valuation reserve and interest maintenance reserve................... 41,598 131,060
----------------- ----------------
(28,404,209) 2,672,142
Separate account liabilities................................................. 950,291,746 810,150,858
----------------- ----------------
Total liabilities............................................................ 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares........................ 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994....................................................... 50,000,000 --
Paid-in surplus............................................................ 42,699,479 33,949,479
Unassigned surplus (deficit)............................................... (28,906,868) (17,627,073)
----------------- ----------------
Total capital and surplus.................................................... 66,292,611 18,822,406
----------------- ----------------
Total liabilities and capital and surplus.................................... $ 988,180,148 $ 834,123,109
----------------- ----------------
----------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1994 1993
----------------- ----------------
<S> <C> <C>
Premiums and annuity considerations....................................... $ 294,549,961 $ 505,465,379
Reserve adjustments on reinsurance ceded.................................. 12,705,353 --
----------------- ----------------
307,255,314 505,465,379
Investment income:
Gross investment income................................................. 578,107 245,507
Less investment expenses................................................ (2,310) (773,443)
----------------- ----------------
575,797 (527,936)
Amortization of interest maintenance reserve.............................. 3,323 14,720
Commissions and expense allowances on reinsurance ceded................... 1,140,402 --
Other income.............................................................. -- 8,446
----------------- ----------------
Total income.............................................................. 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits........................................................ 18,263,492 9,591,886
Surrender benefits...................................................... 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves................... 3,646,295 (59,390)
----------------- ----------------
107,924,727 36,342,041
Net transfers to separate accounts........................................ 178,965,551 434,471,301
Expenses:
Commissions............................................................. 17,569,333 34,259,911
General insurance expenses.............................................. 15,838,760 9,337,982
----------------- ----------------
33,408,093 43,597,893
----------------- ----------------
Total benefits and expenses............................................... 320,298,371 514,411,235
----------------- ----------------
Net loss from operations before federal income tax benefit
and net realized capital gains........................................... (11,323,535) (9,450,626)
Federal income tax benefit................................................ -- 16,083
Net realized capital gains................................................ 63,500 33,657
----------------- ----------------
Net loss.................................................................. $ (11,260,035) $ (9,400,886)
----------------- ----------------
----------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1993
---------------- --------------
<S> <C> <C>
Balance at beginning of year................................................ $ 18,822,406 $ 12,204,962
Net loss.................................................................... (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments........................ (62,320) 47,856
Change in asset valuation reserve........................................... 92,811 (29,526)
Change in non-admitted assets............................................... (50,251) --
Issuance of redeemable preferred stock...................................... 50,000,000 --
Issuance of common stock.................................................... -- 1,000,000
Contribution of capital by parent........................................... 8,750,000 15,000,000
---------------- --------------
Net increase in capital and surplus......................................... 47,470,205 6,617,444
---------------- --------------
Balance at end of year...................................................... $ 66,292,611 $ 18,822,406
---------------- --------------
---------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1993
------------------ ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net................................. $ 308,461,038 $ 505,337,943
Policy loans............................................................. (368,822) 202,132
Investment income, net of interest paid.................................. 465,559 (484,512)
Federal income tax benefit recovered..................................... -- 16,083
Benefits paid............................................................ (104,913,778) (36,551,412)
Commissions and other operating expenses................................. (33,764,277) (42,607,803)
Net transfers to separate accounts....................................... (189,565,987) (458,548,369)
Other.................................................................... 845,300 (274,409)
------------------ ----------------
Net cash used in operating activities.................................... (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds.............................. 321,110 552,100
Proceeds from sale of common stock....................................... 313,500 240,492
Cost of bonds acquired................................................... (857,274) (543,368)
Cost of common stock acquired............................................ (6,087) (260,576)
Investments held in escrow pursuant to an Exchange Agreement, (net)...... (1,300,000) (1,375,000)
------------------ ----------------
Net cash used in investing activities.................................... (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock................................................. -- 1,000,000
Issuance of redeemable preferred stock................................... 50,000,000 --
Contribution of capital by parent........................................ 8,750,000 15,000,000
Borrowed money........................................................... (40,438,636) 33,600,000
------------------ ----------------
Net cash provided by financing activities................................ 18,311,364 49,600,000
------------------ ----------------
Net (decrease) increase in cash and short-term investments............... (2,058,354) 15,303,301
Cash and short-term investments at beginning of year..................... 19,307,672 4,004,371
------------------ ----------------
Cash and short-term investments at end of year........................... $ 17,249,318 $ 19,307,672
------------------ ----------------
------------------ ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company
("Golden American") became a wholly-owned subsidiary of BT Variable, Inc.
("BTV"), an indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers
Trust"). Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
Effective December 30, 1993, Golden American was redomesticated from the State
of Minnesota to the State of Delaware.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at $11.6
million, subject to subsequent adjustment pursuant to the Exchange Agreement.
This allocation was based primarily on the estimated value of insurance
contracts in force and also included the acquisition of net tangible assets of
$.4 million. The transaction involved settlement of pre-existing claims of
Bankers Trust against Mutual Benefit. The ultimate value of these claims has not
yet been determined by the Superior Court of New Jersey and is contingently
supported by a $5 million note payable from Golden American and a $6 million
letter of credit from Bankers Trust. The Golden American note is secured by a
pledge of Golden American's right to receive certain deferred sales loads.
Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. During 1994 and
1993, Golden American deposited with an escrow agent $1,300,000 and $1,375,000,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV contributed
additional capital and paid-in surplus of $8,750,000 and $16,000,000,
respectively, to Golden American, including $1,000,000 in 1993 through the
issuance of an additional 100,000 shares of common stock. In 1994, Golden
American issued $50,000,000 of preferred stock that was purchased by BTV for
$50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and procedures
prescribed or permitted by the Department of Insurance of the State of Delaware
(the "Department") and the National Association of Insurance Commissioners
("NAIC"). These practices differ in certain respects from generally accepted
accounting principles ("GAAP"). The more significant accounting practices
followed and, where indicated, their variation from GAAP, are summarized as
follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the acquisition
of Golden American has been accounted for as a purchase by Bankers
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Trust and, accordingly, the acquired assets and the liabilities assumed were
reported at their estimated fair values at the date of acquisition. In addition,
for GAAP purposes Golden American recorded an asset for the cost assigned to
insurance contracts in force, which represents the value of the right to receive
future profits from the life insurance and annuity policies existing at the
acquisition date. Such value is the actuarially-determined present value of
projected future profits from the acquired contracts discounted at an interest
rate of 15%. Cost assigned to insurance contracts in force is being amortized
over the estimated life of the applicable insurance contracts in relation to
estimated future gross profits with interest at 8%.
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent principally
amortized cost for bonds (market value -- 1994: $2,658,448 and 1993: $2,198,654)
and market value for common stocks (cost -- 1994: $16,429 and 1993: $260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with a
prescribed formula and represents a provision for possible fluctuations in the
value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the net
accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined with
accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden American
provides for variable accumulation and benefits under the policies and contracts
by crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in 1994
and 1993, respectively. Under GAAP, revenues from variable life and annuity
products consist of policy charges for mortality and expense risk, the cost of
insurance and policy administration costs that have been assessed against policy
account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include provisions
for minimum death benefit guarantees.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Surrender values are not promised in excess of the legally computed
reserves. There was no insurance in-force at December 31, 1994 for which the
gross premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest division
ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy benefits that
are charged to expense include benefits incurred in the period in excess of the
policy account balances and interest credited to policy account balances
invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged
to operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium and
annuity considerations from the sale of variable life and annuity products in
either shares of specified mutual funds or directly in other investment
securities. The assets and liabilities of Golden American's separate accounts
are identified and segregated from other assets and liabilities of Golden
American. The portion of the separate account assets applicable to policies and
contracts cannot be charged with liabilities arising out of any other business
Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and unamortized
deferred sales loads and other charges payable to Golden American over a
specified period. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not included in the
accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for policy related expenses. Although this
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract processing
date over a period specified in the contract or policy. Sales loads are included
in operations when assessed by Golden American. Under GAAP, these sales loads
are earned over the life of the contract in relation to estimated future gross
profits. Sales load amounts that have been deducted but not yet earned are
reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to the
extent that any reinsurers do not meet their obligations under the reinsurance
agreements. FASB Statement No. 113, "Accounting and Reporting for Reinsurance of
Short Duration and Long Duration Contracts" which was issued in December 1992,
was adopted by Golden American in 1993. However, its adoption did not have a
material impact on the financial statements of Golden American.
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences between
statutory and tax reserves, accrual of bond discount, and specified policy
acquisition expenses that, in accordance with the provisions of the Internal
Revenue Code ("IRC"), are not included in the determination of current taxable
income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994 and
1993, Golden American had net operating loss ("NOL") carryforwards for federal
income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to operations
prior to ownership by Mutual Benefit, can be used to offset future taxable
income of Golden American only through the year 2005, subject to annual
limitations. Approximately $.8 million, $4.1 million and $10.0 million are
available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be short-term
investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount promissory
note, and policy and contract liabilities and determined that carrying amounts
reported in the balance sheets approximate fair value.
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American operates.
Golden American is required to maintain a minimum total statutory-basis capital
and surplus of not less than $5,000,000 under the provisions of the insurance
laws of certain states in which it is presently licensed to sell variable life
and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/ health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained by
an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31, 1994
and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends are
cumulative and are calculated based on a rate not to exceed the sum of the Prime
Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the option of
Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of dividends
which can be paid by State of Delaware insurance companies to stockholders
without prior approval of the Insurance Commissioner is the higher of either (a)
prior year net income or (b) 10% of ending prior year surplus. Statutory surplus
at December 31, 1994, was $13,792,611. The net loss for 1994 was $(11,260,035).
The maximum dividend payout which may be made without prior approval in 1995 is
$1,379,261. No dividends were paid in 1994.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in the
accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------------- ---------------------------------
1994 1993 1994 1993
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
GAAP-basis................................ $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve...................... (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition......... (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs......... (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force.................................... (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges... 49,223,050 42,223,470 6,999,580 26,695,281
Reserves.................................. (4,985,212) -- (5,016,676) 563,905
Unearned revenue.......................... 1,759,000 164,936 1,594,064 (1,141,495)
Other..................................... (811,338) -- (729,622) --
---------------- --------------- ---------------- ---------------
Statutory-basis........................... $ 66,292,611 $ 18,822,406 $ (11,260,035) $ (9,400,886)
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments
generally are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million of
debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
COST OR UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds.............................. $ 2,673,223 $ 21,055 $ (35,830) $ 2,658,448
-------------- ------------ ------------ --------------
Total bonds........................................ $ 2,673,223 $ 21,055 $ (35,830) $ 2,658,448
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
At December 31, 1993:
U.S. Treasury.................................... $ 2,032,905 $ 68,669 $ (4,191) $ 2,097,383
Corporate securities............................. 94,131 7,140 -- 101,271
-------------- ------------ ------------ --------------
Total bonds........................................ $ 2,127,036 $ 75,809 $ (4,191) $ 2,198,654
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
</TABLE>
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------- --------------
<S> <C> <C>
Due in one year or less..................................................... $ 701,048 $ 688,136
Due after one year through five years....................................... 849,927 827,009
Due after five years through ten years...................................... 1,122,248 1,143,303
------------- --------------
$ 2,673,223 $ 2,658,448
------------- --------------
------------- --------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on those
sales, respectively.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
5. INVESTMENTS (CONTINUED)
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with regulatory
authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated as of
January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994, were
sold primarily through two broker/dealer institutions. For 1994 and 1993,
commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other general
and administrative costs, first on the basis of direct charges when
identifiable, and the remainder allocated based on the estimated amount of time
spent by Golden American's employees on behalf of DSI. In the opinion of
management, this method of cost allocation is reasonable. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486 and
$2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of January 1,
1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of certain
of its facilities. BTV charged Golden American for such expenses and all other
general and administrative costs, first on the basis of direct charges when
identifiable, and second allocated based on the estimated amount of time spent
by BTV's employees on behalf of Golden American. For the year ended December 31,
1993, BTV allocated to Golden American $1,503,159. The agreement was terminated
on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and $.7
million in 1994 and 1993, respectively. Effective September 30, 1992, Golden
American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality risks
under both life policies and annuity contracts with an unaffiliated reinsurer.
Also, effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. Golden
American remains liable to the extent that its reinsurers do not meet their
obligations under the reinsurance agreements. Reinsurance in-force for life
mortality risks were $23.3 million and $15.4 million at December 31, 1994 and
1993 and for annuity mortality risks were $149.6 million and $46.5 million at
December 31, 1994 and 1993, respectively. FASB Statement
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
7. REINSURANCE (CONTINUED)
No. 113, "Accounting and Reporting for Reinsurance of Short Duration and Long
Duration Contracts," was issued in December 1992 and adopted by Golden American
in 1993. However, its adoption did not have a material impact on the financial
statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and Golden
American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
------------ --------------
<C> <S> <C> <C>
1. Subject to discretionary withdrawal
1.1 -- with market value adjustment..................................... $ -- 0%
------------ ---
1.2 -- at book value less current surrender charge of 5% or more........ -- 0%
------------ ---
1.3 -- at market value.................................................. -- 0%
------------ ---
1.4 -- Total with adjustment or at market value......................... 893,814,295 100%
------------ ---
1.5 -- at book value without adjustment (minimal or no charge or
adjustment)...................................................... 520,244 0%
------------ ---
2. Not subject to discretionary withdrawal................................. -- 0%
------------ ---
3. Total (gross)........................................................... 894,334,539 100%
------------ ---
4. Reinsurance ceded....................................................... --
------------
5. Total (net)* (3) - (4).................................................. $894,334,539
------------
------------
</TABLE>
- ------------------------
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net)........................................ $ 520,244
-------------
7. Exhibit 8, Section C, Total (net)........................................ --
-------------
8. Exhibit 10, Column 1, Line 12............................................ --
-------------
9. Subtotal................................................................. 520,244
-------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10........................................... 893,814,295
-------------
11. Exhibit 6, Column 2, Line C.5............................................ --
-------------
12. Page 3, Line 3........................................................... --
-------------
13. Page 3, Line 3........................................................... --
-------------
14. Subtotal................................................................. 893,814,295
-------------
15. Combined total........................................................... $ 893,334,539
-------------
-------------
</TABLE>
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed under
this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
11. SUBSEQUENT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony"), BTV
and BTV's immediate parent, Whitewood Properties Corp. ("Whitewood"), entered
into an agreement providing for the acquisition by First Colony of a minority
interest in BTV. On June 29, 1995, BTV, Whitewood and First Colony agreed to
terminate the agreement between and among the parties.
79
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the "Company") as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. 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 Golden American Life
Insurance Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1993 and
for the period from September 30, 1992 to December 31, 1992, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as
of December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
[SIGNATURE]
February 14, 1995,
except for Note 10, as to which the date is
June 29, 1995
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1994 1993
-------------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost (market -- $2,659 and
$2,199)........................................................................... $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market......................... 13,933 15,232
Equity securities, at market (cost -- $17 and $260)................................ 16 322
Policy loans....................................................................... 513 144
-------------- -----------
Total investments................................................................ 17,211 17,922
Cash................................................................................. 3,316 4,076
Accrued investment income............................................................ 92 68
Due from affiliates and separate accounts............................................ 963 466
Deferred policy acquisition costs.................................................... 60,662 42,151
Unamortized cost assigned to insurance contracts in force............................ 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement............................... 2,757 1,375
Due from reinsurers.................................................................. 1,713 162
Other assets......................................................................... 134 --
Separate account assets.............................................................. 950,292 810,151
-------------- -----------
Total assets..................................................................... $ 1,044,760 $ 886,155
-------------- -----------
-------------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31 of unamortized deferred sales
load)............................................................................. $ 1,051 $ 2,421
Due to affiliates and separate accounts............................................ 660 3,462
Accrued expenses and other liabilities............................................. 1,053 920
Short-term debt.................................................................... -- 40,000
Unearned revenue................................................................... 1,759 165
Adjustable principal amount promissory note, 7.50%, due 1997....................... 439 439
Separate account liabilities (including $48,924 and $42,192 of unamortized deferred
sales load)....................................................................... 950,292 810,151
-------------- -----------
Total liabilities................................................................ 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized, issued, and outstanding 250,000
shares.............................................................................. 2,500 2,500
Redeemable preferred stock, par value $5,000 per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994............................................... 50,000 --
Additional paid-in capital........................................................... 37,086 28,336
Unrealized (depreciation) appreciation of equity securities.......................... (1) 62
Retained earnings (deficit).......................................................... (79) (2,301)
-------------- -----------
Total stockholder's equity......................................................... 89,506 28,597
-------------- -----------
Total liabilities and stockholder's equity....................................... $ 1,044,760 $ 886,155
-------------- -----------
-------------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 PERIOD
SEPTEMBER 30, 1992
---------------------- TO
1994 1993 DECEMBER 31, 1992
---------- ---------- ---------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy charges......... $ 17,519 $ 10,192 $ 694
Net investment income............................................. 560 216 67
Realized capital gain (loss)...................................... 65 35 (2)
---------- ---------- -------
Total revenues.................................................... 18,144 10,443 759
EXPENSES
Policy benefits................................................... 35 1,747 34
Commissions and overrides......................................... 16,741 34,260 6,429
Salaries, benefits and other employee-related costs............... 5,866 -- --
Financing charges and interest.................................... 1,962 726 53
Other general, administrative, and operating expenses............. 7,665 9,248 1,662
Deferral of policy acquisition costs.............................. (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition costs................. 4,608 2,027 10
Amortization of cost assigned to insurance contracts in force..... 2,164 1,357 138
---------- ---------- -------
Total expenses.................................................... 15,922 12,236 1,267
---------- ---------- -------
Net income (loss)................................................. $ 2,222 $ (1,793) $ (508)
---------- ---------- -------
---------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND THE YEARS ENDED DECEMBER 31,
1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
SHARES SHARES ADDITIONAL
COMMON PREFERRED COMMON PREFERRED PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of acquisition)............ 150,000 $ 1,500 $ 13,336
Net loss........................................................
Unrealized appreciation of equity securities....................
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1992................................... 150,000 1,500 13,336
Issuance of common stock........................................ 100,000 1,000
Contribution of capital......................................... 15,000
Net loss........................................................
Change in unrealized appreciation of equity securities..........
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1993................................... 250,000 2,500 -- 28,336
Issuance of preferred stock..................................... 10,000 50,000
Contribution of capital......................................... 8,750
Net income......................................................
Change in unrealized depreciation of equity securities..........
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1994................................... 250,000 10,000 $ 2,500 $ 50,000 $ 37,086
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
UNREALIZED RETAINED TOTAL
APPRECIATION OF EARNINGS STOCKHOLDER'S
EQUITY SECURITIES (DEFICIT) EQUITY
----------------- ----------- ---------------
<S> <C> <C> <C>
Balances at September 30, 1992 (date of acquisition)............ $ 14,836
Net loss........................................................ $ (508) (508)
Unrealized appreciation of equity securities.................... $ 14 14
--- ----------- ---------------
Balances at December 31, 1992................................... 14 (508) 14,342
Issuance of common stock........................................ 1,000
Contribution of capital......................................... 15,000
Net loss........................................................ (1,793) (1,793)
Change in unrealized appreciation of equity securities.......... 48 -- 48
--- ----------- ---------------
Balances at December 31, 1993................................... 62 (2,301) 28,597
Issuance of preferred stock..................................... 50,000
Contribution of capital......................................... 8,750
Net income...................................................... 2,222 2,222
Change in unrealized depreciation of equity securities.......... (63) (63)
--- ----------- ---------------
Balances at December 31, 1994................................... $ (1) $ (79) $ 89,506
--- ----------- ---------------
--- ----------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
DECEMBER 31 SEPTEMBER 30, 1992
----------------------- TO
1994 1993 DECEMBER 31, 1992
----------- ---------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................ $ 2,222 $ (1,793) $ (508)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization of deferred policy acquisition costs.............. 4,608 2,027 10
Amortization of cost assigned to insurance contracts in
force......................................................... 2,164 1,357 138
Change in unearned revenue..................................... 1,594 (1,141) (136)
Increase in accrued investment income.......................... (24) (1) (13)
Change in due to/from affiliates and separate accounts......... (3,299) 2,976 (81)
Changes in other assets, accrued expenses and other
liabilities................................................... (1,552) 42 (154)
Policy acquisition costs deferred.............................. (23,119) (37,129) (7,059)
Change in insurance and annuity reserves....................... (1,370) 550 45
Amortization of premium on fixed maturity investments.......... 13 -- --
----------- ---------- -------
Net cash used in operating activities............................ (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities.................................... (857) (543) (151)
Sales of fixed maturities........................................ 319 552 1,177
Purchases of common stock........................................ (7) (260) (2)
Sales of common stock............................................ 250 240 --
(Increase) decrease in policy loans.............................. (369) 202 (29)
Funds held in escrow pursuant to an Exchange Agreement........... (1,382) (1,375) --
----------- ---------- -------
Net cash (used in) provided by investing activities.............. (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt........................ (40,000) 33,600 6,400
Issuance of common stock......................................... -- 1,000 --
Issuance of preferred stock...................................... 50,000 -- --
Contribution of capital by parent................................ 8,750 15,000 --
----------- ---------- -------
Net cash provided by financing activities........................ 18,750 49,600 6,400
----------- ---------- -------
Net (decrease) increase in cash and short-term investments....... (2,059) 15,304 (363)
Cash and short-term investments at beginning of year............. 19,308 4,004 4,367
----------- ---------- -------
Cash and short-term investments at end of year................... $ 17,249 $ 19,308 $ 4,004
----------- ---------- -------
----------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company
("Golden American") became a wholly-owned subsidiary of BT Variable, Inc.
("BTV"), an indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers
Trust"). Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
Effective December 30, 1993, Golden American was redomesticated from the State
of Minnesota to the State of Delaware.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. The transaction involved settlement of
pre-existing claims of Bankers Trust against Mutual Benefit. The ultimate value
of these claims has not yet been determined by the Superior Court of New Jersey
and is contingently supported by a $5 million note payable from Golden American
and a $6 million letter of credit from Bankers Trust. The Golden American note
is secured by a pledge of Golden American's right to receive certain deferred
sales loads. Bankers Trust has estimated that the contingent liability due from
Golden American amounted to $438,636 at December 31, 1994 and 1993. Golden
American deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and
1993, respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden American
provides for variable accumulation and benefits under the policies and contracts
by crediting life and annuity considerations in accordance
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not reflected in the
accompanying statements of operations of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of
the right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
The following is a reconciliation of the costs assigned to insurance
contracts in force for the years ended December 31, 1994, 1993, and the period
September 30, 1992 to December 31, 1992:
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1992
------------------------------- TO
1994 1993 DECEMBER 31, 1992
--------------- -------------- ---------------------
<S> <C> <C> <C>
Beginning balance............................... $ 9,784,000 $ 11,140,000 $ 11,278,000
Interest accrued................................ 696,000 942,000 244,000
Amortization.................................... (2,860,000) (2,298,000) (382,000)
--------------- -------------- ---------------------
Ending balance.................................. $ 7,620,000 $ 9,784,000 $ 11,140,000
--------------- -------------- ---------------------
--------------- -------------- ---------------------
</TABLE>
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the expected amortization of the cost assigned
to insurance contracts in force over the next five years. The amortization may
be adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995................................................... $1,481,000
1996................................................... 1,232,000
1997................................................... 1,156,000
1998................................................... 936,000
1999................................................... 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial
paper, money markets, and certificates of deposit) with a maturity of three
months or less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount promissory
note, and insurance and annuity reserves and determined that carrying amounts
reported in the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity............................................. $142 $114 $47
Short-term investments........................................................ 226 90 14
Equity securities............................................................. 1 1 2
Policy loans.................................................................. 11 11 4
Cash.......................................................................... 99 -- --
Funds held in escrow.......................................................... 83 -- --
---- ---- ----
Gross investment income....................................................... 562 216 67
Investment expenses........................................................... (2) -- --
---- ---- ----
Net investment income......................................................... $560 $216 $67
---- ---- ----
---- ---- ----
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities.......................................... $ 16,682 $ (90) $ 16,592
--------- ----- ---------
--------- ----- ---------
At December 31, 1993:
U.S. Treasury securities.......................................... $ 17,357 $ (27) $ 17,330
Corporate securities.............................................. 99 2 101
--------- ----- ---------
$ 17,456 $ (25) $ 17,431
--------- ----- ---------
--------- ----- ---------
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................... $ 14,634 $ 14,622 $ 15,454 $ 15,452
Due after one year through five years............. 850 827 793 791
Due after five years through ten years............ 1,198 1,143 1,209 1,188
----------- ----------- ----------- -----------
$ 16,682 $ 16,592 $ 17,456 $ 17,431
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity was
$(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with regulatory
authorities pursuant to certain statutory requirements.
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products. Dividend payments by Golden
American are limited by statutory restrictions to the higher of 10% of surplus
or 100% of the prior year's net gain, not to exceed unassigned surplus, subject
to the broad discretionary powers of insurance regulatory authorities to further
limit dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/ health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained by
an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the Redeemable
Preferred Stock were $17,917 or $1.79 per share. The dividends are cumulative
and are calculated based on a rate not to exceed the sum of the Prime Rate and
1.5%. The Redeemable Preferred Stock is redeemable at the option of Golden
American at the redemption price of $5,000 per share.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994, are
sold primarily through two broker/dealer institutions. For the years ended 1994
and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated, $17,569,000, $34,260,000,
and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other general
and administrative costs, first on the basis of direct charges when
identifiable, and the remainder allocated based on the estimated amount of time
spent by Golden American's employees on behalf of DSI. In the opinion of
management, this method of cost allocation is reasonable. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000 and
$2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year 1993
and the period from September 30, 1992 to December 31, 1992, fees earned by BTV
from Golden American for these services aggregated $2,701,000 and $209,000,
respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of certain
of its facilities. BTV charged Golden American for such expenses and all other
general and administrative costs, first on the basis of direct charges when
identifiable, and second allocated based on the estimated amount of time spent
by BTV's employees on behalf of Golden American. For the year 1993 and the
period from September 30, 1992 to December 31, 1992, BTV allocated to Golden
American $1,503,000 and $450,000, respectively. The agreement was terminated on
January 1, 1994.
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American's cash is on deposit at Bankers Trust.
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating loss
("NOL") carryforwards for federal income tax purposes of approximately $17.3
million and $7.3 million, respectively. Approximately $2.4 million of these
NOL's, relating to operations prior to ownership by Mutual Benefit, can be used
to offset future taxable income of Golden American only through the year 2005,
subject to annual limitations. Approximately $.8 million, $4.1 million and $10.0
million are available through the years 2007, 2008, and 2009, respectively.
Significant components of Golden American's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs................................... $ 21,200 $ 14,800
Unamortized cost assigned to insurance contracts in force........... 2,700 3,400
---------- ---------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards.................................... 6,000 2,400
Insurance liabilities............................................... 15,200 14,800
Deferred policy acquisition costs proxy tax......................... 3,700 2,900
Other............................................................... 700 --
---------- ---------
25,600 20,100
Valuation allowance for deferred tax assets........................... 1,700 1,900
---------- ---------
Net deferred tax liabilities...................................... $ -- $ --
---------- ---------
---------- ---------
</TABLE>
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate........................................... 35% 35% 34%
--------- --------- ---------
--------- --------- ---------
Taxes at statutory rate.......................................... $ 778 $ (627) $ (173)
Dividends received deduction..................................... (368) (194) --
Other, net....................................................... (210) (379) (92)
Valuation allowance.............................................. (200) 1,200 265
--------- --------- ---------
Taxes based on income (loss)................................. $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed under
this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company's employees are covered under the Parent's benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are also
available to eligible employees of the Company. Total 1994 expenses relating to
these Parent company benefit plans were $.2 million.
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
10. SUBSEQUENT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony"), BTV
and BTV's immediate parent, Whitewood Properties Corp. ("Whitewood"), entered
into an agreement providing for the acquisition by First Colony of a minority
interest in BTV. On June 29, 1995, BTV, Whitewood and First Colony agreed to
terminate the agreement between and among the parties.
91
<PAGE>
-----------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION......................................................................................................... 2
PART I
Description of Golden American Life Insurance Company................................................................ 2
Safekeeping of Assets................................................................................................ 2
The Administrator.................................................................................................... 2
Independent Auditors................................................................................................. 3
Reinsurance.......................................................................................................... 3
Distribution of Contracts............................................................................................ 3
Performance Information.............................................................................................. 3
IRA Partial Withdrawal Option........................................................................................ 7
Other Information.................................................................................................... 8
PART II
Securities and Investment Techniques................................................................................. 8
U.S. Government Securities......................................................................................... 8
Debt Securities.................................................................................................... 9
Short Sales Against the Box........................................................................................ 9
Futures Contracts and Options on Futures Contracts................................................................. 10
Options on Securities.............................................................................................. 11
Options of Securities Indexes...................................................................................... 12
Foreign Currency Transactions...................................................................................... 13
Options on Foreign Currencies...................................................................................... 14
Repurchase Agreements.............................................................................................. 15
Banking Industry and Savings Industry Obligations.................................................................. 15
Commercial Paper................................................................................................... 16
When Issued or Delayed Delivery Securities......................................................................... 17
Investment Restrictions.............................................................................................. 17
Management of Separate Account D..................................................................................... 19
The Manager.......................................................................................................... 20
Portfolio Manager.................................................................................................... 21
Custodian and Portfolio Accounting Agent............................................................................. 22
Portfolio Transactions and Brokerage................................................................................. 22
Purchase and Pricing of the Global Account........................................................................... 24
Financial Statements of Separate Account B........................................................................... 25
Financial Statements of The Managed Global Account of Separate Account D............................................. 25
Appendix -- Description of Bond Ratings
</TABLE>
92
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO OUR CUSTOMER SERVICE CENTER, THE ADDRESS IS SHOWN ON THE COVER.
...............................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B AND THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.
PLEASE PRINT OR TYPE
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------------------
NAME
--------------------------------------------
SOCIAL SECURITY NUMBER
--------------------------------------------
STREET ADDRESS
--------------------------------------------
CITY, STATE, ZIP
</TABLE>
(IN 6050 DVA PLUS 9/95)
...............................................................................
93
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years, a Guaranteed Interest Rate of 7.50%, an initial Index Rate ("I") of
7.00%; that a full surrender is requested three years into the Guarantee Period;
that the then Index Rate for a seven year Guarantee Period ("J") is 8.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The Accumulation Value of the Fixed Allocation on the date of surrender
is $124,230
($100,000 X 1.075(3))
2. N = 2,555 (365 X 7)
3. Market Value Adjustment = $124,230 X [(1.07 )2,555/365 ] = $9,700
------------------------------------------------
1.0825 -1
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $114,530 ($124,230 - $9,700).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years, a Guaranteed Interest Rate of 7.5%, an initial Index Rate ("I") of
7.00%; that a full surrender is requested three years into the Guarantee Period;
that the then Index Rate for a seven year Guarantee Period ("J") is 6.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The Accumulation Value of the Fixed Allocation on the date of surrender
is $124,230
($100,000 X 1.0753)
2. N = 2,555 (365 X 7)
3. Market Value Adjustment = $124,230 X [(1.07 )2,555/365 ] = $6,270
------------------------------------------------
1.0625 -1
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $130,500 ($124,230 + $6,270).
EXAMPLE #3: PARTIAL WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years, a Guaranteed Interest Rate of 7.5%, an initial Index Rate ("I") of
7.00%; that a partial withdrawal of $114,530 is requested three years into the
Guarantee period; that the then Index Rate ("J") for a seven year Guarantee
Period is 8.0%; and that no prior transfers or partial withdrawals affecting
this Fixed Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The Accumulation Value of the Fixed Allocation on the date of withdrawal
is $248,459
($200,000 X 1.0753)
2. N = 2,555 (365 X 7)
3. Amount that must be withdrawn = [$114,530/(1.07 )2,555/365] = $124,230
---------------------------------------------------
1.0825
A1
<PAGE>
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X [(1.07 )2,555/365 ] = $9,700
------------------------------------------------
1.0825 -1
Therefore, the amount of the partial withdrawal paid to you is $114,530, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $114,530, and also reduced by the Market Value Adjustment of $9,700,
for a total reduction in the Fixed Allocation of $124,230.
EXAMPLE #4: PARTIAL WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years, a Guaranteed Interest Rate of 7.5%, an initial Index Rate of 7.0%;
that a partial withdrawal of $130,500 requested three years into the Guarantee
Period; that the then Index Rate ("J") for a seven year Guarantee Period is
6.0%; and that no prior transfers or partial withdrawals affecting this Fixed
Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The Accumulation Value of Fixed Allocation on the date of surrender is
$248,459
($200,000 X 1.0753)
2. N = 2,555 (365 X 7)
3. Amount that must be withdrawn = [$130,500/(1.07 )2,555/365] = $124,230
---------------------------------------------------
1.0625
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X [(1.07 )2,555/365 ] = $6,270
------------------------------------------------
1.0625 -1
Therefore, the amount of the partial withdrawal paid to you is $130,500, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $130,500, but increased by the Market Value Adjustment of $6,270,
for a total reduction in the Fixed Allocation of $124,230.
A2
<PAGE>
APPENDIX B
GOLDENSELECT SERVICE FORMS
- - Deferred Variable Annuity Application -- Use in all states except FL, KS, KY,
MD, MI, MN, NC, NH, NJ, NV, OR, PA, UT, and WA. Contact our Sales Desk at
1-800-243-3706 for the Special Form to be used in these states.
- - Request for Automatic Rebalancing Form
- - Financial Services Form
(GoldenSelect DVA Plus is currently Not Available in ME and NY; consult your
financial adviser to determine if the Fixed Account is available in your
state.)
- - Absolute Assignment to Effect Section 1035(a) Exchange
- - Request to Effect IRA Or Other Qualified Account Transfer
- - Certificate of Deposit Transfer Form
Submit all forms (with all other necessary documents) to the Customer Service
Center
WITHHOLDING ELECTION INSTRUCTIONS (BEFORE THE WITHHOLDING ELECTION SECTION ON
THE APPLICATION IS COMPLETED, PLEASE HAVE THE OWNER READ THE FOLLOWING
CAREFULLY)
Your withdrawals under annuity Contracts may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not to
have withholding apply by checking the box by line A and signing in the
signature section. Check the box by line B to make an election to have
withholding apply. If you want additional withholding made, check the box by
line C.
Withholding will only apply to the portion of your withdrawal that is subject to
Federal income tax and it will be like wage withholding. Thus, there will be no
withholding on the portion of each payment representing a return of your
premium. You may change your withholding as often as you wish by sending in IRS
Form W-4P to Golden American. Your election will remain in effect until you
revoke it. You may revoke it at any time.
If you elect not to have withholding apply to your withdrawals, or if you do not
have enough Federal income tax withheld from your withdrawal payments, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
By signing the application and completing the withholding election, you certify
that no bankruptcy proceeding, attachment or other lien or claims are pending
against you.
B1
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A SUBSIDIARY OF BANKERS TRUST COMPANY
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED VARIABLE ANNUITY
ENROLLMENT FORM
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
1. OWNER(S)
- --------------------------------------------------------------------------------------------------------------------------------
Name Male Female Soc. Sec. #
/ / / / or Tax ID.# - -
- --------------------------------------------------------------------------------------------------------------------------------
Permanent Phone
Address ( )
- --------------------------------------------------------------------------------------------------------------------------------
City State Zip Date of Birth
- --------------------------------------------------------------------------------------------------------------------------------
2. ANNUITANT (IF OTHER THAN OWNER)
- --------------------------------------------------------------------------------------------------------------------------------
Name Male Female Soc. Sec. #
or Tax ID.# - -
- --------------------------------------------------------------------------------------------------------------------------------
Permanent Phone
Address ( )
- --------------------------------------------------------------------------------------------------------------------------------
City State Zip Date of Birth Relation
to Owner
- --------------------------------------------------------------------------------------------------------------------------------
CONTINGENT ANNUITANT (OPTIONAL)
- --------------------------------------------------------------------------------------------------------------------------------
Name Address Relation
to Owner
- --------------------------------------------------------------------------------------------------------------------------------
3. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
- --------------------------------------------------------------------------------------------------------------------------------
Name(s) Relation
to Owner
- --------------------------------------------------------------------------------------------------------------------------------
CONTINGENT BENEFICIARY(IES) Name Relation
to Owner
- --------------------------------------------------------------------------------------------------------------------------------
4. PLAN (CHECK ONE)
/ / DVA / / Other _________________
- --------------------------------------------------------------------------------------------------------------------------------
5. DEATH BENEFIT OPTIONS
- --------------------------------------------------------------------------------------------------------------------------------
1. / / 7% Solution -- Enhanced #1 2. / / Annual Ratchet -- Enhanced #2 3. / / Standard
- --------------------------------------------------------------------------------------------------------------------------------
6. INITIAL PREMIUM AND ALLOCATION INFORMATION
- --------------------------------------------------------------------------------------------------------------------------------
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for Premium allocation below (see (A) INITIAL.)
(B) DOLLAR COST AVERAGING (DCA): OPTIONAL. PLEASE CHECK BOX TO ELECT. / /
Amount to be transferred monthly $_________________ (minimum $250)
Division or Allocation Transferred From: / / Limited Maturity Bond Division / / Liquid Asset Division
/ / 1 Year Fixed Allocation
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION OR FIXED ALLOCATION CHECKED)
Divisions Transferred To: Fill in percentages for allocation of DCA below (see (B) DCA).
- --------------------------------------------------------------------------------------------------------------------------------
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
- --------------------------------------------------------------------------------------------------------------------------------
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
- --------------------------------------------------------------------------------------------------------------------------------
VAlUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE EII REALTY SECURITIES, INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS BANKERS TRUST COMPANY % %
- --------------------------------------------------------------------------------------------------------------------------------
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
- --------------------------------------------------------------------------------------------------------------------------------
LIQUID ASSET BANKERS TRUST COMPANY %
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 1 YEAR %
- --------------------------------------------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 3 YEAR %
- --------------------------------------------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 5 YEAR %
- --------------------------------------------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 7 YEAR %
- --------------------------------------------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 10 YEAR %
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 100% 100%
- --------------------------------------------------------------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY, Customer Service Center, PO Box 8794, Wilmington, DE 19899-8794
B2
GA-EA-1007-4/95
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------------------------------------------------------
If you want to receive Systematic Partial Withdrawals, your request must be
received in writing. For the appropriate form, please call our Customer Service
Center: 1-800-366-0066.
- --------------------------------------------------------------------------------------------------------------------------------
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
- --------------------------------------------------------------------------------------------------------------------------------
I authorize Golden American to act upon reallocation instructions given by telephone from __________________________
(name of your registered representative) upon furnishing his/her social security number. Neither Golden American nor any
person authorized by Golden American will be responsible for any claim, loss, liability or expense in connection with
reallocation instructions received by telephone from such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above is no longer affiliated with the broker/dealer under which my
contract was purchased or until such time that I notify Golden American otherwise in writing.
- --------------------------------------------------------------------------------------------------------------------------------
9. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY TYPE:
- --------------------------------------------------------------------------------------------------------------------------------
/ / IRA / / IRA Rollover / / SEP/IRA / / Other ________________________
- --------------------------------------------------------------------------------------------------------------------------------
10. REPLACEMENT
- --------------------------------------------------------------------------------------------------------------------------------
Will the coverage applied for replace any existing annuity or life insurance policies on the annuitant's life?
/ / Yes (If yes, please complete following) / / No
- --------------------------------------------------------------------------------------------------------------------------------
Company Name Policy Number Face Amount
- --------------------------------------------------------------------------------------------------------------------------------
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
-- BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I AGREE THAT, TO
THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND ANSWERS IN THIS
ENROLLMENT FORM ARE COMPLETE AND TRUE AND MAY BE RELIED UPON IN DETERMINING
WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL FORM A PART OF ANY CERTIFICATE
TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE AUTHORITY TO MODIFY
THIS ENROLLMENT FORM.
-- CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES WHICH FUND
CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. ALSO,
THEY ARE SUBJECT TO MARKET FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF
PRINCIPAL INVESTED.
-- I UNDERSTAND THAT THIS CERTIFICATE'S CASH SURRENDER VALUE, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE
ON ANY DAY AND THAT NO MINIMUM VALUE IS GUARANTEED. THIS CERTIFICATE IS IN
ACCORD WITH MY ANTICIPATED FINANCIAL NEEDS.
-- I UNDERSTAND THAT ANY AMOUNT ALLOCATED TO THE FIXED ACCOUNT MAY BE SUBJECT TO
A MARKET VALUE ADJUSTMENT, WHICH MAY CAUSE THE VALUES TO INCREASE OR DECREASE,
PRIOR TO A SPECIFIED DATE OR DATES AS SPECIFIED IN THE CERTIFICATE.
----------------------------------------- -------------------------------------------------------
Signature of Owner Signed at (City, State) Date
----------------------------------------- -------------------------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
----------------------------------------- -------------------------------------------------------
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)_____________________
- --------------------------------------------------------------------------------------------------------------------------------
FOR AGENT USE ONLY
- --------------------------------------------------------------------------------------------------------------------------------
DO YOU HAVE REASON TO BELIEVE THAT THE COVERAGE APPLIED FOR WILL REPLACE ANY
EXISTING ANNUITY OR LIFE INSURANCE ON THE ANNUITANT'S LIFE? / / Yes / / No
- ------------------------ --------------------------- ---------------------- -----------------------------
Agent Signature Print Agent Name & No. Social Security No. Broker/Dealer/Branch
------------------------------------
Florida License ID# (Florida Only)
- --------------------------------------------------------------------------------------------------------------------------------
Golden American Life Insurance Company, Customer Service Center, PO Box 8794, Wilmington, DE 19899-8794
1-800-366-0066
</TABLE>
B3
GA-EA-1007-4/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY REQUEST FOR AUTOMATIC
REBALANCING
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
- --------------------------------------------------------------------------------
- - AUTOMATIC REBALANCING: AN EASY WAY TO MAINTAIN A PARTICULAR ASSET
ALLOCATION.
- - Because each GoldenSelect Division is unique, each will have different
investment experience. As a result your asset allocation over time will
change from the one you initially selected.
- - Automatic Rebalancing will return your asset allocation to the one that you
and your Financial Adviser find most suitable for your long-term investment
goals.
- --------------------------------------------------------------------------------
Automatic Rebalancing will occur on the last business day of the appropriate
calendar quarter. Please consult your prospectus for restrictions, limitations,
fees and other information. Automatic Rebalancing does not apply to Fixed
Allocations and cannot be elected if you participate in Dollar Cost Averaging. A
subsequent additional premium payment or partial withdrawal you do not effect
according to the allocation you set forth below will terminate this program as
will any reallocation. You may reset or reestablish this program at any time.
- --------------------------------------------------------------------------------
CONTRACT INFORMATION (VERY IMPORTANT)
Contract or Certificate Number:
----------------------------------------------
Owner(s): Annuitant(s):
------------------------ -----------------
Owner's(s') Social Secrity Number: Owner's Tel. No.:
----------- ------------
- --------------------------------------------------------------------------------
Your direction as shown below will serve as your automatic rebalancing
allocation and will supersede all prior allocation instructions, including those
on your application, if different. Please indicate, in whole numbers, the
percentage you wish to allocate to each division. Fractional percentages will be
rounded to whole numbers.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
ACCOUNT DIVISION INVESTMENT ADVISER ALLOCATION %
---------------- ------------------ ------------
<S> <C> <C>
Multiple Allocation Zweig Advisors ------------
Fully Managed T. Rowe Price ------------
Stategic Equity Zweig Advisors ------------
All-Growth Warburg, Pincus ------------
Capital Appreciation Chancellor Trust ------------
Value Equity Eagle Asset Management ------------
Rising Dividends Kayne, Anderson ------------
The Managed Global Account Warburg, Pincus ------------
(Not available in Variable Life Products)
Emerging Markets Bankers Trust ------------
Real Estate E.I.I Realty Securities ------------
Natural Resources Van Eck ------------
Limited Maturity Bond Fund Bankers Trust ------------
Liquid Asset Bankers Trust ------------
--------------------------------------------------------------------------------------------------
TOTAL: 100%
------------
</TABLE>
*Automatic Rebalancing does not apply to fixed allocations.
- --------------------------------------------------------------------------------
PLEASE REBALANCE MY PORTFOLIO: / / Quarterly / / Semi-Annually / / Annually
SIGNATURES (PLEASE BE SURE TO SIGN BELOW FOR AUTOMATIC REBALANCING)
<TABLE>
<S> <C>
- ------------------------------------------ ---------------------------------------------
Signature of Owner Signed at (City, State) Date
- ------------------------------------------ ---------------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794,
Wilmington, DE 19899-8794 1-800-366-0066
B4
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST FOR FINANCIAL SERVICE: FOR VARIABLE CONTRACTS
This form is for additional payments, cash surrenders, partial withdrawals,
annuity payment allocations, reallocations, dollar cost averaging, telephone
reallocation authorization, loans and withholding elections. All transactions
will be processed effective with the date this form is received in the Customer
Service Center. Please consult your prospectus for restrictions, minimum or
maximum limitations, fees, and other applicable information pertaining to your
request. Make sure to check off which variable contract (Annuity or Life) the
transaction is for.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Type of Plan: / / Deferred Variable Annuity / / Variable Annuity Certain / / Variable Life Insurance
Contract, Policy or Certificate Number: _________________________________________________________________
Owner(s): ________________________________________ Annuitant/Insured(s): ______________________________
Owner'(s') Soc. Sec. No.: ________________________ Owner's Tel. No.: __________________________________
</TABLE>
1. / / ADDITIONAL PAYMENT
A. AMOUNT $ __________________
B. ALLOCATION If you leave the following section blank:
- The payment will be allocated on a pro-rata basis among the divisions
in which your Accumulation Value is currently invested.
DIVISION % OR $
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
C. If your annuity certificate or contract is an IRA check one:
/ / Contribution for 19___ OR / / Rollover
- --------------------------------------------------------------------------------
2. / / CASH SURRENDER
By surrendering the variable contract, I understand that
Golden American is discharged from all other obligations
under the variable contract and that the variable contract is
no longer in force.
A. / / The variable contract and any other forms required by Golden
American are enclosed with this request.
B. / / The original variable contract has been lost or destroyed.
- --------------------------------------------------------------------------------
3. / / PARTIAL WITHDRAWAL
A. / / CONVENTIONAL PARTIAL WITHDRAWAL
% ___________ or Amount $ ___________
B. / / OPTIONAL SYSTEMIC PARTIAL WITHDRAWALS
(NOT AVAILABLE UNDER VARIABLE ANNUITY CERTAIN)
(The maximum Systematic Partial Withdrawal is 1.25% and 3.75% quarterly of
the Accumulation Value.)
Amount $_________ or ________% Day each month_____
/ / Cancel Systematic Partial Withdrawal Option
C. ALLOCATION If you leave the following section blank, partial withdrawal(s)
will be processed on a pro-rata basis among the divisions in which you
Accumulation Value is currently invested.
DIVISION % OR $
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
- --------------------------------------------------------------------------------
4. / / ANNUITY PAYMENT ALLOCATION
(AVAILABLE UNDER VARIABLE ANNUITY CERTAIN ONLY)
Specify division from which annuity payments will be taken
Division: _______________________________________________________________
ANY SURRENDER OR WITHDRAWAL MUST BE ACCOMPANIED BY A TAX WITHHOLDING ELECTION
FROM THE OWNER(S) PLEASE MAKE YOUR WITHHOLDING ELECTION IN ITEM 9.
If you are surrendering a qualified contract, unless the amount is paid directly
to another qualified plan, such amount is subject to Federal income tax
withholding at a 20% rate.
5. / / REALLOCATION PLEASE TRANSFER:
$ _______________ OR _______________% FROM _______________ TO _______________
$ _______________ OR _______________% FROM _______________ TO _______________
$ _______________ OR _______________% FROM _______________ TO _______________
$ _______________ OR _______________% FROM _______________ TO _______________
$ _______________ OR _______________% FROM _______________ TO _______________
- --------------------------------------------------------------------------------
Golden American Life Insurance Company, Customer Service Center, PO Box 8794,
Wilmington, DE 19899-8794 1-800-366-0066
GAL-RFS-9/95 B5
<PAGE>
6. DOLLAR COST AVERAGING (MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION
CHECKED BELOW)
Amount of Monthly Transfer $___________________ (MINIMUM $250)
DIVISION TRANSFERRED FROM: / / Limited Maturity Bond / / Liquid Asset or
/ / 1 Yr. Fixed Allocation
DIVISIONS TRANSFERRED TO: Fill in percentage below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
- ------------------------------------------------------------------------------------------
FULLY MANAGED T. ROWE PRICE ASSOCIATES, INC. % %
- ------------------------------------------------------------------------------------------
STRATEGIC EQUITY ZWEIG ADVISORS, INC. % %
- ------------------------------------------------------------------------------------------
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
- ------------------------------------------------------------------------------------------
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
- ------------------------------------------------------------------------------------------
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
- ------------------------------------------------------------------------------------------
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
- ------------------------------------------------------------------------------------------
REAL ESTATE EII REALTY SECURITIES, INC. % %
- ------------------------------------------------------------------------------------------
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
- ------------------------------------------------------------------------------------------
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
- ------------------------------------------------------------------------------------------
EMERGING MARKETS BANKERS TRUST COMPANY % %
- ------------------------------------------------------------------------------------------
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
- ------------------------------------------------------------------------------------------
LIQUID ASSET BANKERS TRUST COMPANY %
- ------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 1 YEAR %
- ------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 3 YEAR %
- ------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 5 YEAR %
- ------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 7 YEAR %
- ------------------------------------------------------------------------------------------
FIXED ALLOCATION ELECTION 10 YEAR %
- ------------------------------------------------------------------------------------------
TOTAL 100% 100%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7. / / TELEPHONE REALLOCATION AUTHORIZATION __________ OWNER'S INITIALS
I authorize Golden American Life Insurance Company ("Golden American") to act
upon reallocation instructions given by telephone from ______________________
(name of your registered representative) upon furnishing his/her social
security number. Neither Golden American nor any person authorized by Golden
American will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from such
person if Golden American or such other person acted on such telephone
instructions in good faith in reliance upon this authorization. Golden American
will continue to act upon this authorization until such time as the person
indicated above is no longer affiliated with the broker/dealer under which my
was purchased or until such time that I notify Golden American otherwise in
writing.
- --------------------------------------------------------------------------------
8. / / LOAN (AVAILABLE UNDER LIFE ONLY)
A. AMOUNT $ ____________ OR ____________%
B. ALLOCATION - If you leave the following section blank, the amount of the
loan will be taken from the Accumulation Value in proportion to the amount of
investment value in each division in which you are currently invested.
DIVISION % OR $ DIVISION % OR $
__________________ __________________ __________________ __________________
__________________ __________________ __________________ __________________
__________________ __________________ __________________ __________________
- --------------------------------------------------------------------------------
9. / / WITHHOLDING ELECTION FORM (PLEASE READ CAREFULLY)
Instructions: Your withdrawals under annuity contracts or withdrawals and loans
under a modified endowment contract may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not
to have withholding apply by checking the box by line A and signing below.
Check the box by line B to make an election to have withholding apply. If you
want additional withholding made, check the box by line C.
A / / I do not want Federal income tax withheld.
B. / / I want to have Federal income tax withheld from each withdrawal or loan
using the number of allowances and marital status indicated. (You may also
designate an additional amount in line C, below.)
C / / I want the following additional amount withheld from each withdrawal or
loan (You must complete line B.) $____________________________
Withholding will only apply to the portion of your withdrawal or loan that is
subject to Federal income tax and it will be like wage withholding. Thus, there
will be no withholding on the portion of each payment representing a return of
your premium. You may change your withholding as often as you wish by sending
in IRS Form W-4P to Golden American. Your election will remain in effect until
you revoke it. You may revoke it at any time. If you elect not to have
withholding apply to your withdrawals or loans, or if you do not have enough
Federal income tax withheld from your withdrawal or loans, you may be
responsible for payment of estimated tax. You may also incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
I (We) hereby certify that no bankruptcy proceeding, attachment or other lien
or claims is now pending against the Owner.
- --------------------------------------------------------------------------------
10. SIGNATURES (PLEASE BE SURE TO SIGN BELOW FOR ANY TRANSACTION)
<TABLE>
<S> <C>
X______________________________________________________ ________________________________________
SIGNATURE OF OWNER (If owned by Co. Show Title) Date SIGNATURE OF WITNESS
X______________________________________________________ ________________________________________
SIGNATURE OF IRREVOCABLE BENEFICIARY (If any) Date SIGNATURE OF WITNESS OR AUTHORIZED
REPRESENTATIVE (Include title)
X______________________________________________________ ________________________________________
SIGNATURE OF SPOUSE (COMMUNITY PROPERTY STATES) Date
</TABLE>
Golden American Life Insurance Company, Customer Service Center, PO Box 8794,
Wilmington, DE 19899-8794 1-800-366-0066
GAL-RFS-9/95 B6
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST TO EFFECT IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TO: -------------------------------------
PRESENT SPONSOR
------------------------------------- ACCOUNT NO. -------------------------------------
ADDRESS
------------------------------------- -----------------------------------------------------
ADDRESS PARTICIPANT'S NAME
RE: IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
</TABLE>
ATTN: QUALIFIED TRANSFER DEPARTMENT
Dear Sirs:
I wish to transfer the entire value of my present Qualified Account to the
"GoldenSelect IRA" sponsored by Golden American Life Insurance Company.
I adopted the "GoldenSelect IRA" on ____________________________________________
DATE OF APPLICATION
Please make the check payable to GoldenSelect/Golden American Life Insurance
Company. As indicated below, Golden American has already indicated its
willingness to accept from you all my Qualified Account assets.
Please send all such proceeds and details to:
Golden American Life Insurance Company
IRA and Pension Operations
P.O. Box 8794
Wilmington, DE 19899-8794
Your prompt attention to this matter is appreciated.
<TABLE>
<S> <C> <C>
Sincerely, (Signature Guarantee if Required)
X -------------------------------------- ----------------------------------------
PARTICIPANT'S SIGNATURE (NAME OF BANK/FIRM)
----------------------------------------
(SIGNATURE OF OFFICER/TITLE)
</TABLE>
- -
GOLDEN AMERICAN APPROVAL FOR QUALIFIED ACCOUNT TRANSFER
Golden American Life Insurance Company has established the "GoldenSelect IRA"
application number
- ------------------------- for the participant named above. We are willing to
accept the transfer. Please forward all proceeds accordingly.
<TABLE>
<S> <C>
By: -------------------------------------- Date: ----------------------------------------------
Name: ----------------------------------- Title: ----------------------------------------------
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
B7
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
ABSOLUTE ASSIGNMENT TO EFFECT SECTION 1035(A) EXCHANGE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OWNER: ------------------------------------- ANNUITANT OR INSURED: ---------------------
CURRENT CONTRACT NO.: -------------------- EXISTING INSURANCE CO.: -------------------
</TABLE>
I hereby make a complete and absolute assignment and transfer all rights, titles
and interest of every nature and character in and to the above Contract to
Golden American Life Insurance Company ("Golden American") in an exchange
intended to qualify under Section 1035 of the Internal Revenue Code.
Upon receipt, Golden American is directed to surrender the above Contract and
apply the value to the GoldenSelect product for which I have submitted an
application.
I understand that, by executing this assignment, I irrevocably waive all rights,
claims and demands under the above Contract.
I acknowledge that Golden American is furnishing this form and participating in
this transaction as an accommodation to me, and that Golden American assumes no
responsibility or liability for my tax treatment under Section 1035 of the
Internal Revenue Code or otherwise.
Signed this ______________ day of ________________, 19 __________ at ___________
<TABLE>
<S> <C>
X ---------------------------------------------- X -----------------------------------------------
WITNESS SIGNATURE OF OWNER
</TABLE>
- -
NOTIFICATION OF ASSIGNMENT AND SURRENDER
<TABLE>
<S> <C>
To (Existing Insurance Company): Re: Contract No. ------------------------------
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
This is to notify you that an absolute assignment of all rights, title and
interest in and to the above Contract has been made to Golden American Life
Insurance Company, for the purpose of making an exchange under Section 1035 of
the Internal Revenue Code. Golden American, Owner of the above Contract, hereby
surrenders it and requests its full surrender value for the purpose of an
exchange under Section 1035 of the Internal Revenue Code. Upon surrender of this
Contract, please issue a check for its cash value to Golden American Life
Insurance Company, and mail to Golden American Life Insurance Company, Customer
Service Center, P.O. Box 8794, Wilmington, DE, 19899-8794, Attn: New Business
Department. Please provide Golden American with the cost basis, Issue Date and
other payment information along with your check.
<TABLE>
<S> <C>
-------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- ------------------------------------------------ By: ---------------------------------------------
DATE OFFICER OF ABOVE-NAMED INSURANCE COMPANY
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
B8
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
CERTIFICATE OF DEPOSIT TRANSFER FORM
- --------------------------------------------------------------------------------
APPOINTMENT OF ATTORNEY-IN-FACT TO SURRENDER CERTIFICATE OF DEPOSIT
(NON-QUALIFIED ONLY)
CERTIFICATE(S) OF DEPOSIT
Issued By: _____________________________________________________________________
INSTITUTION
Address: _______________________________________________________________________
Certificate Number(s): _________________________ Issued to: ____________________
Maturity Date(s): ______________________________________________________________
Estimated Amount(s): ___________________________________________________________
I/We do hereby name and appoint Golden American Life Insurance Company ("Golden
American") through its duly authorized officers as lawful agent and
attorney-in-fact for me/us, to surrender the above Certificate(s) of Deposit
upon the respective Maturity Date(s).
I/We request that upon maturity all funds available be transferred to Golden
American. Golden American will apply all such funds received to a variable
Contract issued to me/us.
I/We understand that Golden American assumes no responsibility for the tax
treatment of this matter and that I/ we shall be responsible for the payment of
all federal, state and local taxes and any other fees and charges incurred with
respect to the Certificate(s).
I/We acknowledge that the investment earnings credited under the variable
Contract will begin to accrued when Golden American receives the proceeds from
the Certificate(s). Golden American has the responsibility only to present the
Certificate(s) for payment upon maturity and shall not be responsible for the
solvency of the issuing Financial Institution.
Dated at ______________________________ on this ______ day of
____________________, 19________________________________________________________
<TABLE>
<S> <C>
X ----------------------------------------- X ---------------------------------------------------
Witness Signature of Certificate Owner
X ----------------------------------------- X ---------------------------------------------------
Witness Signature of Joint Certificate Owner
</TABLE>
Special Handling Instructions: _________________________________________________
________________________________________________________________________________
ACKNOWLEDGMENT
Golden American will accept any and all funds which discharge the obligation
listed above and request that such funds be sent to: Golden American Life
Insurance Company, Customer Service Center, P.O. Box 8794, Wilmington, DE
19899-8794
By _____________________________________________________________________________
Name Title Date
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
B9
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3305 DVA PLUS 10/95
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GOLDENSELECT DVA PLUS
DERERRED COMBINATION VARIABLE
AND FIXED ANNUITY CONTRACT
ISSUED BY
SEPARATE ACCOUNT B
("Account B")
AND
SEPARATE ACCOUNT D
("Account D")
(collectively, the "Accounts")
OF
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE INFORMATION
CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY CONTRACT WHICH
IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN REQUEST TO
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, P.O. BOX 8794,
WILMINGTON, DE 19899-8794 OR TELEPHONE 1-800-366-0066.
DATE OF PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION:
OCTOBER 2, 1995
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TABLE OF CONTENTS
ITEM PAGE
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
PART I
Description of Golden American Life Insurance Company. . . . . . . . . . .2
Safekeeping of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Distribution of Contracts. . . . . . . . . . . . . . . . . . . . . . . . 3
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . .3
IRA Partial Withdrawal Option. . . . . . . . . . . . . . . . . . . . . . 7
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
Securities and Investment Techniques . . . . . . . . . . . . . . . . . . 8
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . 8
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Short Sales Against the Box . . . . . . . . . . . . . . . . . . . . . 9
Futures Contracts and Options on Futures Contracts. . . . . . . . . . 10
Options on Securities . . . . . . . . . . . . . . . . . . . . . . . . 11
Options on Securities Indexes . . . . . . . . . . . . . . . . . . . . 12
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . 13
Options on Foreign Currencies . . . . . . . . . . . . . . . . . . . . 14
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 15
Banking Industry and Savings Industry Obligations . . . . . . . . . . 15
Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
When Issued or Delayed Delivery Securities. . . . . . . . . . . . . . 17
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 17
Management of Separate Account D . . . . . . . . . . . . . . . . . . . . 19
The Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Portfolio Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Custodian and Portfolio Accounting Agent . . . . . . . . . . . . . . . . 22
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . 22
Purchase and Pricing of the Global Account . . . . . . . . . . . . . . . 24
Financial Statements of Separate Account B . . . . . . . . . . . . . . . 25
Financial Statements of The Managed Global Account of
Separate Account D . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix - Description of Bond Ratings
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INTRODUCTION
Part I of this Statement of Additional Information provides background
information regarding Account B and Account D. Part II of this Statement of
Additional Information provides information regarding the investment activities
of Account D and The Managed Global Account (the "Global Account"), including
its investment policies.
PART I
DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. From January 2,
1973 through December 31, 1987, the name of the company was St. Paul Life
Insurance Company. On December 31, 1987, after all of St. Paul Life Insurance
Company's business was sold, the name was changed to Golden American. On March
7, 1988, all of the stock of Golden American was acquired by The Golden
Financial Group, Inc. ("GFG"), a financial services holding company. On October
19, 1990, GFG merged with and into MBL Variable, Inc. ("MBLV"), a wholly owned
direct subsidiary of The Mutual Benefit Life Insurance Company ("MBL"). On
January 1, 1991, MBLV became a wholly owned indirect subsidiary of MBL and
Golden American became a wholly owned direct subsidiary of MBL. Golden
American's name had been changed to MB Variable Life Insurance Company in the
state of Minnesota but subsequently has been changed back to Golden American.
In a transaction that closed on September 30, 1992, Golden American was acquired
by a subsidiary of Bankers Trust Company ("Bankers Trust"). As of December 31,
1994, Golden American had over $89.5 million in stockholders' equity and
approximately $1.04 billion in total assets, including approximately $950.3
million of separate account assets. Golden American is authorized to do
business in all jurisdictions except New York. Golden American offers variable
annuities and variable life insurance.
SAFEKEEPING OF ASSETS
Golden American acts as its own custodian for Account B.
THE ADMINISTRATOR
Effective January 1, 1994, Bankers Trust (Delaware), a subsidiary of Bankers
Trust New York Corporation, and Golden American became parties to a service
agreement pursuant to which Bankers Trust (Delaware) has agreed to provide
certain accounting, actuarial, tax, underwriting, sales , management and other
services to Golden American. Expenses incurred by Bankers Trust (Delaware) in
relation to this service agreement are reimbursed by Golden American on an
allocated cost basis. Charges billed to Golden American by Bankers Trust
(Delaware) pursuant to the service agreement were $816,264 for 1994.
Prior to 1994, Golden American had arranged with BT Variable to perform services
related to the development and administration of its products. For the year
1993 and the period from September 30, 1992 to December 31, 1992, fees earned by
BT Variable from Golden American for these
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services aggregated $2,701,000 and $209,000, respectively. The agreement was
terminated as of January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of certain
of its facilities. BT Variable charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct charges
when identifiable, and second allocated based on the estimated amount of time
spent by BT Variable's employees on behalf of Golden American. For the year
1993 and the period from September 30, 1992 to December 31, 1992, BT Variable
allocated to Golden American $1,503,000 and $450,000, respectively. The
agreement was terminated on January 1, 1994. During 1994, such expenses were
allocated directly by BT New York Corporation to Golden American and totaled
$1,395,966 for the year.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, independent auditors,
will perform annual audits of Golden American and the Accounts.
DISTRIBUTION OF CONTRACTS
Prior to 1994, Golden American had entered into agreements with DSI to perform
services related to the management of its investments and the distribution of
its products. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, Golden American incurred $311,000 and $35,000, respectively,
for such services. The agreement was terminated as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of 1933
and the Investment Company Act of 1940, as amended) of the variable insurance
products issued by Golden American which, as of December 31, 1994, are sold
primarily through two broker/dealer institutions. For the years ended 1994 and
1993 and the period from September 30, 1992 to December 31, 1992, commissions
paid by Golden American to DSI aggregated, $17,569,000, $34,260,000, and
$6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform management,
administrative and clerical services and the use of certain facilities. Golden
American charged DSI for such expenses and all other general and administrative
costs, first on the basis of direct charges when identifiable, and the remainder
allocated based on the estimated amount of time spent by Golden American's
employees on behalf of DSI. In the opinion of management, this method of cost
allocation is reasonable. For the years ended December 31, 1994 and 1993,
expenses allocated to DSI were $1,983,000 and $2,013,000, respectively.
PERFORMANCE INFORMATION
Performance information for the divisions of Account B and the Global Account,
including the yield and effective yield of the Liquid Asset Division, the yield
of the remaining divisions and the Global Account, and the total return of all
divisions, may appear in reports or promotional literature to current or
prospective owners. Negative values are denoted by parentheses. Performance
information for measures other than total return do not reflect sales load which
can have a maximum level of 6% of premium, and any applicable premium tax that
can range from 0% to 3.5%.
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SEC STANDARD MONEY MARKET DIVISION YIELDS
Current yield for the Liquid Asset Division will be based on the change in the
value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of division expenses accrued over
that period (the "base period"), and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period return
is then annualized by multiplying by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN) +1)to the power of 365/7] - 1
The current yield and effective yield of the Liquid Asset Division will be given
for the 7-day period December 24, 1995 to December 31, 1995 in an updated
statement of additional information.
SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET DIVISIONS
Quotations of yield for the remaining divisions will be based on all investment
income per Unit (accumulation value divided by the index of investment
experience) earned during a particular 30-day period, less expenses accrued
during the period ("net investment income"), and will be computed by dividing
net investment income by the value of an accumulation unit on the last day of
the period, according to the following formula:
YIELD = 2 [ ( a - b +1)to the sixth power - 1]
-----
CD
Where:
[a] equals the net investment income earned during the period
by the Series attributable to shares owned by a division
[b] equals the expenses accrued for the period (net of
reimbursements)
[c] equals the average daily number of Units outstanding during
the period based on the index of investment experience
[d] equals the value (maximum offering price) per index of
investment experience on the last day of the period
Yield on divisions of Account B is earned from the increase in net asset value
of shares of the Series in which the Division invests and from dividends
declared and paid by the Series, which are automatically reinvested in shares of
the Series. Yield on the Global Account is earned from the increase in asset
value of shares of the securities in which the Global Account invests.
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SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of average annual total return for any division will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a contract over a period of one, five and 10 years (or, if less,
up to the life of the division), calculated pursuant to the formula:
P(1+T)to the power of n=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical
$1,000 initial premium payment made at the beginning of the
period (or fractional portion thereof)
All total return figures reflect the deduction of the maximum sales load, the
administrative charges, and the mortality and expense risk charges. The SEC
requires that an assumption be made that the contract owner surrenders the
entire contract at the end of the one, five and 10 year periods (or, if less, up
to the life of the security) for which performance is required to be calculated.
This assumption may not be consistent with the typical contract owner's
intentions in purchasing a contract and may adversely affect returns.
Quotations of total return may simultaneously be shown for other periods, as
well as quotations of total return that do not take into account certain
contractual charges such as sales load.
Average Annualized Total Return for the Divisions presented on a standardized
basis for the period from the date hereof to December 31, 1995 will be provided
in an updated Statement of Additional Information.
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of non-standard average annual total return for any division will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
[P(1+T)to the power of n]=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical
$1,000 initial premium payment made at the beginning of the
period (or fractional portion thereof) assuming certain
loading and charges are zero.
All total return figures reflect the deduction of the mortality and expense risk
charge and the administrative charges, but not the deduction of the maximum
sales load and the annual contract fee.
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Average Annualized Total Return for the Divisions presented on a non-
standardized basis for the period from the date hereof to December 31, 1995 will
be provided in an updated Statement of Additional Information.
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other groups of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank such investment companies on overall performance or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the contract. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which accumulation value is allocated to a division
during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Account B divisions invest and the securities
in which the Global Account invests, and the market conditions during the given
time period, and should not be considered as a representation of what may be
achieved in the future.
Reports and promotional literature may also contain other information including
the ranking of any division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by other rating services, companies, publications, or other persons who rank
separate accounts or other investment products on overall performance or other
criteria.
PUBLISHED RATINGS
From time to time, the rating of Golden American as an insurance company by A.M.
Best may be referred to in advertisements or in reports to contract owners.
Each year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's Ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's ratings range from A+ to C. An A+
rating means, in the opinion of A.M. Best, that the insurer has demonstrated the
strongest ability to meet its respective policyholder and other contractual
obligations.
PORTFOLIO TURNOVER
For reporting purposes, the Global Account's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value of
the portfolio securities owned by the Global Account during the fiscal year. In
determining such portfolio turnover, all securities whose maturities at the time
of acquisition were
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one year or less are excluded. A 100% portfolio turnover rate would occur, for
example, if all the securities in the portfolio (other than short-term
securities) were replaced once during the fiscal year.
INDEX OF INVESTMENT EXPERIENCE
The calculation of the Index of Investment Experience ("IIE") is discussed in
the prospectus for the Contracts under Measurement of Investment Experience.
The following illustrations show a calculation of a new IIE and the purchase of
Units (using hypothetical examples): Note that the examples below are calculated
for a Contract issued with the 7% Solution Enhanced Death Benefit Option, the
death benefit option with the highest mortality and expense risk charge. The
mortality and expense risk charge associated with the Annual Ratchet Enhanced
Death Benefit Option and the Standard Death Benefit are lower than that used in
the examples and would result in higher IIE's or Accumulation Values.
ILLUSTRATION OF CALCULATION OF IIE
[TO BE COMPLETED BY AMENDMENT]
EXAMPLE 1.
1. IIE, beginning of perio. . . . . . . . . . . . . . . . . . . . . . .$ 10.00
2. Value of securities, beginning of period . . . . . . . . . . . . . .$ 10.00
3. Change in value of securities. . . . . . . . . . . . . . . . . . . . .$0.10
4. Gross investment return (3) divided by (2) . . . . . . . . . . . . . . 0.01
5. Less daily mortality and expense charge. . . . . . . . . . . . . 0.00003863
6. Less asset based administrative charge . . . . . . . . . . . . . 0.00000411
7. Net investment return (4) minus (5) minus (6). . . . . . . . . . 0.00995726
8. Net investment factor (1.000000) plus (7). . . . . . . . . . . . 1.00995726
9. IIE, end of period (1) multiplied by (8) . . . . . . . . . . .$ 10.09957261
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX)
EXAMPLE 2.
1. Initial Premium Paymen . . . . . . . . . . . . . . . . . . . . . . .$ 1,000
2. IIE on effective date of purchase (see Example 1). . . . . . . . . .$ 10.00
3. Number of Units purchased [(1) divided by (2)] . . . . . . . . . . . . 100
4. IIE for valuation date following purchase (see Example 1) . .$ 10.09957261
5. Accumulation Value in account for valuation date following purchase
[(3) multiplied by(4)]. . . . . . . . . . . . . . . . . . . . . $ 1,009.96
IRA PARTIAL WITHDRAWAL OPTION
If the contract owner has an IRA contract and will attain age 70 1/2 in the
current calendar year, distributions will be made to you in accordance with the
requirements of Federal tax law. This option is available to assure that the
required minimum distributions from qualified plans under the Internal Revenue
Code (the "Code") are made. Under the Code, distributions must begin no later
than April 1st of the calendar year following the calendar year in which the
contract owner attains age 70 1/2. If the required minimum distribution is not
withdrawn, there may be a penalty tax in an amount equal to 50% of the
difference between the amount required to be withdrawn and the amount actually
withdrawn. Even if the IRA Partial Withdrawal Option is not elected,
distributions must nonetheless be made in accordance with the requirements of
Federal tax law.
Golden American notifies the contract owner of these regulations with a letter
mailed on January 1st of the calendar year in which the contract owner reaches
age 70 1/2 which explains the IRA Partial
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Withdrawal Option and supplies an election form. If the contract owner chooses
to elect this option, he or she specifies whether the withdrawal amount will be
based on a life expectancy calculated on a single life basis (contract owner's
life only) or, if the contract owner is married, on a joint life basis (contract
owner's and spouse's life combined). The contract owner selects the payment
mode on a monthly, quarterly or annual basis. If the payment mode selected on
the election form is more frequent than annually, the payments in the first
calendar year in which the option is in effect will be based on the amount of
payment modes remaining when Golden American receives the completed election
form.
Golden American calculates the IRA Partial Withdrawal amount each year based on
the minimum distribution rules. We do this by dividing the accumulation value
by the life expectancy. In the first year withdrawals begin, we use the
accumulation value as of the date of the first payment. Thereafter, we use the
accumulation value on December 31st of each year. The life expectancy is
recalculated each year. Certain minimum distribution rules govern payouts if
the designated beneficiary is other than the contract owner's spouse and the
beneficiary is more than ten years younger than the contract owner.
OTHER INFORMATION
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the registration statements, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
PART II
SECURITIES AND INVESTMENT TECHNIQUES
This description of the Global Account of Account D securities and investment
techniques is not comprehensive and is intended to supplement the discussion
contained in Part II of the prospectus under "Securities and Investment
Techniques."
U.S. GOVERNMENT SECURITIES
The Global Account may invest in U.S. Government securities. U.S. Government
securities are obligations of, or are guaranteed by, the U.S. Government, its
agencies or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury supported by the full faith and credit of the
United States. Securities guaranteed by the U.S. Government include Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates and Federal Housing Administration debentures). In
guaranteed securities, the payment of principal and interest is unconditionally
guaranteed by the U.S. Government, and thus they are generally of the highest
credit quality. Such direct obligations or guaranteed securities are subject to
variations in market value due to fluctuations in interest rates, but, if held
to maturity, the U.S. Government is obligated to or guarantees to pay them in
full.
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Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve Federal sponsorship in one way or another: some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan
Mortgage Association, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks.
The Global Account may also purchase obligations of the International Bank for
Reconstruction and Development ("IBRD"), which, while technically not a U.S.
Government Agency or instrumentality has the right to borrow from IBRD
participating countries, including the United States.
DEBT SECURITIES
The Global Account may invest in debt securities of domestic and foreign issuers
including bonds, debentures, asset-backed securities, and notes which meet the
minimum ratings criteria set forth for the Global Account, or, if unrated, are,
in the Portfolio Manager's determination, comparable in quality to corporate
debt securities in which the Global Account may invest.
The investment return on a debt security reflects interest earnings and changes
in the market value of the security. The market value of debt obligations may
be expected to rise and fall inversely with interest rates generally. There
also exists the risk that the issuers of the securities may not be able to meet
their obligations on interest or principal payments at the time called for by an
instrument. Any bond may be susceptible to changing conditions, particularly to
economic downturns, which could lead to a weakened capacity to pay interest and
principal.
New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally takes place after the customary settlement time.
The value of when-issued securities or securities purchased on a firm-commitment
basis may vary prior to and after delivery depending on market conditions and
changes in interest rate levels. However, the Global Account will not accrue
any income on these securities prior to delivery. The Global Account will
maintain in a segregated account with its custodian an amount of cash or high-
quality debt securities equal (on a daily mark-to-market basis) in the amount of
its commitment to purchase the when-issued securities or securities purchased on
a firm-commitment basis.
Many debt securities of foreign issuers are not rated by Moody's Investors
Services, Inc. ("Moody's") or Standard and Poor's Corporation ("Standard &
Poor's"); therefore, the selection of such issuers depends, to a large extent,
on the credit analysis performed or used by the Portfolio Manager.
SHORT SALES AGAINST THE BOX
The Global Account may make short sales "against the box." A short sale
"against the box" is a short sale where, at time of the short sale, the Global
Account owns or has the immediate and unconditional right, at no added cost, to
obtain the identical security. The Global Account would enter into such a
transaction to defer a gain or loss for Federal income tax purposes on the
security
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owned by the Global Account. Short sales against the box are not subject to the
percentage limitations on short sales as described in the prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts, interest
rate futures contracts, and futures contracts based upon securities, which may
be domestic or foreign, and corporate or governmental, foreign exchange futures
contracts and other financial futures contracts, and may purchase and write
options on such contracts. A futures contract provides for the future sale by
one party and purchase by another party of a specified amount of a particular
financial instrument (debt security), or currency for a specified price at a
designated date, time, and place. Although futures contracts by their terms
require actual future delivery of and payment for financial instruments or
currencies, futures contracts are usually closed out before the delivery date.
Closing out an open futures contract position is effected by entering into an
offsetting sale or purchase, respectively, for the same aggregate amount of the
same financial instrument and the same delivery date. Where the Global Account
has sold a futures contract, if the offsetting purchase price is less than the
original futures contract sale price, the Global Account realizes a gain; if it
is more, the Global Account realizes a loss. Where the Global Account has
purchased a futures contract, if the offsetting price is more than the original
futures contract purchase price, the Global Account realizes a gain; if it is
less, the Global Account realizes a loss. The transaction costs must also be
included in these calculations.
Using futures to effect a particular strategy instead of using the underlying or
related security or index or currency will frequently result in lower
transaction costs being incurred. The Global Account's use of futures contracts
and futures options may include hedging transactions. For example, the Global
Account might use futures contracts to hedge against anticipated changes in
interest rates that might adversely affect either the value of the Global
Account's securities or the price of the securities which the Global Account
intends to purchase. The Global Account's hedging may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used to
reduce the Global Account's exposure to interest rate fluctuations, the Global
Account may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Global Account may sell stock index futures to protect against a market
decline in an attempt to offset partially or wholly a decrease in the market
value of securities that the Global Account intends to sell. Similarly, to
protect against a market advance when the Global Account is not fully invested
in the securities market, the Global Account may purchase stock index futures
that may partly or entirely offset increases in the cost of securities that the
Global Account intends to purchase. A stock index is a method of reflecting in
a single number the market values of many different stocks, or, in the case of
capitalization weighted indices that take into account both stock prices and the
number of shares outstanding, of many different companies. An index fluctuates
generally with changes in the market values of the common stocks so included. A
stock index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount multiplied by the difference between the stock index value at the
close of the last trading day of the contract and the price at which the futures
contract is originally purchased or sold. No physical delivery of the
underlying stocks in the index is made.
If a purchase or sale of a futures contract is made by the Global Account, the
Global Account is required to deposit with its custodian a specified amount of
cash or U.S. Government securities
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("initial margin"). Generally, the margin required for a futures contract is
set by the exchange or board of trade on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract which is
returned to the Global Account upon termination of the contract, assuming all
contractual obligations have been satisfied. The Global Account expects to earn
interest income on its initial margin deposits. A futures contract held by the
Global Account is valued daily at the official settlement price of the exchange
on which it is traded. Each day the Global Account pays or receives cash,
called "variation margin" equal to the daily change in value of the futures
contract. This process is known as "marking-to-market". The payment or receipt
of the variation margin does not represent a borrowing or loan by the Global
Account but is settlement between the Global Account and the broker of the
amount one would owe the other if the futures contract expired. In computing
daily net asset value, each fund will mark-to-market its open futures positions.
The Global Account is also required to deposit and maintain margin with respect
to put and call options on futures contracts it writes. Such margin deposits
will vary depending on the nature of the underlying futures contract (including
the related initial margin requirements), the current market value of the
option, and other futures positions held by the Global Account.
When purchasing a futures contract or selling a put option on a futures
contract, the Global Account is required to maintain with its custodian high-
quality liquid debt securities, cash, or cash equivalents (including any margin)
equal to the purchase price of such contract or option to collateralize the
position, or to otherwise cover the position. When selling a futures contract
or selling a call option on a futures contract, the Global Account is required
to maintain with its custodian high-quality liquid debt securities, cash, or
cash equivalents (including any margin) equal to the market value of such
contract or option, or to otherwise cover the position.
In compliance with the requirements of the Commodity Futures Trading Commission
("CFTC") under which an investment company may engage in futures transactions,
the Global Account will comply with certain regulations of the CFTC to qualify
for an exclusion from being a "commodity pool." The regulations require that
the Global Account enter into futures and option (1) for "bona fide hedging"
purposes, without regard to the percentage of assets committed to initial margin
and options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking into
account unrealized profits and unrealized gains on any such contracts entered
into.
OPTIONS ON SECURITIES
In pursuing its investment objective, the Global Account may engage in
transactions on options on securities. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option.
One reason the Global Account may purchase put options on securities is to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another. For example, the purchase of put
options on debt securities held by the Global Account would enable the Global
Account to protect, at least partially, an unrealized gain in an appreciated
security without actually selling the security. In addition, the Global Account
would continue to receive interest income on such security.
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The Global Account may purchase call options on securities in furtherance of its
investment objective, which may include a call option to protect against
substantial increases in prices of securities the Global Account intends to
purchase pending its ability to invest in such securities in an orderly manner.
The Global Account may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transactional
costs paid on the put or call option which is sold.
In order to earn additional income on its portfolio securities or to protect
partially against declines in the value of such securities, the Global Account
may write covered call options. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying security at
the time the option is written. During the option period, a covered call option
writer may be assigned an exercise notice by the broker-dealer through whom such
call option was sold requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. Closing purchase transactions will
ordinarily be effected to realize a profit on an outstanding call option, to
prevent an underlying security from being called, to permit the sale of the
underlying security, or to enable the Global Account to write another call
option on the underlying security with either a different exercise price or
expiration date or both.
In order to earn additional income or to facilitate its ability to purchase a
security at a price lower than the current market price of such security, the
Global Account may write secured put options. During the option period, the
writer of a put option may be assigned an exercise notice by the broker-dealer
through whom the option was sold requiring the writer to purchase the underlying
security at the exercise price.
The Global Account may write a call or put option only if the option is
"covered" or "secured". This means that so long as the Global Account is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or if the Global Account holds a call at the same exercise
price, for the same exercise period, and on the same securities as the written
call. Alternatively, the Global Account may maintain, in a segregated account
with Account D's custodian, cash, cash equivalents, or high-quality liquid debt
securities with a value sufficient to meet its obligation as writer of the
option. A put is secured if the Global Account maintains cash, cash
equivalents, or high-quality debt securities with a value equal to the exercise
price in a segregated account, or holds a put on the same underlying security at
an equal or greater exercise price. Prior to exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option of the same
series.
Unless otherwise indicated above, the Global Account will enter only into
options which are standardized and traded on a U.S. or foreign exchange or board
of trade, or for which an established over-the-counter market exists.
OPTIONS ON SECURITIES INDEXES
Call and put options on securities indexes also may be purchased or sold by the
Global Account in furtherance of its investment objective. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index
options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single
security. When such options are written, the Global Account is required to
maintain a segregated account consisting of cash, cash equivalents or high grade
obligations with a
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value equal to the exercise price or the Global Account must purchase a like
option of greater value that will expire no earlier than the option sold.
Purchased options may not enable the Global Account to hedge effectively against
stock market risk if they are not highly correlated with the value of the Global
Account's securities. Moreover, the ability to hedge effectively depends upon
the ability to predict movements in the stock market.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts, currency exchange
transactions on a spot (i.e. cash) basis and options on currencies. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. The
Global Account will engage in forward currency transactions in furtherance of
its investment objective, which may include hedging purposes such as
transactions in anticipation of or to protect the Global Account against
fluctuations in currency exchange rates. The Global Account might sell a
particular currency forward, for example, when it wanted to hold bonds or bank
obligations denominated in that currency but anticipated or wished to be
protected against a decline in the currency against the dollar.
The Global Account may enter into a long position in a forward currency contract
for a fixed amount of foreign currency in anticipation of an increase in the
value of that currency. The Global Account may enter into forward foreign
currency contracts in other circumstances, as described in Part II of the
prospectus under Investment Objective and Policies of the Global Account. When
the Global Account enters into a contract for the purchase or sale of a security
denominated in a foreign currency, the Global Account may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
a fixed amount of dollars for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Global Account will be
able to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and such foreign currency during the
period between the date on which the security is purchased or sold and the date
on which payment is made or received.
Also, when the Portfolio Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars to sell the amount
of foreign currency approximating the value of some or all of the Global
Account's securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of securities in foreign
currencies will change as a consequence of market movements in the value of
these securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
At the maturity of a forward contract, the Global Account may either sell the
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. It is impossible to forecast the market value of a particular
security at the expiration of the contract. Accordingly, if a decision is made
to sell the security and make delivery of the foreign currency, it may be
necessary for the Global Account to purchase additional foreign currency on the
spot market
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(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency that the Global Account is obligated to
deliver.
If the Global Account retains the security and engages in an offsetting
transaction, the Global Account will incur a gain or a loss (as described below)
to the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the Global Account's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Global Account will realize a gain to the extent that the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Global Account will suffer a loss
to the extent that the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
When entering into a long position on a forward currency contract or selling a
put option on a forward currency contract, the Global Account is required to
maintain with its custodian high-quality liquid debt securities, cash, or cash
equivalents (including any margin) equal to the purchase price of such contract
or option to collateralize the position or to otherwise cover the position.
When entering into a short position in a forward currency contract or selling a
call option on a forward currency contract, the Global Account is required to
maintain with its custodian high-quality liquid debt securities, cash, or cash
equivalents (including any margin) equal to the market value of such contract or
option or to otherwise cover the position.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks to
close out a forward currency position, and in such an event, the Global Account
might not be able to effect a closing purchase transaction at any particular
time. In addition, the Global Account entering into a forward foreign currency
contract incurs the risk of default by the counter party to the transaction.
The CFTC has indicated that it may in the future assert jurisdiction over
certain types of forward contracts in foreign currencies and attempt to prohibit
certain entities from engaging in such foreign currency forward transactions.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may write and purchase call and put options on foreign
currencies. Such strategies may be employed for purposes of exposing the Global
Account to a foreign (or domestic) currency or to shift exposure to foreign
currency fluctuations from one country to another or to function as a hedge
against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which securities of the Global Account may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option gives the buyer the right to sell, a certain amount of
foreign currency at a specified price during a fixed period of time. The Global
Account may enter into closing sale transactions with respect to such options,
exercise them, or permit them to expire.
The Global Account may enter into an option on a currency before the Global
Account purchases a foreign security denominated in the currency the Global
Account anticipates acquiring, during the period the Global Account holds the
foreign security, or between the date the foreign security is purchased or sold
and the date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily purchased
(or where such options may be deemed illiquid) in the currency in which a hedge
is desired, the hedge may be
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obtained by purchasing or selling an option on a "surrogate" currency, i.e., a
currency where there is tangible evidence of a direct correlation in the trading
value of the two currencies. A surrogate currency is a currency that can act,
for hedging purposes, as a substitute for a particular currency because the
surrogate currency's exchange rate movements parallel that of the primary
currency. Surrogate currencies are used to hedge an illiquid currency risk,
when no liquid hedge instruments exist in world currency markets for the primary
currency.
REPURCHASE AGREEMENTS
The Global Account may invest in repurchase agreements. A repurchase agreement
is a transaction in which the seller of a security commits itself at the time of
the sale to repurchase that security from the buyer at a mutually agreed upon
time and price. These agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. The term of such an agreement is
generally quite short, possibly overnight or for a few days, although it may
extend over a number of months (up to one year) from the date of delivery. The
resale price is in excess of the purchase price by an amount which reflects an
agreed upon market rate of return, effective for the period of time the Global
Account is invested in the security. This results in a fixed rate of return
protected from market fluctuations during the period of the agreement. This
rate is not tied to the coupon rate on the security subject to the repurchase
agreement.
The Global Account may engage in repurchase transactions in accordance with
guidelines approved by the Board of Governors of Account D, which include
monitoring the creditworthiness of the parties with which the Global Account
engages in repurchase transactions, obtaining collateral at least equal in value
to the repurchase obligation, and marking the collateral to market on a daily
basis. The Global Account may not enter into a repurchase agreement having more
than seven days remaining to maturity if, as a result, such agreements, together
with any other securities that are not readily marketable, would exceed 15% of
the net assets of the Global Account. If the seller should become bankrupt or
default on its obligations to repurchase the securities, the Global Account may
experience delays or difficulties in exercising its rights to the securities
held as collateral and might incur a loss if the value of the securities should
decline. The Global Account also might incur disposition costs in connection
with liquidating the securities.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
The Global Account may invest in (i) certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in (ii) certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan or other depository associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Fixed-time deposits are bank obligations payable at a stated maturity
date and bearing interest at a fixed rate. Fixed-time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed-time deposit to a third party, because there is
no market for such deposits. The Global Account will not invest in fixed-time
deposits (i) which are not subject to prepayment or (ii) which provide for
withdrawal penalties upon prepayment (other than overnight deposits), if, in the
aggregate, more than 15% of its assets would
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be invested in such deposits, in repurchase agreements maturing in more than
seven days, and in other illiquid assets.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of U.S. banks, which include: (i) the possibility
that their liquidity could be impaired because of future political and economic
developments; (ii) their obligations may be less marketable than comparable
obligations of U.S. banks; (iii) a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations; (iv) foreign deposits may
be seized or nationalized; (v) foreign governmental restrictions, such as
exchange controls, may be adopted which might adversely affect the payment of
principal and interest on those obligations; and (vi) the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks and/or because the accounting, auditing,
and financial reporting standards, practices and requirements applicable to
foreign banks may differ from those applicable to U.S. banks. Foreign banks are
not generally subject to examination by any U.S. Government agency or
instrumentality.
The Global Account will not invest in obligations issued by a U.S. or foreign
commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10 billion (U.S.), or
the equivalent in other currencies, and the institution has
outstanding securities rated A or better by Moody's or Standard &
Poor's, or, if the institution has no outstanding securities rated by
Moody's or Standard & Poor's, it has, in the determination of the
Portfolio Manager, similar creditworthiness to institutions having
outstanding securities so rated; and
(ii) in the case of a U.S. bank or S&L, its deposits are insured by the
FDIC or the Savings Association Insurance Fund ("SAIF"), as the case
may be.
COMMERCIAL PAPER
The Global Account may invest in commercial paper (including variable amount
master demand notes), denominated in U.S. dollars, issued by U.S. corporations
or foreign corporations. The Global Account may invest in commercial paper (i)
rated, at the date of investment, P-2 or better by Moody's or A-2 or better by
Standard & Poor's; (ii) if not rated by either Moody's or Standard & Poor's,
issued by a corporation having an outstanding debt issue rated A or better by
Moody's or A or better by Standard & Poor's; or (iii) if not rated, are
determined to be of an investment quality comparable to rated commercial paper
in which the Global Account may invest. Generally, commercial paper represents
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations, and finance companies.
Commercial paper obligations may include variable amount master demand notes.
These notes are obligations that permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Global
Account, as lender, and the borrower. These notes permit daily changes in the
amounts borrowed. The lender has the right to increase or to decrease the
amount under the note at any time up to the full amount provided by the note
agreement; and the borrower may prepay up to the full amount of the note without
penalty. Because variable amount master demand notes are direct lending
arrangements between the lender and borrower, and because no secondary market
exists for those notes, such instruments will probably not be traded. However,
the notes are redeemable (and thus immediately repayable by the borrower) at
face value, plus accrued interest, at any time. In connection with master
demand note arrangements, the Portfolio Manager will monitor, on an ongoing
basis, the earning power, cash flow, and other liquidity ratios
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of the borrower and its ability to pay principal and interest on demand. The
Portfolio Manager also will consider the extent to which the variable amount
master demand notes are backed by bank letters of credit. These notes generally
are not rated by Moody's or Standard & Poor's; the Global Account may invest in
them only if the Portfolio Manager believes that at the time of investment the
notes are of comparable quality to the other commercial paper in which the
Global Account may invest. Master demand notes are considered by the Global
Account to have a maturity of one day, unless the Portfolio Manager has reason
to believe that the borrower could not make immediate repayment upon demand.
See the Appendix for a description of Moody's and Standard & Poor's ratings
applicable to commercial paper.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES
The Global Account may purchase securities on a when-issued or delayed delivery
basis if the Global Account holds, and maintains until the settlement date in a
segregated account, cash, U.S. Government securities, or high-grade liquid debt
obligations in an amount sufficient to meet the purchase price, or if the Global
Account enters into offsetting contracts for the forward sale of other
securities it owns. Purchasing securities on a when-issued or delayed delivery
basis involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Global Account's other assets. Although the Global
Account would generally purchase securities on a when-issued basis or enter into
forward commitments with the intention of acquiring securities, the Global
Account may dispose of a when-issued or delayed delivery security prior to
settlement if the Portfolio Manager deems it appropriate to do so. The Global
Account may realize short-term profits or losses upon such sales.
INVESTMENT RESTRICTIONS
The Global Account's investment objective as set forth under "Investment
Objective and Policies" in Part II of the prospectus, together with the
investment restrictions set forth below are, unless otherwise noted, fundamental
policies of the Global Account and may not be changed without the approval of a
majority of the outstanding voting interests of the Global Account. The vote of
a majority of the outstanding voting interests of the Global Account means the
vote, at an annual or special meeting, of the lesser of: (a) 67% or more of the
voting interest present at such meeting, if the holders of more than 50% of the
outstanding voting interests of the Global Account are present or represented by
proxy; or (b) more than 50% of the outstanding voting interest of the Global
Account. In accordance with its investment restrictions, the Global Account
will not:
(1) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto) or securities issued or guaranteed
by a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities (or repurchase agreements
with respect thereto):
(2) Purchase or sell real estate, except that the Global Account may
invest in securities secured by real estate or real estate interests
or issued by companies in the real estate industry or which invest in
real estate or real estate interests;
(3) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of securities), except
that to the extent the Global
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Account engages in transactions in options, futures, and options on
futures, the Global Account may make margin deposits in connection
with those transactions and except that effecting short sales will be
deemed not to constitute a margin purchase for purposes of this
restriction;
(4) Lend any funds or other assets, except that the Global Account may,
consistent with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission and any guidelines established by Account D's
Board of Governors;
(5) Issue senior securities, except insofar as the Global Account may be
deemed to have issued a senior security by reason of borrowing money
in accordance with the Global Account's borrowing policies, or in
connection with any repurchase agreement, and except, for purposes of
this investment restriction, collateral or escrow arrangements with
respect to the making of short sales, purchase or sale of futures
contracts or related options, purchase or sale of forward currency
contracts, writing of stock options, and collateral arrangements with
respect to margin or other deposits respecting futures contracts,
related options, and forward currency contracts are not deemed to be
an issuance of a senior security;
(6) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, the Global
Account may be deemed to be an underwriter under Federal securities
laws;
(7) Borrow money or pledge, mortgage, or hypothecate its assets, except
that the Global Account may: (a) borrow from banks but only if
immediately after each borrowing and continuing thereafter, there is
asset coverage of 300%; and (b) enter into reverse repurchase
agreements and transactions in options, futures, options on futures,
and forward currency contracts as described in the prospectus and in
this Statement of Additional Information. (The deposit of assets in
escrow in connection with the writing of covered put and call options
and the purchase of securities on a "when-issued" or delayed delivery
basis and collateral arrangements with respect to initial or
variation margin and other deposits for futures contracts, options on
futures contracts, and forward currency contracts will not be deemed
to be pledges of the Global Account's assets for purposes of this
restriction.)
The Global Account is also subject to the following restrictions and policies
that are not fundamental and may, therefore, be changed by the Board of
Governors (without contract owner approval) relating to the investment of its
assets and activities. Unless otherwise indicated, the Global Account may not:
(1) Invest in securities that are illiquid because they are subject to
legal or contractual restrictions on resale, in repurchase agreements
maturing in more than seven days, or other securities which in the
determination of the Portfolio Manager are illiquid if, as a
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result of such investment, more than 15% of the total assets of the
Global Account (taken at market value at the time of such investment)
would be invested in such securities; and
(2) Purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or
forward foreign currency contracts or futures contracts on
currencies), except that the Global Account may engage in interest
rate futures contracts, stock index futures contracts, futures
contracts based on other financial instruments, and in options on
such futures contracts.
MANAGEMENT OF SEPARATE ACCOUNT D
BOARD OF GOVERNORS
The business and affairs of Account D are managed under the direction of a Board
of Governors, which consists of four members. The Board of Governors has
responsibility for matters relating to the portfolio of Account D and matters
arising under the Investment Company Act of 1940. The Board of Governors does
not have responsibility for the payment of obligations under the Contracts and
administration of the Contracts. These matters are Golden American's
responsibility. The business and affairs of Account D are governed under a set
of rules adopted by the Board of Governors called "Rules and Regulations of
Separate Account D".
The members of the Board of Governors and principal officers, their business
addresses, and principal occupation(s) during the past five years are as
follows:
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS ACCOUNT D DURING PAST 5 YEARS
- --------------------------------------------------------------------------------
Terry L. Kendall* Chairman and Chairman, President and Chief
Golden American Life President Executive Officer, Golden
Insurance Co. American Life Insurance Company,
1001 Jefferson Street October 1993 to present;
Wilmington, DE 19801 Chairman, President and Chief
Executive Officer, BT Variable,
Inc. October 1993 to present;
Chairman and Chief Executive
Officer, Directed Services,
Inc., October 1993 to present;
President and Chief Executive
Officer, United Pacific Life
Insurance Company, September
1982 to September 1993.
Bernard R. Beckerlegge Secretary Secretary and General Counsel,
Golden American Life Directed Services, Inc. March
Insurance Co. 1988 to present; Secretary and
1001 Jefferson Street General Counsel, Golden American
Wilmington, DE 19801 Life Insurance Company, March
1988 to present; Secretary, BT
Variable, Inc., October 1992 to
present; Vice President and
General Counsel, MBL Variable,
Inc., February 1991 to September
1992; General Counsel, The
Golden Financial Group, Inc.,
March 1988 to October 1990.
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Robert A. Grayson Member Co-founder, Grayson Associates,
Grayson Associates Inc.; Adjunct Professor of
108 Loma Media Road Marketing, New York University
Santa Barbara, CA 93103 School of Business
Administration; Former
Director, The Golden Financial
Group, Inc.; Former Senior Vice
President, David & Charles
Advertising
Barnett Chernow Executive Vice Executive Vice President, BT
Golden American Life I President Variable and Directed Services,
nsurance Co. and Principal Inc., October 1993 to present;
1001 Jefferson Street Financial From 1977 through 1993, various
Wilmington, DE 19801 Officer positions with Reliance Insurance
Companies, and Senior vice
President and Chief Financial
Officer of United Pacific Life
Insurance Company from 1984
through 1993.
Stephen J. Preston Comptroller Senior Vice President, BT
Golden American Life Variable and Directed Services,
Insurance Co. Inc., December 1993 to present;
1001 Jefferson Street From September 1993 through
Wilmington, DE 19801 November 1993, Senior Vice
President and Actuary for Mutual
of America Insurance Company;
From July 1987 through August
1993, various positions with
United Pacific Life Insurance
Company and was Vice president
and Actuary upon leaving.
M. Norvel Young Member Chancellor Emeritus and Board of
Pepperdine University Regents, Pepperdine University;
Malibu, CA 90263 Director, Imperial Bancorp,
Imperial Bank and Imperial Trust
Company and 20th Century
Christian Publishing Company
Roger B. Vincent Member President, Springwell
230 Park Avenue Corporation; Director,
New York, NY 10169 Petralone, Inc; formerly,
Managing Director, Bankers Trust
Company
Mary Bea Wilkinson Chief Financial Senior Vice President, Golden
Golden American Life Officer American Life Insurance Company
Insurance Co. November 1993 to present, Senior
1001 Jefferson Street Vice President, BT Variable, Inc.,
Wilmington, DE 19801 November 1993 to present,
Assistant Vice President, CIGNA
Insurance Companies, August 1993
to October 1993; various positions
with United Pacific Life Insurance
Company, January 1987 to July
1993, and was Vice President and
Controller upon leaving.
____________________________
*Mr. Kendall is an "interested person" of Account D (as that term is defined in
the Investment Company Act of 1940) by reason of his affiliation with Directed
Services, Inc..
THE MANAGER
DSI also serves as the manager (the "Manager") to Account D pursuant to a
management agreement effective October 2, 1992. The Manager is a New York
corporation. Its address is 280 Park Avenue, New York, New York 10017. DSI is
a wholly owned indirect subsidiary of Bankers Trust Company, which in turn, is a
wholly owned subsidiary of Bankers Trust New York Corporation. DSI's business
activities include those of a distributor and underwriter of variable insurance
products, broker-dealer and investment manager. DSI is registered with the SEC
as a broker-dealer and investment advisor and is a member of the National
Association of Securities Dealers, Inc. ("NASD"). It is also registered as a
broker-dealer and/or investment advisor in various states.
Under the management agreement, the Manager, subject to the direction of the
Board of Governors, is responsible for providing all supervisory and management
services reasonably necessary for the operation of Account D, including the
Global Account, other than the investment advisory services performed by the
Portfolio Manager. These services include, but are not limited to, (i)
coordinating all matters relating to the functions of the Portfolio Manager,
Custodian, Recordkeeping Agent
20
<PAGE>
(including pricing and valuation of the Global Account), accountants, attorneys,
and other parties performing services or operational functions for Account D;
(ii) providing Account D and the Global Account, at the Manager's expense, with
the services of a sufficient number of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
supervision and administration of Account D; (iii) maintaining or supervising
the maintenance by the Portfolio Manager or third parties approved by Account D
of such books and records of Account D and the Global Account as may be required
by applicable Federal or state law; (iv) preparing or supervising the
preparation by third parties approved by Account D of all Federal, state and
local tax returns and reports of Account D required by applicable law; (v)
preparing and filing and arranging for the distribution of proxy materials and
periodic reports to contract owners of Account D as required by applicable law;
(vi) preparing and arranging for the filing of such registration statements and
other documents with the Securities and Exchange Commission and other Federal
and state regulatory authorities as may be required by applicable law; (vii)
taking such other action with respect to Account D as may be required by
applicable law, including without limitation the rules and regulations of the
SEC and other regulatory agencies; and (viii) providing Account D at the
Manager's expense, with adequate personnel, office space, communications
facilities, and other facilities necessary for its operations as contemplated in
the Management Agreement. Other responsibilities of the Manager are described
in the prospectus.
The Manager shall make its officers and employees available to the Board of
Governors and Officers of Account D for consultation and discussions regarding
the supervision and administration of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of Global Account's assets and the purchase and sale of securities in the event
that at any time no portfolio manager is engaged to manage the assets of the
Global Account.
The Management Agreement was continued by the Board of Governors in September,
1994 and shall continue in effect until October 2, 1995, and from year to year
thereafter, provided such continuance is approved annually by a majority of the
Board of Governors who are not parties to such Management Agreement or
"interested persons" (as defined in the Investment Company Act of 1940, the
"1940 Act") of any such party. The Management Agreement may be terminated
without penalty by vote of the Board of Governors or the contract owners of the
Global Account, or by the Manager, on 60 days' written notice by the Board or
the Manager and will terminate automatically if assigned as that term is
described in the 1940 Act.
The Global Account pays the Manager a monthly fee based upon the following
annual percentages of the Global Account's average daily net assets: 0.40% of
the first $500 million and 0.30% of the amount over $500 million.
The initial organizational expenses of the Global Account will be amortized by
Account D for accounting purposes on a straight line basis over a period of five
years from the date that the Global Account commences operations.
PORTFOLIO MANAGER
The Global Account and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated June 9, 1994. The Portfolio Management
Agreement, which became effective July
21
<PAGE>
1, 1994, provides that, subject to the supervision of Account D's Board of
Governors and the Manager, the Portfolio Manager will provide a continuous
investment program for the Global Account and will determine the composition of
the assets of the Global Account, including determination of the purchase,
retention, or sale of the securities, cash, and other investments contained in
the portfolio. The Portfolio Manager is required to provide investment research
and conduct a continuous program of evaluation, investment, sales, and
reinvestment of the Global Account's assets. The Portfolio Management Agreement
may be terminated without penalty by the vote of the Board of Governors or the
contract owners of the Global Account, by the Portfolio Manager, or by the
Manager, on 60 days' written notice by any party to the Portfolio Management
Agreement and will terminate automatically if assigned as that term is described
in the 1940 Act.
Pursuant to the Portfolio Management Agreement, the Global Account pays the
Portfolio Manager a monthly fee equal to an annual rate based upon the following
percentages of the Global Account's average daily net assets: 0.60% of the
first $500 million and 0.50% of the amount over $500 million.
CUSTODIAN AND PORTFOLIO ACCOUNTING AGENT
The Custodian for Account D is Bankers Trust Company, 280 Park Avenue, New York,
New York 10017. DSI provides portfolio accounting services for the Global
Account.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Global Account are made by the Portfolio Manager
which has investment advisory clients other than the Global Account. A
particular security may be bought or sold by the Portfolio Manager for certain
clients even though it could have been bought or sold for other clients at the
same time. Two or more clients also may simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, allocated between such clients in a manner deemed fair and
reasonable by the Portfolio Manager. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Portfolio Manager, and the results of such allocations, are subject to periodic
review by Account D's Manager and Board of Governors. There may be
circumstances when purchases or sales of securities for one or more clients will
have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager places all orders for the purchase and sale of securities,
options, and futures contracts for the Global Account through a substantial
number of brokers and dealers or futures commission merchants. In executing
transactions, the Portfolio Manager will attempt to obtain the best execution
for the Global Account taking into account such factors as price (including the
applicable brokerage commission or dollar spread), size of order, the nature of
the market for the security, the timing of the transaction, the reputation,
experience and financial stability of the broker-dealer involved, the quality of
the service, the difficulty of execution and operational facilities of the firms
involved, and the firm's risk in positioning a block of securities. In
transactions on stock exchanges in the United States, payments of brokerage
commissions are negotiated. In effecting purchases and sales of securities in
transactions on U.S. stock exchanges for the Global Account, the Portfolio
Manager may pay higher commission rates than the lowest available when the
Portfolio Manager believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded
22
<PAGE>
on some foreign stock exchanges, brokerage commissions may be fixed and the
Portfolio Manager may be unable to negotiate commission rates for these
transactions. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup.
There is generally no stated commission in the case of fixed-income securities,
which are generally traded in the over-the-counter markets, but the price paid
by the Global Account usually includes an undisclosed dealer commission or mark-
up. In underwritten offerings, the price paid by the Global Account includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Global Account of negotiated brokerage commission. Such
commissions vary among different brokers. Also, a particular broker may charge
different commissions according to such factors as the difficulty and size of
the transaction.
It has for many years been a common practice in the investment advisory business
for advisors of investment companies and other institutional investors to
receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisors. Consistent with this practice,
the Portfolio Manager for the Global Account may receive research services from
many broker-dealers with which the Portfolio Manager places the Global Account's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such matters as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services may be of value to the Portfolio Manager and its affiliates in advising
its various clients (including the Global Account), although not all of these
services are necessarily useful and of value in managing the Global Account.
The advisory fee paid by the Global Account to the Portfolio Manager is not
reduced because the Portfolio Manager and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause the Global Account to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the 1934 Act) to the
Portfolio Manager, a disclosed commission for effecting a securities transaction
for the Global Account in excess of the commission which another broker-dealer
would have charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of exchange-
listed portfolio securities with a broker-dealer that is an affiliate of the
Portfolio Manager where, in the judgment of the Portfolio Manager, such firm
will be able to obtain a price and execution at least as favorable as other
qualified brokers. Counsellors Securities Inc. is a registered broker-dealer
and is an affiliate of the Portfolio Manager.
Pursuant to rules of the Securities and Exchange Commission, a broker-dealer
that is an affiliate of the Manager or Portfolio Manager or, if it is also a
broker-dealer, the Portfolio Manager may receive and retain compensation for
effecting portfolio transactions for the Global Account on a national securities
exchange of which the broker-dealer is a member if the transaction is "executed"
on the floor of the exchange by another broker which is not an "associated
person" of the affiliated broker-dealer or Portfolio Manager, and if there is in
effect a written contract between the Portfolio Manager and the Global Account
expressly permitting the affiliated broker-dealer or Portfolio Manager to
receive and retain such compensation. The Portfolio Management Agreement
provides that the Portfolio Manager may retain compensation on transactions
effected for the Global Account in accordance with the terms of these rules.
23
<PAGE>
Securities and Exchange Commission rules further require that commissions paid
to such an affiliated broker-dealer or Portfolio Manager by the Global Account
on exchange transactions not exceed "usual and customary brokerage commission."
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Board of Governors
has adopted procedures for evaluating the reasonableness of commissions paid to
broker-dealers that are affiliated with the Portfolio Manager and will review
these procedures periodically.
PURCHASE AND PRICING OF THE GLOBAL ACCOUNT
The valuation of the Global Account's assets is determined once each business
day, Monday through Friday, exclusive of Federal holidays, at 4:00 p.m., New
York City time, on each day that the New York Stock Exchange is open for
trading. In general, valuation of the Global Account's assets is based on
actual or estimated market value, with special provisions for assets not having
readily available market quotations and short-term debt securities. The value
of the Global Account will fluctuate in response to changes in market conditions
and other factors.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are valued
at their fair value as determined in good faith by the Board of Governors,
although the actual calculations will be made by persons acting under the
direction of the Board of Governors and subject to the Board of Governor's
review.
Money market instruments are valued at market value, except that instruments
maturing in sixty days or less may be valued using the amortized cost method of
valuation. The value of a foreign security is determined in its national
currency based upon the price on the pertinent foreign exchange as of its close
of business immediately preceding the time of valuation. Securities traded in
over-the-counter markets outside the United States are valued at the last
available price in the over-the-counter market prior to the time of valuation.
Other debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity date sixty days or less
after their date of acquisition, valued under the amortized cost method), are
normally valued on the basis of quotes obtained from brokers and dealers or
pricing services, which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Debt obligations having a maturity of sixty days or less may be valued at
amortized cost, unless the Portfolio Manager believes that amortized cost does
not approximate market value.
When the Global Account writes a put or call option, the amount of the premium
is included in the Global Account's assets and an equal amount is included in
its liabilities. The liability thereafter is adjusted to the current market
value of the option. The premium paid for an option purchased by the Global
Account is recorded as an asset and subsequently adjusted to market value.
24
<PAGE>
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B
The audited financial statements of Separate Account B are listed below and are
included in this Statement of Additional Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Combined Statement of Operations for the Year ended December 31,
1994
Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994 and 1993
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
The audited financial statements of The Managed Global Account of Separate
Account D are listed below and are included in this Statement of Additional
Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statements of Changes in Net Assets for the Years ended December
31, 1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Audited Financial Statements
25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Annuity Contractowners
SEPARATE ACCOUNT B
We have audited the accompanying statement of assets and liabilities of
Separate Account B (the "Account") as of December 31, 1994, and the related
combined statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. 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 Separate Account B at
December 31, 1994, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 14, 1995
26
<PAGE>
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 45,387,280 shares
(Cost $45,387,280)...................................................... $ 45,387,280
Limited Maturity Bond Series, 7,174,931 shares
(Cost $76,441,934)...................................................... 71,605,813
Natural Resources Series, 2,360,675 shares
(Cost $31,960,922)...................................................... 32,766,167
All-Growth Series, 5,958,509 shares
(Cost $74,833,551)...................................................... 70,668,772
Real Estate Series, 3,273,594 shares
(Cost $37,973,481)...................................................... 36,958,871
Fully Managed Series, 8,452,554 shares
(Cost $106,998,483)..................................................... 98,894,625
Multiple Allocation Series, 26,275,715 shares
(Cost $311,456,760)..................................................... 297,702,661
Capital Appreciation Series, 7,795,369 shares
(Cost $89,125,585)...................................................... 88,399,229
Rising Dividends Series, 4,933,167 shares
(Cost $51,022,111)...................................................... 50,416,965
Emerging Markets Series, 5,932,065 shares
(Cost $69,617,468)...................................................... 59,795,219
Market Manager Series, 274,824 shares
(Cost $2,754,250)....................................................... 2,753,739
-------------
Total Invested Assets
(Cost $897,571,825)................................................... 855,349,341
LIABILITIES
Payable to Golden American for Charges and Fees -- (Note 3)................ 530,918
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
NET ASSETS
For Variable Annuity Contracts............................................. $ 810,810,446
Retained in Separate Account B by Golden American -- (Note 3).............. 44,007,977
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
</TABLE>
See notes to financial statements.
27
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------------
LIMITED NATURAL MULTIPLE
LIQUID ASSET MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,443,621 $ 3,500,972 $ 286,872 $ 668,418 $ 1,862,701 $ 2,839,238 $ 10,655,655
Capital gain
distribution.......... -- -- 540,421 -- -- -- --
------------- ------------- ----------- ------------ ------------- -------------- ------------
Total investment
income.............. 1,443,621 3,500,972 827,293 668,418 1,862,701 2,839,238 10,655,655
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 361,615 736,430 282,948 613,111 348,164 1,078,655 2,955,387
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net investment
income.............. 1,082,006 2,764,542 544,345 55,307 1,514,537 1,760,583 7,700,268
------------- ------------- ----------- ------------ ------------- ------------- -------------
Realized gain on
investments
Proceeds from sales.... 40,758,078 22,640,885 7,724,804 4,427,509 9,351,495 15,241,359 28,761,003
Cost of securities
sold.................. 40,758,078 22,575,099 6,038,663 4,350,791 8,812,382 14,181,236 25,917,030
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net realized gain on
investments......... -- 65,786 1,686,141 76,718 539,113 1,060,123 2,843,973
------------- ------------- ----------- ------------ ------------- ------------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... -- (407,617) 2,953,720 3,650,218 (373,993) 4,424,678 3,296,333
End of year............ -- (4,836,121) 805,245 (4,164,779) (1,014,610) (8,103,858) (13,754,098)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- (4,428,504) (2,148,475) (7,814,997) (640,617) (12,528,536) (17,050,431)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,082,006 $(1,598,176) $ 82,011 $(7,682,972) $ 1,413,033 $ (9,707,830) $ (6,506,190)
------------- ------------- ----------- ------------ ------------- ------------- -------------
------------- ------------- ----------- ------------ ------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------
CAPITAL RISING EMERGING MARKETS
APPRECIATION DIVIDENDS MARKET SERIES MANAGER
SERIES SERIES (a) (a) SERIES (b) COMBINED
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,777,023 $ 685,072 $ -- $ 6,199 $ 23,725,771
Capital gain
distribution.......... -- -- 2,686,591 316 3,227,328
-------------- ------------ ------------- ----------- -------------
Total investment
income.............. 1,777,023 685,072 2,686,591 6,515 26,953,099
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 909,077 367,964 560,823 -- 8,214,174
-------------- ------------ ------------- ----------- -------------
Net investment
income.............. 867,946 317,108 2,125,768 6,515 18,738,925
-------------- ------------ ------------- ----------- -------------
Realized gain on
investments
Proceeds from sales.... 11,164,715 2,770,019 6,933,220 1,334 149,774,421
Cost of securities
sold.................. 9,738,102 2,715,467 6,096,514 1,331 141,184,693
-------------- ------------ ------------- ----------- -------------
Net realized gain on
investments......... 1,426,613 54,552 836,706 3 8,589,728
-------------- ------------ ------------- ----------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... 4,004,838 220,884 3,970,717 -- 21,739,778
End of year............ (726,357) (605,146) (9,822,249) (511) (42,222,484)
-------------- ------------ ------------- ----------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. (4,731,195) (826,030) (13,792,966) (511) (63,962,262)
-------------- ------------ ------------- ----------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ (2,436,636) $ (454,370) $ (10,830,492) $ 6,007 $ (36,633,609)
-------------- ------------ ------------- ----------- -------------
-------------- ------------ ------------- ----------- -------------
<FN>
(a) Commencement of operations, October 4, 1993.
(b) Commencement of operations, November 14, 1994.
</TABLE>
See notes to financial statements.
28
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
NATURAL
LIQUID ASSET LIMITED MATURITY BOND RESOURCE
SERIES SERIES SERIES
-------------------------- -------------------------- ------------
1994 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 1,082,006 $ 251,524 $ 2,764,542 $ 2,344,976 $ 544,345
Net realized gain (loss) on investments.............. -- -- 65,786 677,243 1,686,141
Net change in unrealized appreciation (depreciation)
of investments...................................... -- -- (4,428,504) (434,962) (2,148,475)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 1,082,006 251,524 (1,598,176) 2,587,257 82,011
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 43,297,390 22,808,053 32,040,952 54,680,072 8,595,119
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 4,159,230 (15,604,916) (22,001,625) (19,820,224) 5,715,775
Benefits, surrenders and other withdrawals........... (18,470,294) (3,497,357) (7,603,846) (5,188,057) (2,768,491)
Contract related charges and fees.................... (1,200,931) (229,252) (886,527) (498,019) (314,191)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 27,785,395 3,476,528 1,548,954 29,173,772 11,228,212
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 28,867,401 3,728,052 (49,222) 31,761,029 11,310,223
Net Assets:
Beginning of Year.................................... 16,497,588 12,769,536 71,622,231 39,861,202 21,436,544
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 45,364,989 $ 16,497,588 $ 71,573,009 $ 71,622,231 $ 32,746,767
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
ALL-GROWTH REAL ESTATE
SERIES SERIES
---------------------------------------- --------------------------
1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 8,983 $ 55,307 $ (177,810) $ 1,514,537 $ 640,795
Net realized gain (loss) on investments.............. 426,591 76,718 476,553 539,113 513,528
Net change in unrealized appreciation (depreciation)
of investments...................................... 3,295,092 (7,814,997) 2,648,629 (640,617) (548,785)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 3,730,666 (7,682,972) 2,947,372 1,413,033 605,538
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 10,191,488 18,242,132 34,573,445 9,862,267 22,416,140
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 5,176,672 9,624,494 (2,151,633) 208,409 4,008,119
Benefits, surrenders and other withdrawals........... (465,000) (4,906,264) (2,429,632) (2,918,618) (1,716,743)
Contract related charges and fees.................... (79,699) (709,171) (302,798) (401,259) (140,619)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 14,823,461 22,251,191 29,689,382 6,750,799 24,566,897
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 18,554,127 14,568,219 32,636,754 8,163,832 25,172,435
Net Assets:
Beginning of Year.................................... 2,882,417 56,055,565 23,418,811 28,772,896 3,600,461
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 21,436,544 $ 70,623,784 $ 56,055,565 $ 36,936,728 $ 28,772,896
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
29
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
FULLY MANAGED SERIES MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
-------------------------------- -------------------------------- ----------------------------
1994 1993 1994 1993 1994 1993
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 1,760,583 $ 2,384,033 $7,700,268 $ 15,125,636 $ 867,946 $565,868
Net realized gain on
investments........... 1,060,123 524,624 2,843,973 295,483 1,426,613 246,599
Net change in
unrealized
appreciation
(depreciation) of
investments........... (12,528,536) 1,699,232 (17,050,431) 672,723 (4,731,195) 2,955,304
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations.............. (9,707,830) 4,607,889 (6,506,190) 16,093,842 (2,436,636) 3,767,771
--------------- --------------- --------------- --------------- ------------- -------------
Contract related
transactions (Note 3)
Premiums............... 21,742,235 70,788,527 74,594,438 150,788,747 19,196,186 63,986,159
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (11,098,109) 108,564 (9,842,434) 5,675,110 (6,162,504) 3,402,619
Benefits, surrenders and
other withdrawals....... (9,049,892) (4,050,100) (30,149,866) (12,915,093) (7,902,148) (2,392,822)
Contract related charges
and fees................ (1,341,160) (516,502) (3,746,076) (1,609,228) (1,148,856) (331,307)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 253,074 66,330,489 30,856,062 141,939,536 3,982,678 64,664,649
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets........... (9,454,756) 70,938,378 24,349,872 158,033,378 1,546,042 68,432,420
Net Assets:
Beginning of Year...... 108,290,963 37,352,585 273,158,122 115,124,744 86,798,642 18,366,222
--------------- --------------- --------------- --------------- ------------- -------------
End of Year............ $ 98,836,207 $ 108,290,963 $297,507,994 $ 273,158,122 $ 88,344,684 $86,798,642
--------------- --------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- --------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------
MARKET
MANAGER
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES SERIES COMBINED
---------------------------- ---------------------------- ------------ ---------------
1994 1993 (a) 1994 1993 (a) 1994 (b) 1994
------------- ------------- ------------- ------------- ------------ ---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $317,108 $ 4,934 $ 2,125,768 $ (24,280) $ 6,515 $ 18,738,925
Net realized gain on
investments........... 54,552 -- 836,706 -- 3 8,589,728
Net change in
unrealized
appreciation
(depreciation) of
investments........... (826,030) 220,884 (13,792,966) 3,970,717 (511) (63,962,262)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase in net
assets resulting from
operations.............. (454,370) 225,818 (10,830,492) 3,946,437 6,007 (36,633,609)
------------- ------------- ------------- ------------- ------------ ---------------
Contract related
transactions (Note 3)
Premiums............... 25,149,913 11,566,378 30,112,986 13,923,417 1,414,129 284,247,747
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. 15,544,356 2,632,922 14,777,915 12,702,200 1,334,937 2,260,444
Benefits, surrenders and
other withdrawals....... (3,843,523) (25,387) (4,285,144) (62,486) -- (91,898,086)
Contract related charges
and fees................ (398,993) (12,349) (516,806) (20,979) (2,625) (10,666,595)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 36,451,753 14,161,564 40,088,951 26,542,152 2,746,441 183,943,510
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets........... 35,997,383 14,387,382 29,258,459 30,488,589 2,752,448 147,309,901
Net Assets:
Beginning of Year...... 14,387,382 -- 30,488,589 -- -- 707,508,522
------------- ------------- ------------- ------------- ------------ ---------------
End of Year............ $50,384,765 $ 14,387,382 $ 59,747,048 $ 30,488,589 $ 2,752,448 $ 854,818,423
------------- ------------- ------------- ------------- ------------ ---------------
------------- ------------- ------------- ------------- ------------ ---------------
<CAPTION>
1993
---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 21,124,659
Net realized gain on
investments........... 3,160,621
Net change in
unrealized
appreciation
(depreciation) of
investments........... 14,478,834
---------------
Net increase in net
assets resulting from
operations.............. 38,764,114
---------------
Contract related
transactions (Note 3)
Premiums............... 455,722,426
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (3,870,567)
Benefits, surrenders and
other withdrawals....... (32,742,677)
Contract related charges
and fees................ (3,740,752)
---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 415,368,430
---------------
Net increase (decrease)
in net assets........... 454,132,544
Net Assets:
Beginning of Year...... 253,375,978
---------------
End of Year............ $ 707,508,522
---------------
---------------
<FN>
(a) Commencement of Operations, October 4, 1990.
(b) Commencement of Operations, November 14, 1994.
</TABLE>
See notes to financial statements.
30
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account B (the "Account") was established on June 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of variable annuity contracts
("Contracts"). Effective September 30, 1992, Golden American became a
wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned
subsidiary of Bankers Trust Company ("Bankers Trust"). Previously, Golden
American was owned by Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit"). Golden American is primarily engaged in the issuance of
variable insurance products and is licensed as a life insurance company in the
District of Columbia and all states except New York. Effective December 30,
1993, Golden American was redomesticated from the State of Minnesota to the
State of Delaware.
Operations of the Account commenced on January 25, 1989. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to one or more divisions within the Account or to the
Golden American Guaranteed Interest Division and the Managed Global Division of
Separate Account D, which are not part of the Account, as elected by the
Contractowners. The assets of the Account are owned by Golden American. The
portion of the Account's assets applicable to Contracts will not be chargeable
with liabilities arising out of any other business Golden American may conduct,
but obligations of the Account, including the promise to make benefit payments,
are obligations of Golden American.
The Account makes available, under GoldenSelect Contracts, eleven investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations October 4, 1993), the Emerging Markets (commenced
operations on October 4, 1993) and the Market Manager (commenced operations
November 14, 1994) Divisions ("Divisions"). The assets in each Division are
invested in shares of a designated series ("Series") of a mutual fund, The GCG
Trust (the "Trust"). The account also includes The Fund For Life Division, which
is not included in the accompanying financial statements, and which, ceased to
accept new contracts effective December 31, 1994.
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
Contract benefits. Additional assets are held in Golden American's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risk under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
31
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust and
are valued at the net asset value per share of the respective Series of the
Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized gains
and losses on redemptions of the shares of the Series of the Trust are
determined on the identified cost basis.
For the years ended December 31, 1994 and 1993, the cost of purchases of
shares of the Trust aggregated $352,604,679 and $483,230,191, respectively and
the proceeds from sales of shares of the Trust aggregated $149,774,421 and
$46,471,631, respectively.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.25% of the assets attributable
to Contracts to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $40 per Contract year is
deducted from accumulation value of Deferred Annuity Contracts to cover ongoing
administrative expenses. The charge is deducted on the Contract processing date
at the end of the Contract processing period. This charge has been waived for
certain offerings of the Contract. For certain Contracts, a daily charge at an
annual rate of .10% is deducted from assets attributable to such Contracts.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: For certain Contracts, a minimum
death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death
benefit per Contract year is deducted from the accumulation value of Deferred
Annuity Contracts on each Contract processing date.
PREMIUM TAXES: For certain contracts, premium taxes are deducted, where
applicable, from the accumulation value of each Contract. The amount and timing
of the deduction depend on the annuitant's state of residence and currently
ranges up to 3.5% of premiums.
OTHER CHARGES: Five free investment re-allocations among Divisions per
Contract are allowed each Contract year. For each additional investment
re-allocation, a $25 charge is deducted from the amount transferred from each
Division.
CONTRACT SALES LOAD AND PREMIUM TAXES: A sales load of up to 7 1/2% is
applicable to each premium payment for sales related expenses as specified in
the Contracts (see Note 4), as is an amount equal to the premium tax applicable
to certain Contracts. Although this sales load and the premium tax are
chargeable to each premium when it is received by Golden American, the amount of
such
32
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
charges is initially advanced by Golden American to Contractowners and included
in the accumulation value and then deducted in equal installments on each
contract processing date over a period specified in the Contract. For Deferred
Annuity Contracts, the charges are recovered over a period which is the lesser
of either six or ten years or the amount of time between the contract date and
the annuity commencement date. For Annuity Certain Contracts, the charges are
recovered over a period which is the lesser of either six or ten years or the
length of the "certain" period, as defined in each Contract. Upon surrender of
the Contract, the unamortized deferred sales load and premium taxes are deducted
from the accumulation value by Golden American. The net assets retained in the
Account by Golden American in the accompanying financial statements represent
the unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Balance at January 1.......................................................... $ 37,363,830 $ 13,024,324
Sales load advanced........................................................... 16,137,638 27,069,471
Premium tax advanced.......................................................... 73,178 206,633
Net transfer from Guaranteed Interest Division and Separate Account D......... 665,964 359,229
Amortization of deferred sales load and premium tax........................... (10,232,633) (3,295,827)
-------------- --------------
Balance at December 31........................................................ $ 44,007,977 $ 37,363,830
-------------- --------------
-------------- --------------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer,acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994
and 1993, fees paid by Golden American to DSI aggregated $15,939,331 and
$30,495,805, respectively.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. For the year ended December 31, 1993, DSI
paid the Trust $255,476 relating to the Expense Agreement. The Expense Agreement
was terminated effective September 30, 1993, and was replaced by a unified fee
payable by the Trust to DSI, covering all expenses of the Trust, except trustee
fees which are borne by the Trust.
33
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 0.83 0.82 0.83 0.85 0.87 0.79 0.85 0.84 0.89 0.87 0.82 1.20 0.72 0.83 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.87% 1.82% 2.30% 4.81% 6.88% (1.98)% 5.35% 4.00% 10.38% 7.00% 1.71% 48.73% (10.53)% 3.87% (14.53)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 0.71 0.86 0.78 1.09 0.75 0.85 0.94 0.91 1.07 0.64 0.74 0.86 0.85 1.04 0.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.49)% 5.70% (3.37)% 35.39% (8.09)% 5.49% 16.33% 12.96% 32.99% (21.42)% (8.01)% 6.73% 5.38% 27.89% (3.96)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 0.78 0.89 0.82 0.95 0.84 0.79 0.87 0.59 0.80 0.20 0.67 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (1.96)% 10.24% 1.06% 19.07% 3.90% (2.38)% 7.44% 10.28% (0.21)% 2.94% (15.85)% 24.16%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
</TABLE>
34
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(d)... 1.04 1.03 1.04 1.06 1.08 0.98 1.06 1.05 1.11 1.08 1.02 1.50 0.90 1.04 0.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.66% 1.61% 2.09% 4.60% 6.67% (2.17)% 5.14% 3.79% 10.16% 6.79% 1.51% 48.43% (10.71)% 3.66% (14.70)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(d)... 0.89 1.07 0.98 1.36 0.94 1.06 1.17 1.14 1.34 0.80 0.93 1.08 1.07 1.29 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.67)% 5.49% (3.57)% 35.12% (8.28)% 5.28% 16.10% 12.73% 32.72% (21.58)% (8.20)% 6.51% 5.16% 27.64% (4.15)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING MARKET
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS MANAGER
-------------------------------------- ---------------------- -------------- -------------- -------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b) 1994 (c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --% 0.24%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40 0.44
Expense
charges
(d)... 0.98 1.11 1.02 1.19 1.06 0.98 1.09 0.74 1.00 0.25 0.84 0.30 0(e)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (2.16)% 10.02% 0.86% 18.83% 3.68% (2.57)% 7.22% 10.13% (0.41)% 2.89% (16.02)% 24.10% 0.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Commencement of operations November 14, 1994. Net return is not annualized
(d) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since January 1, 1990.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operative expense and mortality and expense risk charges were waived. Such
expenses would have aggregated 0.26% of average assets.
</TABLE>
35
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 1.40 1.39 1.40 1.43 1.46 1.33 1.43 1.42 1.50 1.46 1.38 2.03 1.22 1.41 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.30% 1.25% 1.73% 4.23% 6.29% (2.52)% 4.77% 3.42% 9.77% 6.41% 1.15% 47.90% (11.03)% 3.29% (15.01)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 1.20 1.44 1.32 1.84 1.26 1.43 1.58 1.54 1.80 1.07 1.25 1.46 1.44 1.74 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.98)% 5.12% (3.91)% 34.64% (8.60)% 4.91% 15.69% 12.33% 32.26% (21.85)% (8.52)% 6.13% 4.79% 27.19% (4.49)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 1.33 1.50 1.38 1.61 1.42 1.33 1.46 1.00 1.35 0.34 1.14 0.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (2.51)% 9.63% 0.50% 18.41% 3.32% (2.92)% 6.85% 9.87% (0.76)% 2.80% (16.32)% 23.99%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.35% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.35% had been in effect
since January 1, 1990.
</TABLE>
36
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners and Board of Governors
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
We have audited the accompanying statement of assets and liabilities of The
Managed Global Account of Separate Account D, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1994 and confirmation of securities not held by the custodian by
correspondence with others. 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 The Managed Global Account
of Separate Account D at December 31, 1994, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 10, 1995
37
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $90,208,934).................................... $85,946,412
Cash........................................................................ 278,515
Dividends and interest receivable........................................... 98,042
Prepaid expenses and other assets........................................... 7,918
-----------
Total Assets............................................................ 86,330,887
-----------
LIABILITIES
Payable to Golden American for contract related expenses.................... 46,106
Accrued expenses............................................................ 76,226
-----------
Total Liabilities....................................................... 122,332
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
NET ASSETS
For variable annuity contracts.............................................. $81,674,591
Retained in The Managed Global Account of Separate Account D by Golden
American................................................................... 4,533,964
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
</TABLE>
See notes to financial statements.
38
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of $53,740 foreign taxes withheld)........................... $ 457,838
Interest (Net of $1,330 foreign taxes withheld)............................. 1,211,036
------------
Total investment income................................................. 1,668,874
EXPENSES:
Management and advisory fees................................................ 834,367
Mortality and expense risk and administrative charges....................... 831,890
Custodian fees.............................................................. 84,877
Fund accounting fees........................................................ 68,428
Amortization of organizational expenses..................................... 29,200
Legal fees.................................................................. 28,916
Auditing fees............................................................... 25,536
Interest.................................................................... 23,218
Insurance premiums for fidelity bond........................................ 22,535
Proxy....................................................................... 19,368
Printing and mailing........................................................ 12,445
Registration fees........................................................... 3,463
Directors' fees and expenses................................................ 3,289
Other....................................................................... 12,284
------------
Total expenses.......................................................... 1,999,816
Less amounts paid by the investment manager pursuant to expense limitation
agreement.................................................................. (71,175)
------------
Net expenses............................................................ 1,928,641
------------
NET INVESTMENT LOSS........................................................... (259,767)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments............................................................... 357,057
Options................................................................... (14,024)
Futures................................................................... (100,164)
Foreign currency transactions............................................. (1,606,427)
------------
(1,363,558)
------------
Net change in unrealized appreciation (depreciation) of:
Investments............................................................... (10,287,249)
Futures and options....................................................... (1,063,664)
Foreign currency transactions............................................. (161,039)
------------
(11,511,952)
------------
Net realized and unrealized loss............................................ (12,875,510)
------------
Net decrease in net assets resulting from operations...................... (13,135,277)
------------
------------
</TABLE>
See notes to financial statements.
39
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss............................................................ $ (259,767) $ (269,919)
Net realized loss from investment and foreign currency transactions............ (1,363,558) (3,529,193)
Net unrealized (depreciation) appreciation of investment and foreign currency
transactions.................................................................. (11,511,952) 7,269,059
-------------- --------------
Net (decrease) increase in net assets resulting from operations................ (13,135,277) 3,469,947
-------------- --------------
CONTRACT RELATED TRANSACTIONS:
Premiums....................................................................... 22,680,207 45,381,393
Benefits, surrenders and other withdrawals..................................... (8,496,158) (3,073,207)
Net transfers (to) from Separate Account B and Guaranteed Interest Division of
Golden American............................................................... (2,244,552) 4,544,018
Contract related charges and fees.............................................. (1,073,158) (544,060)
-------------- --------------
Net increase in net assets resulting from contract related transactions........ 10,866,339 46,308,144
-------------- --------------
Net (decrease) increase in net assets.......................................... (2,268,938) 49,778,091
NET ASSETS:
Beginning of year.............................................................. 88,477,493 38,699,402
-------------- --------------
End of year.................................................................... $ 86,208,555 $ 88,477,493
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
40
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT
OF NET PRINCIPAL
ASSETS AMOUNT VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 5.8% $ 4,966,000 PNC Securities, 5.50%, dated 12/30/94,
due 01/03/95, collateralized by
$5,055,000 in principal amount of U.S.
Treasury Notes 5.875%, due 05/31/96
(Cost $4,966,000)...................... $ 4,966,000
-----------
CONVERTIBLE BONDS 6.0% $ 920,000 United Micro Electronics Conv. Bonds,
1.25%, 6/8/04 (Taiwan)................. 1,423,700
AUD 33,000 BTR Nylex LTD, 9% Conv. Notes 11/30/49,
(Australia)............................ 258,307
Y111,000,000 Matsushita Electric Works Conv. Bonds,
2.70%, 5/31/02 (Japan)................. 1,193,788
$ 800,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan) (c)................... 916,000
90,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan)....................... 103,050
FF 7,512,750 SCOR SA 3%, Conv. Bonds, 1/1/01
(France)............................... 1,299,230
-----------
Total Convertible Bonds
(Cost $5,275,355)...................... 5,194,075
-----------
COMMON STOCKS 85.2% SHARES
-------------
BANKS 3.2% 16,000 Arab Malaysian Merchant Bank BHD
(Malaysia)............................. 151,665
4,000 Banco Frances Rio Plata ADR
(Argentina)............................ 85,500
18,300 Banco Frances Del Rio Plata
(Argentina)............................ 121,022
119,000 Development Bank of Singapore
(Singapore)............................ 1,224,280
422,000 Foereningsbanken AB Serjes A (a)
(Sweden)............................... 824,219
79,500 Thailand Military Bank LTD (Thailand)... 335,737
-----------
2,742,423
-----------
BEVERAGES 1.7% 764,500 Lion Nathan LTD (New Zealand)........... 1,455,776
-----------
BUILDING & CONSTRUCTION 5.1% 113,400 Cementos De Mexico SA ADR (a)
(Mexico)............................... 1,151,237
5,000 Grupo Mexicand De Desarollo (Mexico).... 38,125
47,100 Grupo Tribasa SA ADR (a) (Mexico)....... 783,038
2,400 Maculan Holdings AG (Austria)........... 198,165
23,800 Tsuchiya Home (Japan)................... 586,089
100,000 United Construction (a) (Australia)..... 73,625
15,500 VA Technologie (a) (Australia).......... 1,561,376
-----------
4,391,655
-----------
CHEMICALS 6.1% 43,700 Norsk Hydro AS ADR (Norway)............. 1,709,763
20,600 PT TriPolyta Indonesia ADR (a)
(Indonesia)............................ 499,550
51,200 Reliance Industries GDS (a) (India)..... 1,011,200
98,000 Shin - Etsu Chemical (Japan)............ 1,950,347
-----------
5,170,860
-----------
COSMETICS 3.2% 164,000 KAO Corp. (Japan)....................... 1,862,700
79,000 NEC Corp. (Japan)....................... 905,217
-----------
2,767,917
-----------
DIVERSIFIED 1.9% 676,000 BTR Nylex LTD (Australia)............... 1,257,360
64,000 Westmont Berhad (Malaysia).............. 398,590
-----------
1,655,950
-----------
DRUGS 1.5% 50,200 Astra AB (Sweden)....................... 1,284,752
-----------
</TABLE>
41
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
COMMON STOCKS -- CONTINUED
<S> <C> <C> <C> <C>
ELECTRONICS 9.6% 4,400 Austria Mikro System (Austria).......... $ 331,817
1,465 BBC Brown Boveri (Switzerland).......... 1,261,310
80,000 Hitachi LTD (Japan)..................... 795,256
464,000 IPC LTD (Singapore)..................... 316,653
9,500 Sony ADR (Japan)........................ 533,187
44,000 Sony (Japan)............................ 2,498,744
53,000 TDK Corp. (Japan)....................... 2,573,022
-----------
8,309,989
-----------
ENTERTAINMENT 3.3% 77,200 Thorn EMI PLC (United Kingdom).......... 1,250,466
9,100 TOHO (Japan)............................ 1,600,664
-----------
2,851,130
-----------
FINANCIAL SERVICES 14.2% 75,000 Ampal American Israel Cl. A (a)
(Israel)............................... 496,875
35,900 Anglovaal LTD (South Africa)............ 1,101,227
3,565 Banco DeGalica Buenos Aires SA ADR
(Argentina)............................ 61,496
58,100 Banco Santander SA ADR (Spain).......... 2,222,325
38,732 Banesto SA ADS (a) (Spain).............. 115,094
2,583,854 Brierley Investment LTD (New Zealand)... 1,865,723
2,640 Cetelem (France)........................ 472,400
50,000 Goven & Company PLC (United Kingdom).... 278,570
71,200 Grupo Financiero Bancomer SA ADR (a)
(Mexico)............................... 844,218
466,800 Industrial Finance Corporation of
Thailand (Thailand).................... 994,972
65,000 Japan Securities Finance (Japan)........ 1,077,998
630,000 Singer & Friedlander Group (United
Kingdom)............................... 847,917
88,200 YPF SA ADR (Argentina).................. 1,885,275
-----------
12,264,090
-----------
HOSPITAL MANAGEMENT 1.2% 295,400 Takare PLC (United Kingdom)............. 1,017,062
-----------
INDUSTRIAL 2.2% 32,100 Celsius Industries Cl. B (Sweden)....... 713,429
31,900 Murata Manufacturing LTD (Japan)........ 1,234,446
-----------
1,947,875
-----------
INSURANCE 0.3% 10,080 SCOR SA (France)........................ 224,755
-----------
LEISURE RELATED 0.3% 4,000 Sankyo Company, LTD (Japan)............. 269,374
-----------
METALS & MINING 2.6% 49,000 Hindalco Industries GDR (a) (India)..... 1,641,500
79,100 Niugini Mining (a) (Australia).......... 242,145
287,000 Pasminco LTD (a) (Australia)............ 400,365
-----------
2,284,010
-----------
OFFICE EQUIPMENT 3.2% 2,900 Canon ADR (Japan)....................... 246,500
149,000 Canon (Japan)........................... 2,531,008
-----------
2,777,508
-----------
OIL & GAS 5.6% 51,000 Elf Aquitaine ADR (France).............. 1,797,750
19,200 Francaise de Petroleum Total (France)... 1,115,953
516,900 Woodside Petroleum LTD (Australia)...... 1,898,832
-----------
4,812,535
-----------
PAPER 3.0% 420,000 Fletcher Challenge LTD (New Zealand).... 984,955
36,650 Metsa Serla B (Finland)................. 1,608,609
-----------
2,593,564
-----------
</TABLE>
42
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
PHOTO & OPTICAL 0.6% 114,000 Pt Modern Photo Film Company
(Indonesia)............................ $ 482,128
-----------
PRINTING & PUBLISHING 1.2% 253,734 News Corporation LTD (Australia)........ 993,051
-----------
RETAIL 1.7% 33,600 York--Benimaru (Japan).................. 1,475,847
-----------
TELECOMMUNICATIONS 3.4% 46,000 Lagardere Groupe (France)............... 1,068,765
61 Nippon Telegraph & Telephone (Japan).... 540,165
31,600 Telefonos de Mexico Cl. L ADR
(Mexico)............................... 1,295,600
-----------
2,904,530
-----------
TEXTILES 0.9% 58,700 Tuntex Distinct GDS (Taiwan)............ 763,100
-----------
TRANSPORTATION 5.7% 188,000 British Airport Authority (United
Kingdom)............................... 1,391,661
150 Danzas Holding AG (Switzerland)......... 135,218
682 East Japan Railway (Japan).............. 3,413,770
-----------
4,940,649
-----------
UTILITIES 3.5% 8,100 ASEA AB (Sweden)........................ 586,988
71,900 Capex SA GDR (a) (c) (Argentina)........ 1,213,313
3,000 Capex SA GDR (a) (Argentina)............ 50,625
140 DDI (Japan)............................. 1,210,172
-----------
3,061,098
-----------
Total Common Stocks (Cost $77,338,313) 73,441,628
-----------
CONVERTIBLE PREFERRED STOCKS 1.2%
BUILDING & CONSTRUCTION 0.7% 6,800 Maclun Holdings AG (Australia).......... 561,468
PRINTING & PUBLISHING 0.5% 126,867 News Corporation Ltd Preferred
(Australia)............................ 437,533
-----------
Total Convertible Preferred Stocks
(Cost $1,154,019)....................... 999,001
-----------
WARRANTS AND OPTIONS 1.5% 40,250 Korean Stock Index Option, Expires
7/1/95 at 100,000 Won (Korea) (b)...... 1,343,302
600 Danza Holding AG., Expires 08/26/96
(Switzerland).......................... 2,406
-----------
Total Warrants and Options (Cost
$1,475,247)............................ 1,345,708
-----------
99.7% Total Investments (Cost $90,208,934).... 85,946,412
0.4% Total Other Assets...................... 384,475
(0.1%) Liabilities............................. (122,332)
-----------
100.0% Total Net Assets........................ $86,208,555
-----------
-----------
<FN>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of Notes to Financial Statements.
(a) Non-income producing security.
(b) Security is illiquid. Investments in illiquid securities with an aggregate
market value of $1,343,302 represent approximately 1.5% of net assets. The
valuation of this investment has been determined under the direction of the
Board of Governors:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION
ISSUE ISSUER DATE PURCHASE PRICE VALUATION
- ------------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Korean Stock Index Peninsula Trust 7/26/94 $ 36.14 $ 33.37
<FN>
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At December 31,
1994, the value of these securities amounted to $3,263,457 or 3.8% of net
assets.
</TABLE>
See notes to financial statements.
43
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Managed Global Account of Separate Account D (the "Account") was
established on April 18, 1990, by Golden American Life Insurance Company
("Golden American"), under Minnesota insurance law to support the operations of
variable annuity contracts ("Contracts"). Golden American is a wholly-owned
subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned subsidiary of
Bankers Trust Company ("Bankers Trust"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on October 21, 1992. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to the Account. The assets of the Account are owned by
Golden American. The portion of the Account's assets applicable to Contracts
will not be chargeable with liabilities arising out of any other business Golden
American may conduct, but obligations of the Account, including the promise to
make benefit payments, are obligations of Golden American.
The Account is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, as a non-diversified open-end
investment company.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the reserves and other contract liabilities with respect to the
Account. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risks under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS VALUATION: The valuation of the Account's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities are traded, or, if no sales
are reported, the mean between representative bid and ask quotations obtained
from a quotation reporting system or from established market makers. In other
cases, securities are valued at their fair value as determined in good faith
under the direction of the Board of Governors. The value of a foreign security
is determined in its national currency based upon the price on the pertinent
foreign exchange as of its close of business immediately preceding the time of
valuation. Domestic and foreign denominated debt securities, including those to
be purchased under firm commitment agreements, are normally valued on the basis
of quotes obtained from brokers and dealers or pricing services. Debt
obligations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not
approximate market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business
44
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
immediately preceding the time of valuation. Purchases and sales of portfolio
securities are translated at the rates of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates of
exchange prevailing when accrued. Net realized and unrealized losses on foreign
currency transactions of $1,606,427 and $161,039, respectively, represent
foreign exchange gains and losses from holdings of foreign currencies, options
on foreign currencies, exchange gains and losses realized between the trade and
settlement date on security transactions, and the difference between the amounts
of interest and dividends and expenses recorded on the Account's books and the
U.S. dollar equivalent amounts actually received or paid. The Account does not
separate that portion of the realized and unrealized gains and losses resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of investments.
INVESTMENT INCOME AND SECURITY TRANSACTIONS: Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Interest income, including the amortization of premiums and discounts, and
estimated expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
used for federal income tax purposes.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American, which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. SECURITIES TRANSACTIONS
(a) Purchases and sales of investment securities, excluding short-term
securities and options transactions, during the year ended December 31, 1994,
were $116,075,263 and $83,822,618, respectively.
(b) The Account may enter into repurchase agreements in accordance with
guidelines approved by the Board of Governors. The account bears a risk of loss
in the event that the counterparty to a repurchase agreement defaults on its
obligations and the Account is delayed or prevented from exercising its right to
dispose of the underlying securities collateralizing the repurchase agreement,
including the risk of a possible decline in the value of the underlying
securities during the period while the Series seeks to assure its rights. The
Account takes possession of the collateral, and reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Account enters into repurchase agreements to evaluate potential risks. The
market value of the underlying securities received as collateral must be at
least equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Account has the right to use the underlying securities
to offset the loss.
(c) The Account may write exchange-listed and over-the-counter call and put
options on securities, currencies and other financial investments to enhance
investment performance. When the Account writes a put or call option, the amount
of received premium is included in the Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the current
market value of the option. Premiums received from writing options which expire
unexercised are treated by the Account on the expiration date as realized gains.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Account has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Account. In writing an option, the Account
bears the market risk of
45
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
unfavorable changes in the price of the security or currency underlying the
written option. Exercise of an option written by the Account could result in the
Account selling or buying a security or currency at a price different from the
current market value.
The Account realized losses on written options of $232,104 for the year
ended December 31, 1994. Transactions in call and put options written for the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
------------ --------------
<S> <C> <C>
CALL OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 276 1,211,700
Options terminated in closing purchase transactions............... (276) (1,211,700)
------------ --------------
Options outstanding at end of period.............................. 0 0
------------ --------------
------------ --------------
PUT OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 181 809,540
Options terminated in closing purchase transactions............... (181) (809,540)
------------ --------------
Options outstanding at end of period.............................. 0 $ 0
------------ --------------
------------ --------------
</TABLE>
In addition, the Account may purchase exchange-traded and over-the-counter
call and put options on securities, currencies and securities indices. The risk
in buying an option is that the Account pays for a premium whether or not the
option is exercised. The Account also has the additional risk of not being able
to enter into a transaction if a liquid secondary market does not exist.
Additionally, the account bears the risk of loss should the counterparty not
perform under the contract.
(d) The Account enters into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the cost of the
original contracts and the amount realized upon the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts held
are recorded for financial reporting purposes as unrealized gains or losses by
the Account on a daily basis. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar. At December 31,
1994, the Account had no forward foreign currency exchange contracts
outstanding.
(e) The Account may engage in trading financial futures contracts to hedge
its portfolio holdings or to enhance investment performance. Consequently, the
Account is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require the
Account to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized gains
or losses. When the contracts are closed, the Account recognizes a realized gain
or loss. These investments require initial margin deposits
46
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange or
the board of trade on which the contract is traded and is subject to change. At
December 31, 1994, the Account had no open futures contracts.
4. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. The following is a summary of these
charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.35% of the assets attributable
to Contracts to cover these risks.
ASSET BASED ADMINISTRATIVE CHARGE: To compensate Golden American for the
administrative expenses under the Contract, a daily charge at an annual rate of
0.10% is deducted from assets attributable to the Contracts.
PARTIAL WITHDRAWAL CHARGE: A partial withdrawal charge of the lower of 2%
of the withdrawal or $25 is deducted from the accumulation value for each
additional partial withdrawal after the first partial withdrawal in a contract
year.
DEFERRED SALES LOAD: A sales load of 6% is applicable to each premium
payment for sales related expenses as specified in the Contracts. Although the
sales load is chargeable to each premium when it is received by Golden American,
the amount of such charge is initially advanced by Golden American to
Contractowners and included in the accumulation value and then deducted in equal
installments on each Contract processing date over a period of six years. For
the year ended December 31, 1994, contract sales loads of $1,039,651 initially
advanced by Golden American to the Account were deducted from contractowners'
accumulation value. Upon surrender of the Contract, the unamortized deferred
sales load is deducted from the accumulation value by Golden American. In
addition, when partial withdrawal limits are exceeded, a portion of the
unamortized deferred sales load is deducted.
The net assets retained in the Account by Golden American in the
accompanying financial statements represent the unamortized deferred sales load
and premium taxes advanced by Golden American, noted above.
Net Assets Retained in the Account by Golden American are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year........................................................ $ 4,668,658 $ 2,313,333
Sales load advanced................................................................. 1,338,526 2,671,408
Premium tax advanced................................................................ 6,823 5,997
Net transfer (to) from Separate Account B and the Guaranteed Interest Division...... (427,829) 197,052
Amortization of deferred sales load................................................. (1,052,214) (519,132)
------------- -------------
$ 4,533,964 $ 4,668,658
------------- -------------
------------- -------------
</TABLE>
47
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND FEES (CONTINUED)
PREMIUM TAXES: Premium taxes are deducted, where applicable, from the
accumulation value of each Contract. The amount and timing of the deduction
depend on the annuitant's state of residence and currently ranges up to 3.5% of
premiums. Premium taxes are generally incurred on the annuity commencement date
and a charge for such premium taxes is then deducted from the accumulation value
on such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity commencement
date. In those states, Golden American advances the amount of the charge for
premium taxes to Contractowners and then deducts it from the accumulation value
in equal installments on each contract processing date over a six year period.
During the year ended December 31, 1994, premium taxes of $6,823 were advanced
by Golden American to Contractowners. Golden American is currently waiving the
deduction of the applicable installments of the charge for premium taxes
previously advanced by Golden American to Contractowners. Golden American
reserves the right to deduct the total amount of the charge for premium taxes
previously waived and unrecovered on the annuity commencement date or upon
surrender of the Contract.
OPERATING EXPENSES: The Account is charged for management expenses by DSI,
the Manager of the Account, based upon the following annual percentage of the
Account's average daily net assets: 0.40% of the first $500 million and 0.30% of
the amount over $500 million. In addition, Zulauf Asset Management AG, the
Account's Portfolio Manager, was paid a monthly advisory fee equal to an annual
rate based upon the following percentages of the Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The Board of Governors of the Account terminated, effective June 30,
1994, the Portfolio Management Agreement between Zulauf Asset Management AG and
the Account. Effective July 1, 1994, the Board of Governors appointed Warburg
Pincus Counsellors, Inc. ("Warburg") as the new portfolio manager of the
Account. The Account pays Warburg an advisory fee, payable monthly, based on the
average daily net assets of the Account at an annual rate of 0.60% of the first
$500 million and 0.50% on the excess thereof. For the year ended December 31,
1994, the Account incurred management and advisory fees of $333,747 and
$500,620, respectively.
The Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, legal and auditing services, registration fees and other
related operating expenses. Bankers Trust is the custodian of the assets in the
Account. For the year ended December 31, 1994, the Account incurred $84,877 for
custodian fees.
ORGANIZATION EXPENSES: The initial organizational expenses of the Account
of approximately $150,000 were paid by Golden American. The Account reimburses
Golden American for such expenses over a period of five years from the date of
the Account's commencement of operations. At December 31, 1994, the unamortized
balance of such expenses was $94,382.
EXPENSE LIMITATION: The Account and DSI entered into an agreement to limit
the total expenses of the Account, excluding mortality and expense risk charges,
interest expense, and other contractual charges, through December 31, 1994, so
that such expenses do not exceed on an annual basis: 1.25% of the first $500
million of the average daily net assets 1.05% of the excess over $500 million.
For the year ended December 31, 1994, $71,175 was reimbursed by DSI to the
Account pursuant to this limitation. Such agreement was extended under the same
terms through December 31, 1995.
48
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For the
years ended December 31, 1994 and 1993, fees paid by Golden American to DSI in
connection with sales of the contracts aggregated approximately $1,343,000 and
$3,070,000, respectively.
6. NET RETURN
The following table shows the net return as a percentage of average net
assets with respect to the Account for the years ended December 31, 1994 and
1993, and the period October 21, 1992 (commencement of operations) to December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992*
--------- --------- ---------
<S> <C> <C> <C>
Investment income................................................................... 2.00% 1.97% 0.62%
Expense charges..................................................................... 2.31 2.42 0.36
--------- --------- ---------
Net investment income (loss)........................................................ (0.31) (0.45) 0.26
Net realized and unrealized (loss) gain on investments.............................. (13.26) 6.19 (.18)
--------- --------- ---------
Net return.......................................................................... (13.57)% 5.74% 0.08%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
*Not annualized.
</TABLE>
49
<PAGE>
Appendix: Description of Bond Ratings
Excerpts from Moody's Investors Service, Inc. ("Moody's) description
of its bond ratings:
Aaa: Judged to be the best quality; they carry the smallest degree of
investment risk.
Aa: Judged to be of high quality by all standards; together with the
Aaa group, they comprise what are generally known as high grade bonds.
A: Possess many favorable investment attributes and are to be
considered as "upper medium grade obligations."
Baa: Considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured; interest payments and principal
security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great
length of time.
Ba: Judged to have speculative elements; their future cannot be
considered as well assured.
B: Generally lack characteristics of the desirable investment.
Caa: Are of poor standing; such issues may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Speculative in a high degree; often in default.
C: Lowest rate class of bonds; regarded as having extremely poor
prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward the
lower end of the category.
Excerpts from Standard & Poor's Corporation ("Standard & Poor's")
description of its bond ratings:
AAA: Highest grade obligations; capacity to pay interest and repay
principal is extremely strong.
AA: Also qualify as high grade obligations; a very strong capacity to
pay interest and repay principal and differs from AAA issues only in
small degree.
A: Regarded as upper medium grade; they have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB: Regarded as having an adequate capacity to pay interest and repay
principal; whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity than in higher rated categories -- this
group is the lowest which qualifies for commercial bank investment.
BB, B, CCC, CC: Predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with terms of the
obligation: BB indicates the lowest degree of speculation and CC the
highest.
Standard & Poor's applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
50
