FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ____________________to_________________________
Commission file Number 33-87272
Golden American Life Insurance Company
(Exact name of registrant as specified in its charter)
Delaware 41-0991508
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 Jefferson Street, Suite 400, Wilmington, DE 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302) 576-3400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A
- ------------------------------ ------------------------------------------
- ------------------------------ ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
N/A
- -------------------------------------------------------------------------------
(Title of class)
- -------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The number of shares outstanding of issuer's common stock, as of 3/22/96.
Common Stock, $10 Par Value - 250,000 shares.
NOTE: WHEREAS GOLDEN AMERICAN LIFE INSURANCE COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION J (I)(a) AND (b) OF FORM 10K, THIS FORM IS
BEING FILED WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
PART 1
Item 1 - Business.
Golden American Life Insurance Company ("Golden American" or the
"Company") 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. Golden American is authorized to do business in all jurisdictions
except New York. Golden American sells primarily variable annuities and variable
life insurance. Administrative services and the Company's operations are based
in Wilmington, Delaware.
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 Company, 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 Directed Services Inc. (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. A divestiture is likely to 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.
Further discussion of Golden American's business is included in Item 7.
Item 2 - 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), a
subsidiary of Bankers Trust New York Company, under a service agreement.
Item 3 - Legal Proceedings.
Golden American is involved in litigation in the ordinary course of
business. The Company does not believe that any current litigation is material
and does not expect to incur significant losses from such actions.
Item 4 - Submission of Matters to a Vote of Security Holders.
Information called for by this item is omitted pursuant to General
Instruction J. of Form 10-K.
<PAGE>
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters.
The Registrant is a wholly-owned indirect subsidiary of Bankers Trust
Company which is a wholly-owned subsidiary of Bankers Trust New York Company.
There is no public trading market for Registrant's common stock.
Golden American is required to maintain a minimum total statutory-basis
capital and surplus of not less then $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
subject to statutory restrictions equal to the higher of 10% of surplus as
regards policyholders or 100% of the prior year's net gain, not to exceed
unassigned surplus. The maximum dividend payout which may be made without prior
approval in 1996 is $6,635,733. Golden American did not pay common stock
dividends in 1994 or 1995. Golden American at present has no intention of paying
cash dividends on the common stock in the foreseeable future. Discussion of
Golden American's Preferred Stock Dividends is included in Item 7.
Item 6 - Selected Financial Data.
Information called for by this item is omitted pursuant to General
Instruction J. of Form 10-K.
Item 7 - Management's Narrative Analysis of Results of Operations.
Net income for 1995 was $3.4 million, an increase of $1.1 million or
51% from 1994.
Variable life and annuity product fees and policy charges were $18.4
million in 1995, an increase of $0.9 million or 5% from 1994. This increase is
due to an additional $0.9 million in fees earned from the increasing block of
business under management in the Separate Accounts, an increase of $1.5 million
in the collection of surrender charges, and a decrease of $1.5 million in the
revenue recognition of net distribution fees.
Net investment income was $2.8 million for 1995, an increase of $2.3
million or 403% over the comparable 1994 period. Approximately $1.5 million of
the increase was due to the additional investment income earned on invested
assets held to back the fixed interest divisions that were introduced in 1995.
The balance of the increase in investment income is attributable to an increase
in the investment income on surplus.
In 1995, the service agreement between DSI and Golden American was
amended to provide for a management fee from DSI to Golden American for
certain managerial and supervisory services provided by Golden American. This
fee, calculated as a percentage of average assets in the variable separate
accounts, was $1.0 million for 1995.
<PAGE>
Policy benefits were $3.2 million for 1995, an increase of $3.1 million
from 1994. In 1995, benefit expenses increased $1.3 million as a result of
interest credited to policyholders related to the fixed interest divisions
introduced in 1995. Additionally, death benefit costs net of reinsurance
increased by $.3 million in 1995 as compared to 1994. Additionally, 1994
policy benefits reflected a $1.5 million decrease in mortality reserves.
Commissions and overrides were $7.7 million in 1995, a decrease of $9.1
million or 54% from 1994. The decrease in commissions resulted from the decrease
in new business premium receipts which went from $310.7 million in 1994 to
$130.5 million in 1995, a decrease of 55%.
Employee related expenses and general administrative and operating
expenses were a combined $13.7 million for 1995, an increase of $.3 million or
2.5% from 1994.
Interest expense was $0 for 1995 as compared to $2.0 million in 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. In 1995, the Company paid dividends on preferred stock of $3.4 million.
There were no preferred stock dividends in 1994.
Amortization of intangible assets, deferred policy acquisition costs
and unamortized cost assigned to insurance contracts in force, was $4.3 million
for 1995, a decrease of $2.5 million or 37% from the prior year. The intangible
assets are being amortized over the lives of the policies in relation to the
present value of estimated future gross profits. The relatively strong
performance of the funds in 1995 has slowed the amortization in 1995 as
compared to 1994. Additionally, amortization was increased in 1994 due
to the decrease in mortality reserves during 1994.
Item 8 - Financial Statements and Supplementary Data.
The financial statements of the Registrant are set forth in Part IV
hereof and are incorporated herein by reference.
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
<PAGE>
PART III
Items 10-13
Information called for by items 10 through 13 of this part is omitted
pursuant to General Instruction J. of Form 10-K.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit 24 - Power of Attorney
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1995: No
current report on Form 8-K was filed during the three months
ended December 31, 1995.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion
of Item 14 is submitted as a separate section of this report.
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
GOLDEN AMERICAN LIFE INSURANCE COMPANY
WILMINGTON, DELAWARE
<PAGE>
Form 10-K Item 14 (a) (1) and (2) and (d)
Golden American Life Insurance Company
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Golden American Life
Insurance Company are included:
Balance Sheets -- December 31, 1995 and 1994
Statements of Income -- Years Ended December 31, 1995, 1994 and 1993
Statements of Shareholder's Equity -- Years Ended December 31, 1995,
1994, and 1993.
Statements of Cash Flows - Years Ended December 31, 1995, 1994 and
1993.
Notes to Financial Statements -- December 31, 1995
The following financial statement schedules of Golden American Life Insurance
Company are included in Item 14(d):
Schedule I Summary of investments -- other than investments in
related parties
Schedule VI Reinsurance
All other schedules required by Article 7 of Regulation S-X are not required
under the related instructions or are inapplicable and therefore have been
omitted.
<PAGE>
Draft #3
Financial Statements
Golden American Life
Insurance Company
Years ended December 31, 1995, 1994 and 1993
with Report of Independent Auditors
<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, 1995 and 1994 and the
related statements of operations, changes in stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 12, 1996
0
<PAGE>
Golden American Life Insurance Company
Balance Sheets
(In thousands, except share amount)
<TABLE>
<CAPTION>
December 31
1995 1994
----------- -----------
<S> <C> <C>
Assets
Investments:
Fixed maturities at market value (amortized cost $48,671 and $-) $ 49,629 $ -
Fixed maturities held to maturity, at amortized cost (market--$2,659) - 2,749
Short-term investments, at cost, which approximates market 15,614 13,933
Equity securities, at market (cost--$27 and $17) 29 16
Policy loans 2,021 513
----------- -----------
Total investments 67,293 17,211
Cash (323) 3,316
Accrued investment income 768 92
Due from affiliates and separate accounts 1,127 963
Deferred policy acquisition costs 67,314 60,662
Unamortized costs assigned to insurance contracts in force 6,057 7,620
Funds held in escrow pursuant to an Exchange Agreement 4,150 2,757
Due from reinsurers 2,062 1,713
Other assets 287 134
Separate account assets 1,048,953 950,292
----------- -----------
Total assets $ 1,197,688 $ 1,044,760
=========== ===========
Liabilities and stockholder's equity
Liabilities:
Insurance and annuity reserves (including $1,641 and $17 of
unamortized deferred sales load) $ 33,673 $ 1,051
Due to affiliates and separate accounts 675 660
Accrued expenses and other liabilities 1,329 1,053
Payable for investment purchases 7,938 -
Unearned revenue 6,556 1,759
Adjustable principal amount promissory note, 7.50%, due 1997 439 439
Separate account liabilities (including $41,566 and $48,924 of
unamortized deferred sales load) 1,048,953 950,292
----------- -----------
Total liabilities 1,099,563 955,254
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 50,000 50,000
Additional paid-in capital 45,030 37,086
Net unrealized appreciation (depreciation) of securities 658 (1)
Retained earnings (deficit) (63) (79)
----------- -----------
Total stockholder's equity 98,125 89,506
----------- -----------
1
<PAGE>
Total liabilities and stockholder's equity $ 1,197,688 $ 1,044,760
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
Golden American Life Insurance Company
Statements of Operations
(In thousands except per share amount)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Revenues
Variable life and annuity product fees and
policy charges $ 18,388 $ 17,519 $ 10,192
Management fee revenue 987 - -
Net investment income 2,818 560 216
Realized capital gain (loss) 297 65 35
--------------------------------------------
Total revenues 22,490 18,144 10,443
Expenses
Policy benefits 3,146 35 1,747
Commissions and overrides 7,653 16,741 34,260
Salaries, benefits and other employee-
related costs 6,601 5,866 -
Financing charges and interest - 1,962 726
Other general, administrative, and operating
expenses 7,268 7,665 9,248
Deferral of policy acquisition costs (9,804) (23,119) (37,129)
Amortization of deferred policy acquisition
costs 2,710 4,608 2,027
Amortization of costs assigned to insurance
contracts in force 1,552 2,164 1,357
--------------------------------------------
Total expenses 19,126 15,922 12,236
--------------------------------------------
Net income (loss) $ 3,364 $ 2,222 $ (1,793)
============================================
</TABLE>
See accompanying notes.
3
<PAGE>
Golden American Life Insurance Company
Statements of Changes in Stockholder's Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands, except share amount)
<TABLE>
<CAPTION>
Unrealized
Shares Shares Additional Appreciation Retained Total
Common Preferred Common Preferred Paid-in (Depreciation) Earnings Stockholder's
Stock Stock Stock Stock Capital of Securities (Deficit) Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 150,000 $ 1,500 $13,336 $ 14 $ (508) $ 14,342
Issuance of common stock 100,000 1,000 1,000
Contribution of capital 15,000 15,000
Net loss (1,793) (1,793)
Change in unrealized appreciation
of securities 48 - 48
-----------------------------------------------------------------------------------------------
Balances at December 31, 1993 250,000 - 2,500 $ - 28,336 62 (2,301) 28,597
Issuance of preferred stock 10,000 50,000 50,000
Contribution of capital 8,750 8,750
Net income 2,222 2,222
Change in unrealized depreciation
of securities (63) (63)
-----------------------------------------------------------------------------------------------
Balances at December 31, 1994 250,000 10,000 2,500 50,000 37,086 (1) (79) 89,506
Contribution of capital 7,944 7,944
Net income 3,364 3,364
Preferred stock dividends (3,348) (3,348)
Change in unrealized appreciation
of securities 659 659
-----------------------------------------------------------------------------------------------
Balances at December 31, 1995 250,000 10,000 $ 2,500 $50,000 $45,030 $ 658 $ (63) $ 98,125
===============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Golden American Life Insurance Company
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 3,364 $ 2,222 $ (1,793)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization of deferred policy acquisition costs 2,710 4,608 2,027
Amortization of costs assigned to insurance contracts in
force 1,552 2,164 1,357
Change in unearned revenue 4,949 1,594 (1,141)
Increase in accrued investment income (676) (24) (1)
Change in due to/from affiliates and separate accounts (149) (3,299) 2,976
Changes in other assets, accrued expenses and other
liabilities (226) (1,552) 42
Policy acquisition costs deferred (9,804) (23,119) (37,129)
Change in insurance and annuity reserves 4,664 (1,370) 550
Net amortization of premium (discount) on fixed maturity
investments and funds held in escrow (142) 13 -
-------- -------- --------
Net cash provided by (used in) operating activities 6,242 (18,763) (33,112)
Investing activities
Purchases of fixed maturities (61,723) (857) (543)
Sales of fixed maturities 23,729 319 552
Purchases of common stock (10) (7) (260)
Sales of common stock - 250 240
(Increase) decrease in policy loans (1,508) (369) 202
Funds held in escrow pursuant to an Exchange Agreement (1,242) (1,382) (1,375)
-------- -------- --------
Net cash used in investing activities (40,754) (2,046) (1,184)
Financing activities
(Retirement) issuances of short-term debt - (40,000) 33,600
Investment contract deposits 29,501 - -
Investment contract withdrawals (1,543) - -
Issuance of common stock - - 1,000
Issuance of preferred stock - 50,000 -
Preferred stock dividend paid (3,348) - -
Contribution of capital by parent 7,944 8,750 15,000
-------- -------- --------
Net cash provided by financing activities 32,554 18,750 49,600
-------- -------- --------
Net (decrease) increase in cash and short-term investments (1,958) (2,059) 15,304
Cash and short-term investments at beginning of year 17,249 19,308 4,004
-------- -------- --------
Cash and short-term investments at end of year $ 15,291 $ 17,249 $ 19,308
======== ======== ========
</TABLE>
5
<PAGE>
See accompanying notes.
6
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements
December 31, 1995
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 $11,600 thousand, 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 $400 thousand. 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 $5,000 thousand note payable from Golden
American and a $6,000 thousand 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 $439 thousand at December 31,
1995 and 1994. Golden American deposited with an escrow agent $1,225 thousand
and $1,300 thousand in 1995 and 1994, 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 thousand and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1995, 1994, and 1993 BTV
contributed additional capital and paid-in surplus of $7,944 thousand, $8,750
thousand, and $16,000 thousand, respectively, to Golden American. In 1994,
Golden American issued $50,000 thousand of preferred stock that was purchased by
BTV for $50,000 thousand in cash.
7
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 considered available for sale and are carried at market in
1995. Previously fixed maturities were treated as held until maturity and
carried at 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 with contractholder
direction to one or more divisions within various variable separate accounts or
fixed interest divisions. Golden American's fixed interest divisions include
the Guaranteed Interest Division, the Fixed Interest Division, and the Market
Value Adjusted Fixed Interest separate account.
8
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Separate Accounts
Variable separate accounts assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered principally for
variable life policies and annuity contracts and for which the policyholders and
contractholders rather than Golden American bear the investment risk. 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
variable life policies and variable annuity contracts cannot be charged with
liabilities arising out of any other business Golden American may conduct.
Variable separate account assets carried at fair value of the underlying
investments generally represent policyowner and contractholder investment values
maintained in the accounts. Variable separate account liabilities represent
account balances for the variable life policies and annuity contracts invested
in the separate accounts. 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 consists of charges for
mortality and expense risk, cost of insurance, contract administration, and
surrender charges, as applicable to each contract. In addition, most life and
annuity contracts provide for a distribution fee collected for a limited number
of years after each premium deposit, as defined in each applicable contract. For
life contracts, the distribution fee is based on the premiums collected, the
face amount issued, and the underwriting characteristics of each insured. For
annuity contracts, the distribution fee is based on the amount of premiums
collected and allocated to the variable separate accounts. Revenue recognition
of collected distribution fees is amortized over the life of the contract in
proportion to its expected gross profits. The balance of unrecognized revenue
related to the distribution fees is reported as unearned revenue.
9
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Costs Assigned to Insurance Contracts in Force
The costs 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 date of acquisition from Mutual Benefit. Such value is the
actuarially-determined present value of projected future profits from the
acquired contracts discounted at an interest rate of 15%. Costs 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.
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1995, 1994 and 1993.
Year ended December 31
1995 1994 1993
-------- -------- --------
(In Thousands)
Beginning balance $ 7,620 $ 9,784 $ 11,140
Interest accrued 548 696 942
Amortization (2,100) (2,860) (2,298)
-------- -------- --------
Ending balance $ 6,068 $ 7,620 $ 9,784
======== ======== ========
10
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Costs Assigned to Insurance Contracts in Force
The following table presents the expected amortization of the costs 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.
(In Thousands)
1996 $ 1,424
1997 1,200
1998 918
1999 559
2000 430
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 fixed interest divisions, policy loan balances on
variable life policies, and supplementary contract reserves on annuitized
policies. Interest credited rates for the fixed interest divisions ranged from
4% to 7% during 1995 and 1994.
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 fixed interest divisions.
11
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Reinsurance
Included in the accompanying financial statements are net considerations to
reinsurers of $2,800 thousand and $2,400 thousand and net policy benefits
recoveries of $3,500 thousand and $1,900 thousand in 1995 and 1994,
respectively. Effective September 30, 1992, Golden American terminated all
reinsurance agreements with Mutual Benefit. Subsequently, Golden American
entered into agreements covering substantially all of the mortality risks under
both life policies and annuity contracts with unaffiliated reinsurers. 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 $24,700 thousand and $23,000 thousand at December 31, 1995
and 1994 and for annuity mortality risks were $83,500 thousand and $149,600
thousand at December 31, 1995 and 1994, respectively.
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 net income by $109 thousand and $27 thousand in 1995 and 1994,
respectively.
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.
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.
12
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
4. Investments
The major categories of investment income for 1995, 1994 and 1993 are summarized
as follows:
1995 1994 1993
------- ------- -------
(In thousands)
Fixed maturities $ 1,610 $ 142 $ 114
Short-term investments 899 226 90
Equity securities -- 1 1
Policy loans 56 11 11
Cash 148 99 --
Funds held in escrow 166 83 --
------- ------- -------
Gross investment income 2,879 562 216
Investment expenses (61) (2) --
------- ------- -------
Net investment income $ 2,818 $ 560 $ 216
======= ======= =======
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1995 and 1994 is as follows:
Gross
Unrealized Estimated
Amortized Gains Market
Cost (Losses) Value
-------- -------- --------
(In thousands)
At December 31, 1995:
U.S. Treasury securities $ 17,832 $ 92 $ 17,924
U.S. Government-backed securities 2,037 86 2,123
Corporate securities 44,416 780 45,196
-------- -------- --------
$ 64,285 $ 958 $ 65,243
======== ======== ========
At December 31, 1994:
U.S. Treasury securities $ 16,682 $ (90) $ 16,592
======== ======== ========
13
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
4. Investments (continued)
1995 1994
--------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
(In thousands)
Due in one year or less $17,398 $17,408 $14,634 $14,622
Due after one year through five years 39,023 39,467 850 827
Due after five years through ten years 6,818 7,201 1,198 1,143
Due after ten years through twenty years 1,046 1,167 -- --
------- ------- ------- -------
$64,285 $65,243 $16,682 $16,592
======= ======= ======= =======
At December 31, 1995 and 1994, gross unrealized (depreciation) appreciation of
marketable equity securities recognized directly in stockholder's equity was $3
thousand and $(1) thousand, respectively.
At December 31, 1995 and 1994, $2,711 thousand and $2,695 thousand,
respectively, in principal amount of fixed maturity investments were on deposit
with regulatory authorities pursuant to certain statutory requirements.
14
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
5. Stockholder's Equity
The payment of cash dividends by Golden American is subject to statutory
restrictions equal to the higher of 10% of surplus as regards policyholders or
100% of the prior year's net gain, not to exceed unassigned surplus. The maximum
dividend payout which may be made without prior approval in 1996 is $6,636
thousand. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000 thousand under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1995 and 1994 and net loss for the years ended December 31, 1995
and 1994 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)
--------------------------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
GAAP-basis $ 98,125 $ 89,506 $ 3,364 $ 2,222
Asset valuation reserve/interest
maintenance reserve (506) (42) 28 3
Fixed maturities from acquisition (2) (76) 74 14
Deferred policy acquisition costs (67,314) (60,662) (7,094) (18,511)
Cost assigned to insurance contracts
in force (6,057) (7,620) 1,552 2,164
Deferred sales loads, surrender
charges and policy charges 40,150 49,223 (9,073) 7,000
Reserves (1,972) (4,985) 3,013 (5,017)
Unearned revenue 6,556 1,759 4,949 1,594
Other (1,665) (811) (930) (729)
Unrealized appreciation of fixed
maturity investments (958) - - -
-------- -------- -------- --------
Statutory-basis $ 66,357 $ 66,292 $ (4,117) $(11,260)
======== ======== ======== ========
</TABLE>
15
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
5. Stockholder's Equity (continued)
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, 1995 and 1994, Golden American met the RBC requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. Dividends declared and paid on the Redeemable Preferred Stock
were $3.35 million or $334.79 per share in 1995. As of December 31, 1994,
Dividends in Arrears on the Redeemable Preferred Stock were $17.9 thousand 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
thousand per share subject to appropriate regulatory approvals.
6. Related Party Transactions
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, 1995, are sold
primarily through two broker/dealer institutions. For the years ended
December 31, 1995, 1994 and 1993, commissions paid by Golden American to DSI
aggregated $8,440 thousand, $17,569 thousand, and $34,260 thousand,
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 thousand
16
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
6. Related Party Transactions (continued)
and $2,013 thousand, respectively, which were comprised of allocated salary
charges, premise and equipment charges, and other expenses.
In 1995, the service agreement between DSI and Golden American was
amended to provide for a management fee from DSI to Golden American. This fee,
for managerial and supervisory services provided by Golden American calculated
as a percentage of average assets in the variable separate accounts, was $987
thousand for 1995.
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, Golden American incurred $311 thousand for such
services. The agreement was terminated as of January 1, 1994.
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, fees
earned by BTV from Golden American for these services aggregated $2,701
thousand. The agreement was terminated as of January 1, 1994.
In addition, prior to 1994, 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,
BTV allocated to Golden American $1,503 thousand. The agreement was terminated
on January 1, 1994.
Golden American maintains cash 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, 1995 and 1994, Golden American had net operating loss
("NOL") carryforwards for federal income tax purposes of approximately $22,600
thousand and $17,400 thousand, respectively. Approximately $2,400 thousand 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 $800 thousand, $4,100
thousand, $10,100 thousand and $5,200 thousand are available through the years
2007, 2008, 2009, and 2010, respectively.
17
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
7. Income Taxes (continued)
Significant components of Golden American's deferred tax liabilities and assets
are as follows:
December 31
1995 1994
------- -------
(In thousands)
Deferred tax liabilities:
Deferred policy acquisition costs $23,560 $21,200
Unamortized cost assigned to insurance
contracts in force 2,120 2,700
Other 598 --
------- -------
26,278 23,900
Deferred tax assets:
Net operating loss carryforwards 7,891 6,000
Insurance liabilities 15,520 15,200
Deferred policy acquisition costs
proxy tax 3,666 3,700
Other 57 700
------- -------
27,134 25,600
Valuation allowance for deferred tax assets 856 1,700
------- -------
Net deferred tax liabilities $ -- $ --
======= =======
The following is an analysis of the difference between the U.S. Federal
statutory income tax rate and the effective tax rate on income (loss) before
income taxes:
1995 1994 1993
------- ------- -------
Federal statutory rate 35% 35% 35%
======= ======= =======
(In Thousands)
Taxes at statutory rate $ 1,177 $ 778 $ (627)
Dividends received deduction (350) (368) (194)
Other, net 17 (210) (379)
18
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
Valuation allowance (844) (200) 1,200
======= ======= =======
Taxes based on income (loss) $ -- $ -- $ --
======= ======= =======
19
<PAGE>
Golden American Life Insurance Company
Notes to Financial Statements (continued)
8. Short-term Debt
All short-term debt was repaid as of December 30, 1994. Interest paid during
1994 and 1993 was $1,962 thousand and $726 thousand, 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 1995 and 1994 expenses
relating to these Parent company benefit plans were $200 thousand and $200
thousand, respectively.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/s/ STEPHEN J. PRESTON
---------------------------------------------------
Stephen J. Preston
Senior Vice President, Controller and Chief Actuary
March 27, 1996
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
TERRY KENDALL Chairman, Chief Executive
/s/ -------------------- Officer and President
Terry Kendall (Principal Executive Officer) March 27, 1996
*
/s/ --------------------
Rich A. Marin Director March 27, 1996
STEPHEN J. PRESTON
/s/ --------------------- Senior Vice President
Stephen J. Preston Chief Actuary, & Controller March 27, 1996
<PAGE>
Financial Statement Schedules
Schedule I - Summary of Investments -
Other Than Investments in Related Parties
Golden American Life Insurance Company
December 31, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- -------------------------------------------------------------------------------------
Amount at
Which Shown
in Balance
Type of Investment Cost Value Sheet
- -------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Fixed maturity security, available-for-sale:
Bonds:
United States Government and government
agencies and authorities $13,332 $13,510 $13,510
Public utilities 5,276 5,302 5,302
All other corporate bonds 30,063 30,817 30,817
------- ------- -------
Total 48,671 49,629 49,629
------- ------- -------
Equity securities, available-for-sale:
Common stocks:
Industrial, miscellaneous, and all other 27 29 29
------- ------- -------
Total 27 29 29
Policy loans 2,021 2,021 2,021
Other investments 15,614 15,614 15,614
------- ------- -------
Total investments $66,333 $67,293 $67,293
======= ======= =======
</TABLE>
<PAGE>
Schedule VI - Reinsurance
Golden American Life Insurance Company
<TABLE>
<CAPTION>
COL A COL.B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------
% of
Ceded to Assumed Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Life insurance in force1 $38,383,000 $24,709,000 $- $13,674,000 0%
============= ============= ========= ============= ======
Year Ended December 31, 1994:
Life insurance in force $30,227,000 $23,061,000 $- $7,166,000 0%
============= ============= ========= ============= ======
Year Ended December 31, 1993:
Life insurance in force $19,166,000 $15,274,000 $- $3,893,000 0%
============= ============= ========= ============= ======
</TABLE>
1 At end of year.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Director of Golden American Life Insurance Company ("Golden
American"), constitutes and appoints Bernard R. Beckerlegge, and Mitchell M.
Cox, and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution for him in his name, place and
stead, in any and all capacities, to sign Golden American's registration
statements, and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents, or any of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
Date: March 29, 1995
/s/ RICHARD A. MARIN
-------------------------
Richard A. Marin
Director
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 49,629
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 29
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 67,293
<CASH> (323)
<RECOVER-REINSURE> 2,062
<DEFERRED-ACQUISITION> 67,314
<TOTAL-ASSETS> 1,197,688
<POLICY-LOSSES> 33,673
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
50,000
<COMMON> 2,500
<OTHER-SE> 45,625
<TOTAL-LIABILITY-AND-EQUITY> 1,197,688
0
<INVESTMENT-INCOME> 2,818
<INVESTMENT-GAINS> 297
<OTHER-INCOME> 19,375
<BENEFITS> 3,146
<UNDERWRITING-AMORTIZATION> 2,710
<UNDERWRITING-OTHER> 13,270
<INCOME-PRETAX> 3,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 3,364
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,364
<EPS-PRIMARY> 13.456
<EPS-DILUTED> 13.456
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
