<PAGE>
As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 33-87272
___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement under The Securities Act of 1933
Amendment No. 8
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 6355 41-0991508
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
(302) 576-3400
(Address and Telephone Number of registrant's principal executive office)
Marilyn Talman, Esq. COPY TO:
Golden American Life Insurance Company Stephen Roth, Esq.
1001 Jefferson Street, Suite 400 Sutherland, Asbill & Brennan, L.L.P.
Wilmington, DE 19801 1275 Pennsylvania Avenue, N.W.
(Name and Address of Agent for Service Washington, D.C. 20004-2404
of Process)
Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of the Registration Statement
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box ...................................... [X]
___________________________________________________________________________
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Maximum Proposed
Title of Securities Amount Being Offering Price Maximum Aggregate Amount of
Being Registered Registered (1) Per Unit (1) Offering Price (1) Registration Fee (2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annuity Contracts
(Interests in N/A N/A $300,000,000 $103,500
Fixed Account)
</TABLE>
(1) The maximum aggregate offering price is estimated solely for the
purpose of determining the registration fee. The amount to be registered
and the proposed maximum offering price per unit are not applicable since
these securities are not issued in predetermined amounts or units.
(2) Previously paid.
___________________________________________________________________________
<PAGE>
CROSS REFERENCE SHEET
_____
Pursuant to Regulation S-K, Item 501(b)
S-1 Item Prospectus Heading
- ----------------------------- -------------------------
1. Forepart of Registration Cover Page
Statement and Outside
Front Cover Page
2. Inside Front and Outside Summary of the Contract;
Back Cover Table of Contents
3. Summary Information, Prospectus Cover; Facts
Risk Factors and Ratio Facts About the Company
of Earnings to Fixed and the Fixed Account;
Fixed Charges Summary of the Contract:
Definition of Terms
4. Use of Proceeds Facts About the Company
and the Fixed Account
5. Determination of Not Applicable
Offering Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Facts About the Contract
9. Description of Securities Summary of the Contract;
Being Offered Facts About the Contract
10. Interest of Named Experts Experts
and Counsel
11. Information with Respect More Information of
to the Registrant Golden American Life
Insurance Company;
Directors and Executive
Officers; Legal
Proceedings
12. Disclosure of Commission Part II, Item 14
Position on
Indemnification for
Securities Act Liabilities
<PAGE>
PART I
The Prospectus contained herein does not contain all of the
information permitted by Securities and Exchange Commission
Regulations. Therefore, this Amendment No. 8 on Form S-1 for
Golden American Life Insurance Company ("Golden American")
incorporates by reference the Statement of Additional
Information for the GoldenSelect DVA PLUS Combination
Variable and Fixed Annuity, and Part C (Other Information)
contained the in Registration Statement on Form N-4 (post-
effective amendment No. 7, File Nos. 33-59261, 811-5626,
filed on or about the date hereof) for Golden American
Separate Account B. This information may be obtained free of
charge from Golden American Life Insurance Company by calling
Customer Service at 800-366-0066.
<PAGE>
PART A
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ GOLDENSELECT DVA PLUS +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in
Wilmington, Delaware
DEFERRED COMBINATION VARIABLE AND
FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA PLUS
- --------------------------------------------------------------------------------
This prospectus describes group and individual deferred variable annuity Con-
tracts (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 pre-
mium payments.
The Contract is funded by two accounts, Separate Account B ("Account B") and
the Fixed Account (collectively, the "Accounts").
Nineteen 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 "GCG Trust") and the Equi-Se-
lect Series Trust (the "ESS Trust"). 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 of-
fered. Not all Guarantee Periods may be available.
This prospectus describes the Contract and provides background information re-
garding Account B and the Fixed Account. The prospectuses for the GCG Trust and
the ESS Trust (individually, "a Trust," and collectively, "the Trusts"), which
must accompany this prospectus, provide information regarding investment activ-
ities and policies of the Trusts.
You may allocate your premiums among the nineteen Divisions and the Fixed Allo-
cations 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 will vary in accordance with the invest-
ment performance of the Divisions selected by you. Therefore, you bear the en-
tire investment risk for all amounts allocated to Account B. You also bear in-
vestment risk with respect to surrenders, partial withdrawals, transfers and
annuitization from a Fixed Allocation prior to the end of the applicable Guar-
antee 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 in-
vesting. A Statement of Additional Information, dated May 1, 1997, about Ac-
count B 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 State-
ment of Additional Information may be found on the last page of this prospec-
tus. The Statement of Additional Information is incorporated herein by refer-
ence.
- --------------------------------------------------------------------------------
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 AC-
CURACY 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 PROSPECTUSES FOR THE GCG TRUST AND THE ESS
TRUST.
THE FIXED ACCOUNT AND ENHANCED DEATH BENEFITS MAY NOT BE AVAILABLE IN ALL
STATES. YOU MAY CONTACT OUR CUSTOMER SERVICE CENTER TO FIND OUT ABOUT STATE
AVAILABILITY.
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Directed Serv- Customer Service
Life ices, Inc. Center
Insurance Com- Wilmington, Mailing Address:
pany Delaware 19801 P.O. Box 8794
Wilmington, Dela-
ware 19899-8794
1-800-366-0066
PROSPECTUS DATED: MAY 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITION OF TERMS....................................................... 3
SUMMARY OF THE CONTRACT................................................... 5
FEE TABLE................................................................. 7
CONDENSED FINANCIAL AND OTHER INFORMATION................................. 10
Index of Investment Experience
Financial Statements
Performance Related Information
INTRODUCTION.............................................................. 12
FACTS ABOUT THE COMPANY AND THE ACCOUNTS.................................. 12
Golden American
The GCG Trust and the ESS Trust
Separate Account B
Account B Divisions
Changes Within Account B
The Fixed Account
FACTS ABOUT THE CONTRACT.................................................. 19
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
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
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
CHARGES AND FEES........................................................... 29
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
CHOOSING YOUR ANNUITIZATION OPTIONS........................................ 31
Annuitization of Your Contract
Annuity Commencement Date Selection
Frequency Selection
The Annuitization Options
Payment When Named Person Dies
OTHER CONTRACT PROVISIONS.................................................. 33
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..................................................... 35
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY.............. 35
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................................................. 48
Introduction
Tax Status of Golden American
Taxation on Non-Qualified Annuities
IRA Contracts and Other Qualified Retirement Plans
Federal Income Tax Withholding
AUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY..... 56
STATEMENT OF ADDITIONAL INFORMATION........................................ 77
Table of Contents
APPENDIX A................................................................. A1
Market Value Adjustment Examples
</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 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 pre-
miums 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 turn-
ing age 80, as adjusted for additional premiums and partial withdrawals.
ANNUITANT
The person designated by the Owner to be the measuring life in determining An-
nuity 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 Pay-
ments.
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 ValueAdjustment.
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 en-
dorsements.
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 suc-
ceeding 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 Con-
tract Processing Date. There is one Contract processing period each year.
CONTRACT YEAR
The period between Contract anniversaries.
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.
3
<PAGE>
DEFINITION OF TERMS (CONTINUED)
DIVISIONS
The investment options available under Account B.
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 Alloca-
tions 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 Guar-
antee 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 ad-
justed for additional premiums and partial withdrawals. Each accumulated ini-
tial or additional premium payment reduced by any partial withdrawals taken
will continue to grow at 7% until it reaches the maximum enhanced death bene-
fit.
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 oth-
erwise. The Specially Designated Division currently is the Liquid Asset Divi-
sion.
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.
4
<PAGE>
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 Series underlying the Divisions of Account B and the Fixed Account is set
forth in the Trusts' prospectuses.
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 pro-
spectus and in the Contract. The Contract, together with any riders or en-
dorsements, constitutes the entire agreement between you and us and should be
retained.
This prospectus has been designed to provide you with the necessary informa-
tion to make a decision on purchasing the Contract. You have a choice of in-
vestments. We do not promise that your Accumulation Value will increase. De-
pending 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, dis-
tributions 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 An-
nuity 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 qual-
ified 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 Other Contract Provisions, Group or Spon-
sored Arrangements.
The minimum additional premium payment we will accept is $500 for a non-quali-
fied 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 an-
nuities that you maintain with us to exceed $1,000,000.
THE DIVISIONS
Each of the nineteen Divisions of Account B offered under this prospectus in-
vests in a mutual fund portfolio with its own distinct investment objectives
and policies. Each Division of Account B invests in a corresponding Series of
the GCG Trust, managed by Directed Services, Inc. ("DSI"), or a corresponding
Series of the ESS Trust, managed by Equitable Investment Services, Inc.
("EISI," and together with DSI, the "Managers"). The Trusts and the Managers
have retained several portfolio managers to manage the assets of each Series.
See Facts About the Company and the Accounts, Account B Divisions.
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 Facts
About the Contract, Accumulation Value in Each Division.
THE FIXED ACCOUNT
The investments available through the Fixed Account include various Fixed Al-
locations which we credit with fixed rates of interest for the Guarantee Peri-
ods you select. We reset the interest rates for new Guarantee Periods periodi-
cally 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 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 Pe-
riod 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.
5
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
Systematic withdrawals from a Fixed Allocation also are not subject to a Mar-
ket 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 Alloca-
tion made prior to the end of a Guarantee Period. The Market Value Adjustment
does not apply to amounts invested in Account B.
SURRENDERING YOUR CONTRACT
You may surrender the Contract and receive its Cash Surrender Value at any
time while both the Annuitant and Owner are living and before the Annuity Com-
mencement Date. See Facts About the Contract, Cash Surrender Value and Surren-
dering 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 Accumula-
tion Value of your Contract. You may elect in advance to take systematic par-
tial withdrawals on a monthly, quarterly, or annual basis. If you have an IRA
Contract, you may elect IRA partial withdrawals on a monthly, quarterly or an-
nual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus, including a surrender charge and a Market Value Adjustment. Par-
tial withdrawals above a specified percentage of your Accumulation Value may
be subject to a surrender charge. See Facts About the Contract, Partial
Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount trans-
ferred 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 on a monthly basis with the objective of shielding your invest-
ment from short-term price fluctuations. See Facts About the Contract, 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 admin-
istering 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 Other Contract Provisions, 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 Other Contract Provisions, 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 Con-
tract, Death Benefit Options. We may offer a reduced death benefit under cer-
tain group and sponsored arrangements. See Other Contract Provisions, 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 re-
strictions we impose. See Facts About the Contract, Restrictions on Allocation
of Premium Payments. We then may deduct an annual Contract fee from your Accu-
mulation Value. See Other Contract Provisions, Charges and Fees. We may reduce
certain charges under group or sponsored arrangements. See Other Contract Pro-
visions, Group or Sponsored Arrangements. Unless you have elected the Charge
Deduction Division, charges are deducted proportionately from all Account B
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.
6
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
FEE TABLE
FEDERAL INCOME TAXES
The ultimate effect of Federal income taxes on the amounts held under an annu-
ity 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 sur-
render the Contract before reaching age 59 1/2. See Federal Tax Considera-
tions.
TRANSACTION EXPENSES(/1/)
Contingent Deferred Sales Charge(/2/) (imposed as a percentage of premium pay-
ments withdrawn upon excess partial withdrawal or surrender):(/3/)
<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>
<TABLE>
<S> <C>
Excess Allocation Charge.......................................... $0(/4/)
</TABLE>
ANNUAL CONTRACT FEES:
<TABLE>
<S> <C>
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
DEATH --------------------------
BENEFIT ANNUAL RATCHET 7% SOLUTION
-------- -------------- -----------
<S> <C> <C> <C>
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>
THE GCG TRUST ANNUAL EXPENSES (based on combined net assets of the indicated
groups of Series):
<TABLE>
<CAPTION>
OTHER TOTAL
SERIES FEES(/6/) EXPENSES(/7/) EXPENSES
------ --------- ----------------------- --------------
<S> <C> <C> <C>
Multiple Allocation,
Fully Managed, Capital
Appreciation, Rising
Dividends, All-Growth,
Real Estate, Hard 0.99% 0.01% 1.00%
Assets, Value Equity,
Strategic Equity, and
Small Cap Series:
Emerging Markets
Series:(/8/) 1.75% 0.05% 1.80%
Managed Global 1.25% 0.01% 1.26%
Series:(/9/)
Limited Maturity Bond 0.60% 0.01% 0.61%
and Liquid Asset Series:
THE ESS TRUST ANNUAL EXPENSES:
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
AFTER EXPENSE AFTER EXPENSE
SERIES FEES(/6/) REIMBURSEMENTS (/1//0/) REIMBURSEMENTS
------ --------- ----------------------- --------------
<S> <C> <C> <C>
OTC, Research, and Total
Return Portfolios: 0.80% 0.40% 1.20%
Growth & Income and
Value + Growth 0.95% 0.40% 1.35%
Portfolios:
</TABLE>
7
<PAGE>
FEE TABLE (CONTINUED)
- -------------------
(1) A Market Value Adjustment, which may increase or decrease your Accumula-
tion Value, may apply to certain transactions. See Market Value Adjust-
ment.
(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 par-
tial 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 pre-
mium payments. See Charges Deducted from the Accumulation Value, Surren-
der 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 Ex-
cess 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 Account B Divisions and the
Trust prospectuses for details).
(7) Other Expenses generally consist of independent trustees fees and ex-
penses.
(8) Expenses have been restated to reflect current fees.
(9) The expenses for the Managed Global Series are based on the actual expe-
rience of the Series together with that of its predecessor for accounting
purposes, the Managed Global Account of Separate Account D. On September
3, 1996, the Managed Global Account was reorganized into the Managed
Global Division of Account B and the Managed Global Series of the GCG
Trust.
(10)Other expenses shown take into account the effect of EISI's agreement to
reimburse the portfolios for all operating expenses, excluding management
fees, that exceed 0.40% of their average daily net assets. This reimburse-
ment agreement commenced February 1, 1997. Prior to February 1, 1997, EISI
reimbursed the portfolios for all operating expenses, excluding management
fees, that exceeded 0.75% of their average daily net assets. This reim-
bursement is voluntary and can be terminated at any time. In the absence of
the current reimbursement agreement, Other Expenses would have been 0.55%,
0.51%, 0.45%, 0.69%, and 0.95%, respectively, for the OTC, Research, Total
Return, Growth & Income, and Value + Growth Portfolios for the year ended
December 31, 1996.
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 sur-
render 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................... $ 96.43 $131.15 $168.46 $293.91
Fully Managed......................... $ 96.43 $131.15 $168.46 $293.91
Capital Appreciation.................. $ 96.43 $131.15 $168.46 $293.91
Rising Dividends...................... $ 96.43 $131.15 $168.46 $293.91
All-Growth............................ $ 96.43 $131.15 $168.46 $293.91
Real Estate........................... $ 96.43 $131.15 $168.46 $293.91
Hard Assets........................... $ 96.43 $131.15 $168.46 $293.91
Value Equity.......................... $ 96.43 $131.15 $168.46 $293.91
Strategic Equity...................... $ 96.43 $131.15 $168.46 $293.91
Small Cap............................. $ 96.43 $131.15 $168.46 $293.91
Emerging Markets...................... $104.39 $154.79 $207.41 $369.15
Managed Global........................ $ 99.02 $138.90 $181.30 $319.09
OTC................................... $ 98.42 $137.11 $178.35 $313.34
Research.............................. $ 98.42 $137.11 $178.35 $313.34
Total Return.......................... $ 98.42 $137.11 $178.35 $313.34
Growth & Income....................... $ 99.92 $141.56 $185.70 $327.64
Value + Growth........................ $ 99.92 $141.56 $185.70 $327.64
Limited Maturity Bond................. $ 92.52 $119.41 $148.87 $254.79
Liquid Asset.......................... $ 92.52 $119.41 $148.87 $254.79
</TABLE>
- -------------------------------------------------------------------------------
8
<PAGE>
FEE TABLE (CONTINUED)
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................... $26.43 $ 81.15 $138.46 $293.91
Fully Managed......................... $26.43 $ 81.15 $138.46 $293.91
Capital Appreciation.................. $26.43 $ 81.15 $138.46 $293.91
Rising Dividends...................... $26.43 $ 81.15 $138.46 $293.91
All-Growth............................ $26.43 $ 81.15 $138.46 $293.91
Real Estate........................... $26.43 $ 81.15 $138.46 $293.91
Hard Assets........................... $26.43 $ 81.15 $138.46 $293.91
Value Equity.......................... $26.43 $ 81.15 $138.46 $293.91
Strategic Equity...................... $26.43 $ 81.15 $138.46 $293.91
Small Cap............................. $26.43 $ 81.15 $138.46 $293.91
Emerging Markets...................... $34.39 $104.79 $177.41 $369.15
Managed Global........................ $29.02 $ 88.90 $151.30 $319.09
OTC................................... $28.42 $ 87.11 $148.35 $313.34
Research.............................. $28.42 $ 87.11 $148.35 $313.34
Total Return.......................... $28.42 $ 87.11 $148.35 $313.34
Growth & Income....................... $29.92 $ 91.56 $155.70 $327.64
Value + Growth........................ $29.92 $ 91.56 $155.70 $327.64
Limited Maturity Bond................. $22.52 $ 69.41 $118.87 $254.79
Liquid Asset.......................... $22.52 $ 69.41 $118.87 $254.79
</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 $65,000.
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 En-
hanced Death Benefit Option is elected, the actual expenses incurred will be
less than those represented in the Examples.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES. 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
The upper table gives the index of investment experience for each Division of
Account B available under the Contract for each death benefit option. Informa-
tion for 1996 was not available for this prospectus. Except for the Small Cap,
OTC, Research, Total Return, Growth & Income, and Value + Growth Divisions,
each Division commenced operations on October 2, 1995 (The Managed Global Di-
vision commenced operations initially as a division of another separate ac-
count, the Managed Global Account of Separate Account D; however, the index of
investment experience is unchanged). The index of investment experience is
equal to the value of a unit for each Division of the Accounts. The total in-
vestment value of each Division as of the end of each period is shown in the
lower table.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
-------------------------------------------------------------------------
ENHANCED DEATH BENEFITS
----------------------------------
STANDARD ANNUAL RACHET
---------------------------------- ----------------------------------
10/2/95 12/31/95 12/31/96 10/2/95 12/31/95 12/31/96
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation..... $16.10 $16.72 $17.96 $15.94 $16.55 $17.75
Fully Managed........... 14.77 15.23 17.50 14.62 15.07 17.29
Capital Appreciation.... 14.31 14.71 17.46 14.23 14.63 17.34
Rising Dividends........ 12.16 13.24 15.77 12.12 13.19 15.69
All-Growth.............. 13.88 14.10 13.85 13.74 13.96 13.68
Real Estate............. 15.06 15.94 21.30 14.91 15.78 21.04
Hard Assets............. 14.86 15.11 19.89 14.71 14.96 19.65
Value Equity............ 12.43 13.37 14.61 12.41 13.36 14.57
Strategic Equity........ 10.00(/1/) 10.01 11.81 10.00(/1/) 10.01 11.78
Small Cap............... --(/2/) --(/2/) 11.86 --(/2/) --(/2/) 11.84
Emerging Markets........ 9.50 9.23 9.78 9.47 9.20 9.74
Managed Global.......... 9.32 9.58 10.62 9.28 9.53 10.55
OTC..................... --(/3/) --(/3/) 15.77 --(/3/) --(/3/) 15.70
Research................ --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Total Return............ --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Growth & Income......... --(/3/) --(/3/) 12.50 --(/3/) --(/3/) 12.49
Value + Growth.......... --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Limited Maturity Bond... 14.49 14.86 15.31 14.35 14.71 15.13
Liquid Asset............ 12.89 13.03 13.51 12.76 12.89 13.35
<CAPTION>
----------------------------------
----------------------------------
7% SOLUTION
----------------------------------
10/2/95 12/31/95 12/31/96
------- -------- --------
<S> <C> <C> <C>
Multiple Allocation..... $15.78 $16.38 $17.54
Fully Managed........... 14.47 14.91 17.08
Capital Appreciation.... 14.16 14.55 17.22
Rising Dividends........ 12.09 13.15 15.62
All-Growth.............. 13.60 13.81 13.52
Real Estate............. 14.76 15.61 20.79
Hard Assets............. 14.57 14.80 19.42
Value Equity............ 12.40 13.34 14.53
Strategic Equity........ 10.00(/1/) 10.01 11.76
Small Cap............... --(/2/) --(/2/) 11.82
Emerging Markets........ 9.44 9.17 9.69
Managed Global.......... 9.24 9.49 10.49
OTC..................... --(/3/) --(/3/) 15.66
Research................ --(/4/) --(/4/) --(/4/)
Total Return............ --(/4/) --(/4/) --(/4/)
Growth & Income......... --(/3/) --(/3/) 12.47
Value + Growth.......... --(/4/) --(/4/) --(/4/)
Limited Maturity Bond... 14.20 14.56 14.95
Liquid Asset............ 12.63 12.76 13.19
</TABLE>
<TABLE>
<CAPTION>
TOTAL INVESTMENT VALUE IN THOUSANDS
------------------------------------------------------------------------
ENHANCED DEATH BENEFITS
----------------------------------------------
STANDARD ANNUAL RACHET 7% SOLUTION
--------------------- -------------------- ---------------------
12/31/95 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation..... $1,747 $5,207 $349 $2,675 $6,068 $19,593
Fully Managed........... 748 3,568 211 2,999 2,750 16,273
Capital Appreciation.... 355 2,839 239 3,028 4,752 19,054
Rising Dividends........ 303 4,699 476 5,575 3,956 25,976
All-Growth.............. 309 1,795 231 2,000 3,479 10,173
Real Estate............. 43 1,155 46 899 955 8,004
Hard Assets............. 375 1,873 43 850 394 6,635
Value Equity............ 458 2,649 312 3,642 2,394 15,282
Strategic Equity........ 762(/1/) 4,374 475(/1/) 2,729 1,528(/1/) 11,396
Small Cap............... --(/2/) 2,352 --(/2/) 2,692 --(/2/) 15,569
Emerging Markets........ 145 957 115 995 1,475 6,581
Managed Global.......... 256 2,402 262 2,446 1,983 14,422
OTC..................... --(/3/) 471 --(/3/) 443 --(/3/) 880
Research................ --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Total Return............ --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Growth & Income......... --(/3/) 627 --(/3/) 475 --(/3/) 2,167
Value + Growth.......... --(/4/) --(/4/) --(/4/) --(/4/) --(/4/) --(/4/)
Limited Maturity Bond... 401 1,285 174 701 1,988 5,224
Liquid Asset............ 494 1,033 801 1,134 1,190 5,054
</TABLE>
- -------------------
(1) The Strategic Equity Division became available for investment on October
2, 1995, starting with an index of investment experience of $10.00.
(2) The Small Cap Equity Division became available for investment on January
2, 1996, starting with an index of investment experience of $10.00.
(3) The OTC Division and Growth & Income Divisions became available for in-
vestment on September 3, 1996, starting with indices of investment experi-
ence of $14.64 and $10.94, respectively.
(4) The Research, Total Return and Value + Growth Divisions became available
for investment on January 20, 1997, starting with indices of investment
experience of $16.43, $13.76, and $11.99, respectively.
10
<PAGE>
CONDENSED FINANCIAL AND OTHER INFORMATION (CONTINUED)
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years ended De-
cember 31, 1996 and 1995 (as well as the auditors' report thereon) and the au-
dited financial statements of the Managed Global Account of Separate Account
D, the predecessor entity of the Managed Global Series for accounting purpos-
es, for the years ended December 31, 1995 and 1994 (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 generally
accepted accounting principles for the years ended December 31, 1996, 1995 and
1994 (as well as the auditors' report thereon) are contained in the Prospec-
tus.
PERFORMANCE RELATED INFORMATION
Performance information for the Divisions of Account B, 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 calcu-
lated 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 invest-
ment income per unit (Accumulation Value divided by the index of investment
experience, see Facts About the Contract, Measurement of Investment Experi-
ence, 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 in-
vestment 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 appli-
cable 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 cer-
tain contractual charges, such as the surrender charge. Quotations of yield
and average annual total return for the Managed Global Division take into ac-
count the period prior to September 3, 1996, during which it was maintained as
a division of Account D.
Performance information for a Division may be compared, in reports and promo-
tional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"),
Dow Jones Industrial Average ("DJIA"), Donoghue Money Market Institutional Av-
erages, or other indices measuring performance of a pertinent group of securi-
ties 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 in-
vestment products tracked by Lipper Analytical Services, a widely used inde-
pendent 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 Di-
vision during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment objec-
tives and policies, characteristics and quality of the portfolio of the Series
of the respective Trust in which the Division invests and the market condi-
tions during the given time period, and should not be considered as a repre-
sentation 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 includ-
ing the ranking of any Division derived from rankings of variable annuity sep-
arate accounts or other investment products tracked by Lipper Analytical Serv-
ices or by rating services, companies, publications, or other persons who rank
separate accounts or other investment products on overall performance or other
criteria.
11
<PAGE>
INTRODUCTION
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
The following information describes the Contract and the Accounts which fund
the Contract, Account B and the Fixed Account. Account B invests in mutual
fund portfolios of the Trusts. 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.
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American" or the "Company") is
a stock life insurance company organized under the laws of the State of Dela-
ware and is a wholly owned subsidiary of Equitable of Iowa Companies ("Equita-
ble of Iowa"). Prior to December 30, 1993, Golden American was a Minnesota
corporation. Prior to August 13, 1996, Golden American was a wholly owned in-
direct subsidiary of Bankers Trust Company. We are authorized to do business
in all jurisdictions except New York. In May 1996, we established a subsidi-
ary, First Golden American Life Insurance Company of New York, which is autho-
rized to do business in 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.
Equitable of Iowa is the holding company for Equitable Life Insurance Company
of Iowa, USG Annuity & Life Company, Locust Street Securities, Inc., Equitable
American Insurance Company, Equitable Investment Services, Inc. ("EISI"), Eq-
uitable of Iowa Securities Network, Inc., Directed Services, Inc. ("DSI"), and
Golden American.
As of December 31, 1996, Equitable of Iowa had over $12.5 billion in assets.
THE GCG TRUST AND THE ESS TRUST
The GCG Trust is an open-end management investment company, more commonly
called a mutual fund. The GCG 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 GCG 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 difficul-
ties arising from either mixed or shared funding, it is theoretically possible
that, due to differences in tax treatment or other considerations, the inter-
est of Owners of various Contracts participating in the GCG Trust might at
sometime be in conflict. After the GCG Trust receives the requisite order from
the SEC, shares of the GCG Trust may also be sold to certain qualified pension
and retirement plans. The Board of Trustees of the GCG Trust, the GCG Trust's
Manager, and we and any other insurance companies participating in the GCG
Trust are required to monitor events to identify any material conflicts that
arise from the use of the GCG 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 GCG Trust
prospectus.
The ESS Trust is also an open-end management investment company. Currently,
the ESS Trust's shares are not available to separate accounts of other insur-
ance companies other than insurance companies affiliated with Equitable of
Iowa such as Golden American. It is anticipated that in the future the ESS
Trust will become available to separate accounts of unaffiliated companies as
well as to separate accounts funding variable life insurance policies offered
by Golden American.
You will find complete information about both the GCG Trust and the ESS Trust,
including the risks associated with each Series, in the accompanying Trusts'
prospectuses. You should read them carefully in conjunction with this prospec-
tus before investing. Additional copies of the Trusts' prospectuses may be ob-
tained by contacting our Customer Service Center.
SEPARATE ACCOUNT B
All obligations under the Contract are general obligations of Golden American.
Account B is a separate investment account used to support our variable annu-
ity Contracts and for other purposes as permitted by applicable laws and regu-
lations. The assets of Account B are kept separate from our general account
and any other separate accounts we may have. We may offer other variable annu-
ity Contracts investing in Account B which are not discussed in this prospec-
tus. Account B 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. Income and realized and unrealized gains
or losses from assets
12
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
in the account are 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 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.
They may, however, be subject to liabilities arising from Divisions whose as-
sets are attributable to other variable annuity Contracts supported by Account
B. If the assets exceed the required reserves and other liabilities, we may
transfer the excess to our general account.
Account B was established on July 14, 1988 to invest in mutual funds, unit in-
vestment trusts or other investment portfolios which we determine to be suit-
able 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 B DIVISIONS
Account B is divided into Divisions. The Managed Global Division was a divi-
sion of Separate Account D of Golden American until September 3, 1996 when it
was converted to a division of Account B. Currently, each Division of Account
B offered under this prospectus invests in a portfolio of the GCG Trust or the
ESS Trust. DSI serves as the Manager to each Series of the GCG Trust, and EISI
serves as the Manager to each Series of the ESS Trust. See the Trusts' pro-
spectuses for details. The Trusts, DSI and EISI have retained several portfo-
lio 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 Trusts are described below. There is no guarantee that any portfolio or
Series will meet its investment objectives. Meeting objectives depends on var-
ious factors, including, in certain cases, how well the portfolio managers an-
ticipate changing economic and market conditions. Account B also has other Di-
visions investing in other series which are not available to the Contract
described in this prospectus.
DSI and EISI provide the overall business management and administrative serv-
ices necessary for the Series' operation and provide or procure the services
and information necessary to the proper conduct of the business of the Series.
See the Trusts' prospectuses for details.
DSI is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series of the GCG
Trust. 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 of the GCG Trust, in-
terest on borrowing, fees and expenses of the independent trustees, and ex-
traordinary expenses, such as litigation or indemnification expenses. See the
GCG Trust prospectus for details.
Each Trust pays its respective Manager for its services a fee, payable month-
ly, based on the annual rates of the average daily net assets of the Series
shown in the tables below. DSI and EISI (and not the Trusts) pay each portfo-
lio manager a monthly fee for managing the assets of the Series.
THE GCG TRUST
<TABLE>
<CAPTION>
FEES (based on combined
assets of the indicated
SERIES groups of Series)
------------------------------------------------ -----------------------------
<C> <S>
Multiple Allocation, Fully Managed, Capital 1.00% of first $750 million;
Appreciation, Rising Dividends, All-Growth, 0.95% of next $1.250 billion;
Real Estate, Hard Assets, Value Equity, 0.90% of next $1.5 billion;
Strategic Equity, and Small Cap Series: and
0.85% of amount in excess of
$3.5 billion
Emerging Markets Series: 1.75% of average daily net
assets
Managed Global: 1.25% of first $500 million;
1.05% of amount in excess of
$500 million
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>
13
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
THE ESS TRUST
<TABLE>
<CAPTION>
SERIES FEES
------------------------------------------------ ----------------------------
<C> <S>
OTC, Research, and Total Return Portfolios: 0.80% of first $300 million;
0.55% of amount in excess of
$300 million
Growth & Income and Value + Growth Portfolios: 0.95% of first $200 million;
0.75% of amount in excess of
$200 million
- ------------------------------------------------------------------------------
</TABLE>
The following Divisions invest in designated Series of the GCG Trust.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current in-
come, consistent with the preservation of capital and elimination of unneces-
sary 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 preser-
vation of capital and prudent investment risk.
INVESTMENTS
Pursues an active asset allocation strategy whereby investments are allocat-
ed, based upon an evaluation of economic and market trends and the antici-
pated relative total return available, among three asset classes -- debt se-
curities, 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 earn-
ings and positive earnings momentum; dominant competitive positions; and dem-
onstrate above-average growth rates as compared to published S&P 500 earnings
projections; and (ii) The Value Component-Securities that the portfolio man-
ager regards as fundamentally undervalued, i.e., securities selling at a dis-
count 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 LGT Asset Management, Inc.
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 fol-
lowing four criteria: consistent dividend increases; substantial dividend in-
creases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, L.P.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long- term growth prospects.
PORTFOLIO MANAGER
Pilgrim Baxter & Associates, Ltd.
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 es-
tate industry listed on national exchanges or on the National Associa-
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
tion of Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
E.I.I. Realty Securities, Inc.
HARD ASSETS DIVISION (FORMERLY NATURAL RESOURCES)
HARD ASSETS SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the explora-
tion, development, production, management, and distribution of hard assets.
PORTFOLIO MANAGER
Van Eck Associates Corporation
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 rela-
tive 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 tim-
ing 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 exposure to equities when risk/reward character-
istics are believed to be less attractive.
PORTFOLIO MANAGER
Zweig Advisors Inc.
SMALL CAP DIVISION
SMALL CAP SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment primarily in equity securities of companies that, at the time of
purchase, have a total market capitalization -- present market value per
share multiplied by the total number of shares outstanding -- within the
range of companies included in the Russell 2000 Growth Index.
PORTFOLIO MANAGER
Fred Alger Management, 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. In-
come is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Putnam Investment Management, Inc.
MANAGED GLOBAL DIVISION
MANAGED GLOBAL SERIES
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 in-
struments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Putnam Investment Management, Inc.
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 mar-
ket factors indicate that capital appreciation may be available without sig-
nificant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt se-
curities. No individual security will at the time of purchase have a remain-
ing maturity longer than seven years and the dollar-weighted average maturity
of the Series will not exceed five years.
PORTFOLIO MANAGER
Equitable Investment Services, Inc.
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
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
Equitable Investment Services, Inc.
The following Divisions invest in designated Series of the ESS Trust.
OTC DIVISION
OTC PORTFOLIO
OBJECTIVE
Long-term growth of capital.
INVESTMENTS
Investment primarily in securities of companies that are traded principally
on the over-the-counter (OTC) market.
PORTFOLIO MANAGER
Massachusetts Financial Services Company
RESEARCH DIVISION
RESEARCH PORTFOLIO
OBJECTIVE
Long term growth of capital and future income.
INVESTMENTS
Investment primarily in common stocks or securities convertible into common
stocks of companies believed to possess better than average prospects for
long-term growth.
PORTFOLIO MANAGER
Massachusetts Financial Services Company
TOTAL RETURN DIVISION
TOTAL RETURN PORTFOLIO
OBJECTIVE
Above-average income consistent with prudent employment of capital.
INVESTMENTS
Investment primarily in equity securities.
PORTFOLIO MANAGER
Massachusetts Financial Services Company
GROWTH & INCOME DIVISION
GROWTH & INCOME PORTFOLIO
OJECTIVE
Long-term total return.
INVESTMENTS
Investment primarily in equity and debt securities, focusing on small- and
mid-cap companies that offer potential appreciation, current income, or both.
PORTFOLIO MANAGER
Robertson, Stephens & Company Investment Management, L.P.
VALUE + GROWTH DIVISION
VALUE + GROWTH PORTFOLIO
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment primarily in mid-cap growth companies with favorable relationships
between price/earnings ratios and growth rates. Mid-cap companies are those
with market capitalizations ranging from $750 million to approximately $2
billion.
PORTFOLIO MANAGER
Robertson, Stephens & Company Investment Management, L.P.
CHANGES WITHIN ACCOUNT B
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, to com-
bine 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, which we determine to be associated
with the class of Contracts to which your Contract belongs, to another ac-
count. 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 ap-
provals 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 Account B under the 1940 Act;
(2) operate Account B as a management company under the 1940 Act if it is op-
erating as a unit investment trust;
(3) operate Account B as a unit investment trust under the 1940 Act if it is
operating as a managed separate account;
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
(4) restrict or eliminate any voting rights as to Account B; and
(5) combine Account B with other accounts.
THE FIXED ACCOUNT
Premium payments may be allocated to the Fixed Account at the time of the Ini-
tial Premium payment or as subsequently made. In addition, all or part of of
your Accumulation Value may be transferred to the Fixed Account. Assets sup-
porting 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 Se-
curities 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 Al-
locations plus the interest credited thereto, as adjusted for any partial
withdrawals, reallocations or other charges we may impose. Your Fixed Alloca-
tion 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 Guaran-
teed 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 influ-
enced 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 se-
curities 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 Rat-
ings Group (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 Gov-
ernment National Mortgage Association, or that have an investment grade rat-
ing 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, includ-
ing regulatory and tax requirements, sales commissions and administrative ex-
penses borne by us, general economic trends and competitive factors. We can-
not 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 partic-
ular strategy, except as may be required by Delaware and other state insur-
ance 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. 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 aver-
aging program will not be subject to a Market Value Adjustment. All other
transfers from your Fixed Allocations will be subject to a Market Value Ad-
justment. The minimum amount that can be transferred to or from any Fixed Al-
location 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
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
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 Alloca-
tions 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 Allo-
cations, 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 an-
nuity commencement date, we will transfer your Accumulation Value in the ma-
turing 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 Desig-
nated 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 Allo-
cation 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 im-
posed. Withdrawals may have federal income tax consequences, including a 10%
penalty tax. See Surrender Charge, Surrender Charge for Excess Partial With-
drawals 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. If there is no Accumulation Value in those Divi-
sions, partial withdrawals will be deducted from your Fixed Allocations
starting with the Guarantee Periods nearest their Maturity Dates until we
have honored your request.
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 re-
spect 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 with-
drawn, transferred or annuitized by the following factor:
1+I
-----------
( 1+J+.0025) N/365/ -1
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 aver-
age 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
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
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 ap-
proved 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, trans-
fer or annuitization from the Fixed Allocation has been requested, the bal-
ance 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.
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 ap-
plicable 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 Benefi-
ciary the death benefit when due. The sole Owner's estate will be the Benefi-
ciary if no Beneficiary designation is in effect, or if the designated Benefi-
ciary 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 Con-
tract 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 deter-
mined 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 (un-
less 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.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
If there is no contingent Annuitant when the Annuitant dies prior to the Annu-
ity Commencement Date, the Owner will become the Annuitant. The Owner may des-
ignate 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 Annu-
ity Commencement Date and the Owner is not an individual, we will pay the Ben-
eficiary 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 Benefi-
ciary 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 commence-
ment date. We pay death benefit proceeds to the primary Beneficiary (unless
there are joint Owners, in which case death proceeds are payable to the sur-
viving Owner(s)). See Proceeds Payable to the Beneficiary.
If the Beneficiary dies before the Annuitant or Owner, the death benefit pro-
ceeds 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 as-
sume any death benefit proceeds are to be paid in equal shares to the surviv-
ing beneficiaries.
You have the right to change beneficiaries during the Annuitant's lifetime un-
less you have designated an irrevocable Beneficiary. When an irrevocable Bene-
ficiary 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.
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The Contract may be issued as an Individual Retirement Annuity or in connec-
tion 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 ac-
count, and by provisions of the Code and the regulations thereunder. For ex-
ample, the individual retirement trust or custodial account will impose mini-
mum 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, fre-
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FACTS ABOUT THE CONTRACT (CONTINUED)
quency 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 re-
quirements 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 com-
pensation 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. How-
ever, 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 Peri-
od. 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 contribu-
tions). 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 deter-
mine 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 busi-
ness days, the applicant or enrollee will be informed of the reasons for the
delay and the Initial Premium will be returned immediately unless the appli-
cant 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 accom-
panied by a simultaneous telephone facsimile or other electronic data trans-
mission containing the essential information we require to open an 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 accompa-
nied by sufficient electronically transmitted data, we will issue the Con-
tract, 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 bro-
ker-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 Restric-
tions on Allocation of Premium Pay-
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FACTS ABOUT THE CONTRACT (CONTINUED)
ments. For additional premium payments, the Accumulation Value will in-
crease 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 Di-
visions 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 Accu-
mulation 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 re-
quire 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 exe-
cuted 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 Account B
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 Facts About the Contract, 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 Pe-
riod you have chosen.
YOUR RIGHT TO REALLOCATE
You may reallocate your Accumulation Value among the Divisions and Fixed Allo-
cations 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 realloca-
tion 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 the ESS Trust. We also reserve the right to modify or terminate your
right to reallocate your Accumulation Value at any time in accordance with ap-
plicable 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 re-
quest if we believe that: (a) excessive trading by you or a specific realloca-
tion 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 the ESS
Trust 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 the
ESS Trust.
22
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FACTS ABOUT THE CONTRACT (CONTINUED)
Where permitted by law, we may accept your authorization of third party real-
location 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 cancella-
tion. We may restrict the Divisions and Fixed Allocations that will be avail-
able to you for reallocations of premiums during any period in which you au-
thorize such third party to act on your behalf. We will give you prior
notification of any such restrictions. However, we will not enforce such re-
strictions 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 be-
half 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 Alloca-
tion on a monthly basis.
The main objective of dollar cost averaging is to attempt to shield your in-
vestment from short-term price fluctuations. Since the same dollar amount is
transferred to other Divisions each month, more units are purchased in a Divi-
sion 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 declin-
ing 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 trans-
fer amount once each Contract Year, or cancel this program by sending satis-
factory 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 Alloca-
tions with other than one year Guarantee Periods. Transfers from a Fixed Allo-
cation under the dollar cost averaging program will not be subject to a Market
Value 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 in which reinvestment is not available, we will allocate the dis-
tribution, 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 port-
folio 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 permit-
ted. 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
23
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
select the Divisions and Fixed Allocations to which to allocate your Accumula-
tion Value. We adjust your Accumulation Value on each Valuation Date to re-
flect 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 re-
flect any deduction of the annual Contract fee. Your Accumulation Value is ap-
plied 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 Peri-
od. 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 preced-
ing Valuation Period.
(2) We multiply (1) by the Division's net rate of return for the current Val-
uation 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 cur-
rent 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, unless the Charge Deduction Di-
vision 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 Di-
vision are made, except for the OTC, Research, Total Return, Growth and In-
come, and Value + Growth Divisions, which started with indices of $14.64,
$16.43, $13.76, $10.94, and $11.99, respectively. The index for a current
Valuation Period equals the index for the preceding Valuation Period multi-
plied 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 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 ex-
perience 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 in-
vests 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.
24
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
(5) We subtract the daily asset based administrative charge from each Divi-
sion for each day in the valuation period.
Calculations for Divisions investing in a Series are made on a per share ba-
sis.
NET RATE OF RETURN FOR A DIVISION
The net rate of return for a Division during a valuation period is the expe-
rience factor for that Valuation Period minus one.
CASH SURRENDER VALUE
Your Contract's Cash Surrender Value fluctuates daily with the investment re-
sults 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 Con-
tract 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 pay-
ment. 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 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 Con-
ventional 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 conven-
tional 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, quar-
terly, or annual 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 se-
lect the date 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 sub-
ject 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%
Annual 15.00%
</TABLE>
25
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
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 with-
drawal 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 Accumula-
tion 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, quarter, or year, depending on the frequency
chosen. 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 with-
drawal 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.
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA Contract and will attain age 70 1/2 in the current calen-
dar 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 with-
drawals while the Systematic Partial Withdrawal Option is in effect. If you
do not elect the IRA Partial Withdrawal Option, and distributions are re-
quired by Federal tax law, distributions adequate to satisfy the requirements
imposed by Federal tax law may be made. Thus, if the Systematic Partial With-
drawal 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 with-
drawn 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 System-
atic 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 TAK-
ING 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
26
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
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 al-
location 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 Divi-
sions 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. Au-
tomatic rebalancing will not take place during the free look period.
To participate in automatic rebalancing you must submit to our Customer Serv-
ice Center written notice in a form satisfactory to us. We will begin the pro-
gram 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 Annu-
ity Option, a single sum distribution will be made. Any distributions from
non-qualified Contracts must comply with applicable Federal tax law distribu-
tion requirements.
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 7% Solution Enhanced Death Benefit Option may
not be available where a Contract is held by joint Owners. 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 ar-
rangements. See Other Contract Provisions, 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 Surren-
der 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 en-
hanced death benefit interest rate, which rate is an annual rate of 7%;
except that with respect to amounts in the Liquid Asset Division and Lim-
ited 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 ex-
cept with respect to amounts in a Fixed Allocation, the interest rate ap-
plied to such amounts will be the interest credited to
27
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
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 par-
tial withdrawals (including any associated Market Value Adjustment and sur-
render charge incurred) allocated to such premium will continue to grow at
the enhanced death benefit interest rate until reaching the maximum en-
hanced 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 en-
hanced death benefit is reduced in proportion to the reduction in the Accu-
mulation Value for any partial withdrawal of premium (in each case, includ-
ing any associated market value adjustment and surrender charge incurred).
To the extent that partial withdrawals in a contract year do not exceed 7%
of cumulative premiums and did not exceed 7% of cumulative premiums in any
prior contract year, such withdrawals will be treated as withdrawals of
earnings for the purpose of calculating the maximum enhanced death benefit.
(3) We add (1) and (2).
(4) We add to (3) any additional premiums paid during the current Valuation Pe-
riod.
(5) We subtract from (4) any partial withdrawals (including any Market Value
Adjustments and surrender charges incurred) made during the current Valua-
tion 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 Benefi-
ciary. 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.
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 quar-
ter. 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 juris-
diction 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 invests, 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 informa-
tion 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 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 sys-
tem. This may take up to 15 days.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
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
We deduct the charges described below to cover our cost and expenses, services
provided and risks assumed under the Contracts. We incur certain costs and ex-
penses for the distribution and administration of the Contracts, for providing
the benefits payable thereunder and for bearing various risks thereunder. The
amount of a charge will not necessarily correspond to the costs associated
with providing the services or benefits indicated by the designation of the
charge. For example, the Surrender Charge collected may not fully cover all of
the distribution expenses incurred by us.
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to have all charges against the Accumula-
tion 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 no-
tice 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 re-
strictions. 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 per-
centage 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 re-
ceive and accept such premium payment. The percentage of premium payments de-
ducted at the time of surrender or excess partial withdrawal depends upon the
number of complete years that have elapsed since that premium payment was
made. We determine the surrender charge as a percentage of each premium pay-
ment 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
Contract 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 re-
ceived 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 Contract
29
<PAGE>
CHARGES AND FEES (CONTINUED)
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 physi-
cian 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 con-
sidered 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 Divi-
sion or Fixed Allocation from which the excess partial withdrawal was taken.
In instances where the excess partial withdrawal equals the entire Accumula-
tion Value in each such Division or Fixed Allocation, charges will be de-
ducted proportionately from all other Divisions and Fixed Allocations in
which you are invested.
For purposes of calculating the surrender charge for the excess partial with-
drawal, (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 par-
tial 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 Con-
tract 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 with-
drawal of a part of the Initial Premium payment of $10,000 and would be sub-
ject 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 Com-
mencement Date. In those states we may initially defer collection of the
amount of the charge for premium taxes from your Accumulation Value and de-
duct it against Accumulation Value on surrender of the Contract, excess par-
tial 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 Con-
tract Year.
EXCESS ALLOCATION CHARGE
We currently do not assess a charge for allocation changes made during a Con-
tract Year. We re-
30
<PAGE>
CHARGES AND FEES (CONTINUED)
serve the right, however, to assess a $25 charge for each allocation change
after the twelfth allocation change in a Contract Year. This amount repre-
sents the maximum we will charge. The charge would be deducted from the Divi-
sions 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 determin-
ing 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 ben-
efit 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. If an enhanced death bene-
fit 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.
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.
TRUST EXPENSES
There are fees and charges deducted from each Series of the GCG Trust and the
ESS Trust. Please read the respective Trust prospectus for details.
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 Op-
tion 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 deter-
mined by applying your Accumulation Value adjusted for any applicable Market
Value Adjustment on the Annuity Commencement Date in accordance with The Annu-
ity 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 Com-
mencement 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 distri-
bution 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 pay-
ment rate used and the investment results of the Divisions and interest cred-
ited to the Fixed Allocations in which the Accumulation Value has been invest-
ed.
Some annuity options may provide only for fixed payments. Fixed Annuity Pay-
ments 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 pay-
ments chosen, the age of the Annuitant or Beneficiary (and sex, where
appropriate), the total Accumulation Value applied to purchase the fixed op-
tion, and the applicable payment rate.
Our approval is needed for any option where:
31
<PAGE>
CHOOSING YOUR ANNUITIZATION OPTIONS (CONTINUED)
(1) The person named to receive payment is other than the Owner or Beneficia-
ry;
(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, on the Annuity Commencement
Date, a Surrender Charge remains, the elected Annuity Option must include a
period certain of at least five years duration. 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 birth-
day for Annuitants with an Issue Age of 80 and under. If the Annuity Commence-
ment 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.
FREQUENCY SELECTION
You choose the frequency of the Annuity Payments. They may be monthly, quar-
terly, 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 Accumula-
tion 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 avail-
able upon request. Illustrations are available upon request. If the Cash Sur-
render Value or Accumulation Value is applied under this option, a 10% pen-
alty 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 cer-
tain may be available on request. A refund certain may be chosen instead. Un-
der 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 pay-
ments. 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 op-
tion'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, pay-
ments 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.
32
<PAGE>
CHOOSING YOUR ANNUITIZATION OPTIONS (CONTINUED)
(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 Fed-
eral tax consequences. See Federal Tax Considerations.
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 va-
lidity of any assignment.
NON-PARTICIPATING
The Contract does not participate in the divisible surplus of Golden Ameri-
can.
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
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 ad-
vance 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 de-
ducted, and the Contract will be voided as of the date we receive the Con-
tract 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 be allocated to the Specially Designated Division dur-
ing 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 Peri-
od, 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 Facts About the Contract, Measurement of In-
vestment Experience, Index of Experience and Unit Value.
EXCHANGING YOUR CONTRACT
For information regarding exchanges under Section 1035 of the Internal Reve-
nue Code of 1986, as amended, 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, ad-
ministration, 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
33
<PAGE>
OTHER CONTRACT PROVISIONS (CONTINUED)
in which an employer allows us to sell Contracts to its employees on an indi-
vidual 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 require-
ments for size and number of years in existence. Group or sponsored arrange-
ments that have been set up solely to buy Contracts or that have been in ex-
istence 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 principal underwriter and distributor of the Contract as well as for
other Contracts issued through Account B 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 rep-
resentatives who are licensed to sell securities and variable insurance prod-
ucts 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 6.5% of any initial or additional premium pay-
ments made.
REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of a Trust owned by Account B according to your in-
structions. 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 a
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 a Trust's meeting. We will ask you for voting in-
structions 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 Divi-
sion. We will also vote shares we hold in Account B which are not attribut-
able to Owners in the same proportion.
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 litiga-
tion. 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, Executive Vice President, Gen-
34
<PAGE>
REGULATORY INFORMATION (CONTINUED)
eral Counsel and Secretary of Golden American. Sutherland, Asbill & Brennan,
L.L.P. 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 ap-
pearing or incorporated by reference in the Statement of Additional Informa-
tion and Registration Statement have been audited by Ernst & Young LLP, inde-
pendent 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.
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.
On August 13, 1996, Equitable of Iowa acquired all the outstanding capital
stock of BT Variable, Inc., the parent of Golden American. For GAAP financial
statement purposes, the change in control of Golden American through the ac-
quisition was accounted for as a purchase acquisition. As a result, the GAAP
financial data presented below for periods subsequent to August 13, 1996, are
presented on the Post-Acquisition new basis of accounting while the financial
statement data prior to August 14, 1996 is presented on a Pre-Acquisition his-
torical basis of accounting.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
-----------------------------------------------------------------------------
POST-
ACQUISITION PRE-ACQUISITION
--------------- -------------------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996
THROUGH THROUGH FOR THE FISCAL YEARS ENDED DECEMBER 31
DECEMBER 31, AUGUST 13, ----------------------------------------
1996 1996 1995 1994 1993 1992(A)
--------------- --------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Annuity and Interest
Sensitive Life Product
Charges................ $ 8,768 $12,259 $ 18,388 $ 17,519 $ 10,192 $ 694
Net Income before
Federal Income Tax..... $ 570 $ 1,736 $ 3,364 $ 2,222 $ (1,793) $ (508)
Net Income (Loss)....... $ 350 $ 3,199 $ 3,364 $ 2,222 $ (1,793) $ (508)
Total Assets............ $1,677,899 N/A $1,197,688 $1,044,760 $886,155 $320,539
Total Liabilities....... $1,537,415 N/A $1,099,563 $ 955,254 $857,558 $306,197
Total Stockholder's
Equity................. $ 140,484 N/A $ 98,125 $ 89,506 $ 28,597 $ 14,342
</TABLE>
(a) Results for 1992 are for the period September 30, 1992 (date of acquisi-
tion) to December 31, 1992.
The following selected financial data was prepared on the basis of statutory
accounting practices ("SAP"), which have been prescribed 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 se-
lected financial data should be read in conjunction with the financial state-
ments and notes thereto included in this Prospectus, which describe the dif-
ferences between SAP and GAAP. See the Company's Annual Report for more
detail.
<TABLE>
<CAPTION>
SELECTED STATUTORY FINANCIAL DATA
(IN THOUSANDS)
-------------------------------------------------------------
FOR THE FISCAL YEARS ENDED DECEMBER 31
----------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Premiums & Annuity
Considerations......... $ 442,852 $ 124,687 $294,550 $505,465 $191,039
Net Income (Loss) before
Federal Income Tax..... $ (9,137) $ (4,117) $(11,260) $ (9,417) $ (4,225)
Net Income (Loss)....... $ (9,188) $ (4,117) $(11,260) $ (9,401) $ (3,986)
Total Assets............ $1,544,931 $1,124,840 $988,180 $834,123 $302,200
Total Liabilities....... $1,464,502 $1,058,483 $921,888 $815,301 $289,995
Total Capital &
Surplus................ $ 80,430 $ 66,357 $ 66,292 $ 18,822 $ 12,205
</TABLE>
35
<PAGE>
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this section is to discuss and analyze the Company's consoli-
dated results of operations. In addition, some analysis and information re-
garding financial condition and liquidity and capital resources has also been
provided. This analysis should be read in conjunction with the consolidated
financial statements and related notes which appear elsewhere in this report.
The Company reports financial results on a consolidated basis. The consoli-
dated financial statements include the accounts of the Golden American Life
Insurance Company ("Golden American") and its subsidiary, First Golden Ameri-
can Life Insurance Company New York ("First Golden," and collectively with
Golden American the "Company").
RESULTS OF OPERATIONS
CHANGE IN CONTROL
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of BT Variable, Inc. ("BT Variable") and its wholly owned subsidiaries Golden
American and Directed Services, Inc. ("DSI") for $144 million. The purchase
price consisted of $93 million in cash paid to Whitewood (parent of BT Vari-
able) and $51 million in cash paid to Bankers Trust (parent of Whitewood) to
retire certain debt owed by BT Variable to Bankers Trust.
For financial statement purposes, the change in control of Golden American
through the acquisition of BT Variable was accounted for as a purchase acqui-
sition effective August 14, 1996. This acquisition resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at that
date. As a result, the Company's financial statements for periods subsequent
to August 13, 1996, are presented on the Post-Acquisition new basis of ac-
counting, while the financial statements for August 13, 1996 and prior peri-
ods are presented on the Pre-Acquisition historical cost basis of accounting.
The purchase price was allocated to the three companies purchased--BT Vari-
able, DSI, and Golden American. Goodwill of $39.3 million was established for
the excess of the acquisition cost over the fair value of the assets and lia-
bilities and pushed down to Golden American. The acquisition cost is prelimi-
nary with respect to the final settlement of taxes with Bankers Trust and es-
timated expenses and, as a result, goodwill may change. The allocation of the
purchase price to Golden American was approximately $139.9 million. Goodwill
resulting from the acquisition is being amortized over 25 years on a straight
line basis. The carrying value will be reviewed periodically for any indica-
tion of impairment in value.
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for the
insurance industry. Increasing competition from traditional insurance carri-
ers as well as banks and mutual fund companies offer consumers many choices.
However, overall demand for variable products remains strong for several rea-
sons including: strong stock market performance over the last 3 years; rela-
tively low interest rates; an aging U.S. population that is increasingly con-
cerned about retirement and estate planning, as well as maintaining their
standard of living in retirement; and potential reductions in government and
employer-provided benefits at retirement as well as lower public confidence
in the adequacy of those benefits.
In 1995, Golden American experienced a significant decline in sales, due to a
number of factors. First, some portfolio managers performed poorly in 1993
and 1994. Second, as more products came to market the cost structure of the
DVA product became less competitive. Third, because no fixed interest rate
options were available in 1994 during a time of rising interest rates and
flat or declining equity markets, market share was lost. Consequently, the
Company took steps to respond to these business challenges. Several portfolio
managers were replaced and new funds were added to give contractholders more
options. In October of 1995, the Company introduced the Combination Deferred
Variable and Fixed Annuity (GoldenSelect DVA PLUS) and the GoldenSelect Gene-
sis I and Genesis Flex life insurance products.
The analysis following combines the post-acquisition and pre-acquisition ac-
tivity for 1996 in order to compare the results to 1995. Such a comparison
does not recognize the impact of the purchase accounting and goodwill amorti-
zation except for the period after August 13, 1996.
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<TABLE>
PREMIUMS
<CAPTION>
POST-
ACQUISITION COMBINED PRE-ACQUISITION
--------------- ------------ ----------------------------
FOR THE PERIOD FOR THE YEAR
AUGUST 14, 1996 ENDED FOR THE PERIOD FOR THE YEAR
THROUGH DECEMBER 31, JANUARY 1,1996 ENDED
DECEMBER 31, 1996 THROUGH DECEMBER 31,
1996 COMBINED AUGUST 13, 1996 1995
--------------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Variable annuity premi-
ums.................... $169,258 $427,630 $258,372 $110,587
Variable life premiums.. 3,619 14,125 10,506 5,114
-------- -------- -------- --------
Total premiums......... $172,877 $441,755 $268,878 $115,701
======== ======== ======== ========
</TABLE>
Variable annuity premiums increased 286.4%, or $317.0 million, in 1996, and
variable life premiums increased 176.2%, or $9.0 million, in 1996. Strong
stock market returns, a relatively low interest rate environment and flat
yield curve have made returns provided by variable annuities and mutual funds
more attractive than fixed rate products such as certificates of deposits and
fixed annuities. During 1995, the fund offerings underlying Golden American's
variable products were improved and a fixed account option was added. These
changes and the current environment have contributed to the significant
growth in the Company's variable annuity premiums from 1995. Premiums, net of
reinsurance, for variable products from two significant sellers for the year
ended December 31, 1996, totaled $298.0 million, or 67% of premiums.
REVENUES
<TABLE>
<CAPTION>
POST-
ACQUISITION COMBINED PRE-ACQUISITION
--------------- ------------ ----------------------------
FOR THE PERIOD FOR THE YEAR
AUGUST 14, 1996 ENDED FOR THE PERIOD FOR THE YEAR
THROUGH DECEMBER 31, JANUARY 1, 1996 ENDED
DECEMBER 31, 1996 THROUGH DECEMBER 31,
1996 COMBINED AUGUST 13, 1996 1995
--------------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Annuity and interest
sensitive life product
charges................ $ 8,768 $21,027 $12,259 $18,388
Management fee revenue.. 877 2,267 1,390 987
Net investment income... 5,795 10,785 4,990 2,818
Realized gains (losses)
on investments......... 42 (378) (420) 297
Other income............ 486 556 70 63
------- ------- ------- -------
$15,968 $34,257 $18,289 $22,553
======= ======= ======= =======
</TABLE>
Total revenues increased 51.9%, or $11.7 million, to $34.3 million in 1996.
Annuity and interest sensitive life product charges increased 14.4%, or $2.6
million in 1996. The increase is due to additional fees earned from the in-
creasing block of business under management in the Separate Accounts and an
increase in the collection of surrender charges partially offset by a de-
crease in the revenue recognition of net distribution fees.
Golden American provides certain managerial and supervisory services to DSI.
This fee, calculated as a percentage of average assets in the variable sepa-
rate accounts, was $2.3 million for 1996 and $1.0 million for 1995.
Net investment income increased 287.7%, or $8.0 million, to $10.8 million in
1996 from $2.8 million in 1995. This increase resulted from growth in in-
vested assets. During 1996, the Company had realized losses on the disposal
of investments, which were the result of voluntary sales, of $0.4 million
compared to realized gains of $0.3 million in 1995.
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EXPENSES
<TABLE>
<CAPTION>
POST-
ACQUISITION COMBINED PRE-ACQUISITION
--------------- ------------ ----------------------------
FOR THE PERIOD FOR THE YEAR FOR THE PERIOD
AUGUST 14, 1996 ENDED JANUARY 1, 1996 FOR THE YEAR
THROUGH DECEMBER 31, THROUGH ENDED
DECEMBER 31, 1996 AUGUST 13, DECEMBER 31,
QUARTER 1996 COMBINED 1996 1995
- ------- --------------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances............................. $ 5,741 $ 10,096 $ 4,355 $ 1,322
Benefit claims incurred in excess of account balances............. 1,262 2,177 915 1,824
Underwriting, acquisition, and insurance expenses:
Commissions....................................................... 9,866 26,415 16,549 7,983
General expenses.................................................. 5,906 15,328 9,422 12,650
Insurance taxes................................................... 672 1,897 1,225 952
Policy acquisition costs deferred................................. (11,712) (31,012) (19,300) (9,804)
Amortization:
Deferred policy acquisition costs................................. 244 2,680 2,436 2,710
Present value of in force acquired................................ 2,745 3,696 951 1,552
Goodwill.......................................................... 589 589 -- --
-------- -------- -------- -------
$ 15,313 $ 31,866 $ 16,553 $19,189
</TABLE>
Total insurance benefits and expenses increased 66.1%, or $12.7 million, in
1996 from $19.2 million in 1995. Interest credited to account balances in-
creased 663.6%, or $8.8 million, in 1996 as a result of higher account bal-
ances associated with the Company's fixed account option within its variable
products. Benefit claims incurred in excess of account balances increased
19.4%, or $0.4 million, in 1996 from $1.8 million in 1995.
Commissions increased 230.9%, or $18.4 million, in 1996 from $8.0 million in
1995. Insurance taxes increased 99.3%, or $0.9 million, in 1996 from $1.0
million in 1995. Increases and decreases in commissions and insurance taxes
are generally related to changes in the level of variable product sales. Most
costs incurred as the result of new sales have been deferred, thus having
very little impact on earnings.
General expenses increased 21.2%, or $2.7 million, in 1996 from $12.7 million
in 1995. The Company uses a network of wholesalers to distribute its products
and the salaries of these wholesalers are included in general expenses. The
portion of these salaries and related expenses which vary with sales produc-
tion levels are deferred, thus having little impact on earnings. Management
expects general expenses to continue to increase in 1997 as a result of the
emphasis on expanding the salaried wholesaler distribution network.
The Company's deferred policy acquisition costs ("DPAC"), previous balance of
present value of in force acquired ("PVIF") and unearned revenue reserve, as
of the purchase date, were eliminated and an asset of $85.8 million repre-
senting the PVIF was established for all policies in force at the acquisition
date. The amortization of PVIF and DPAC increased $2.1 million, or 49.6%, in
1996. Based on current conditions and assumptions as to the impact of future
events on acquired policies in force, amortization of PVIF is expected to be
approximately $9.7 million in 1997, $10.1 million in 1998, $9.2 million in
1999, $7.9 million in 2000 and $6.8 million in 2001. The elimination of the
unearned revenue reserve, related to in force acquired at the acquisition
date, will result in lower annuity and interest sensitive life product
charges compared to 1995 levels.
Amortization of goodwill during the period from the acquisition date to De-
cember 31, 1996 totaled $0.6 million. Goodwill resulting from the acquisition
is being amortized on a straight-line basis over 25 years and is expected to
total $1.6 million annually.
INCOME
Net income on a combined basis for 1996 was $3.5 million, an increase of $0.2
million, or 5.5%, from 1995.
1995 COMPARED TO 1994
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 was due
to an additional $0.9 million in fees
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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 as-
sets held to back the fixed interest divisions that were introduced in 1995.
The balance of the increase in investment income was attributable to an in-
crease 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 manage-
rial and supervisory services provided by Golden American. This fee, calcu-
lated as a percentage of average assets in the variable separate accounts,
was $1.0 million for 1995.
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 inter-
est credited to policyholders related to the fixed interest divisions intro-
duced in 1995. Additionally, death benefit costs net of reinsurance increased
by $.3 million in 1995 as compared to 1994. Additionally, 1994 policy bene-
fits reflected a $1.5 million decrease in mortality reserves.
Commissions and overrides were $7.7 million in 1995, a decrease of $9.1 mil-
lion 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 pre-
ferred 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 un-
amortized 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 per-
formance 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.
FINANCIAL CONDITION
INVESTMENTS
The financial statement carrying value of the Company's total investments
grew 381.9% in 1996. The amortized cost basis of the Company's total invest-
ment portfolio grew 388.3% during the same period. All of the Company's in-
vestments, other than mortgage loans, are carried at fair value in the
Company's financial statements. As such, growth in the carrying value of the
Company's investment portfolio included changes in unrealized appreciation
and depreciation of fixed maturity and equity securities as well as growth in
the cost basis of these securities. Growth in the cost basis of the Company's
investment portfolio resulted from the investment of premiums from the sale
of the Company's variable insurance products. Late in 1995, the fixed account
option was offered within the Company's variable products. The large growth
in invested assets during 1996 was primarily a result of premium inflow from
this fixed account option. The Company manages the growth of its insurance
operations in order to maintain adequate capital ratios.
To support the fixed account option of the Company's variable insurance prod-
ucts, cash flow was invested primarily in fixed maturity securities. At De-
cember 31, 1996, the Company's investment portfolio at amortized cost was
$314.7 million with a yield of 6.9% and carrying value of $315.1 million.
Fixed Maturity Securities: At December 31, 1996 the Company had fixed maturi-
ties with an amortized cost of $275.2 million and a market value of $275.6
million. The ratings assigned by Standard & Poor's Corporation ("Standard &
Poor's") to the individual securities in the companies fixed maturities port-
folio (shown at amortized cost) include investment grade securities compris-
ing U.S. governments, agencies and AAA corporates to BBB- ($242.7 million or
88.2%), and below investment grade securities BB+ to BB- ($28.4 million or
10.3%). Securities not rated by
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Standard & Poor's had an NAIC rating of 1 or 2 ($4.1 million or 1.5%).
The Company classifies 100% of its securities as available for sale. On De-
cember 31, 1996, fixed income securities with an amortized cost of $275.2
million and an estimated fair value of $275.6 million were designated as
available for sale. Net unrealized appreciation of fixed maturity securities
of $0.4 million was comprised of gross appreciation of $1.2 million and gross
depreciation of $0.8 million. Unrealized holding gains on these securities,
net of adjustments to deferred policy acquisition costs and deferred income
taxes, increased stockholder's equity by $0.3 million at December 31, 1996.
The Company began investing in below investment grade securities during 1996.
At December 31, 1996, the amortized cost value of the Company's total invest-
ment in below investment grade securities was $25.9 million, or 8.2%, of the
Company's investment portfolio. The Company intends to purchase additional
below investment grade securities, but it does not expect the percentage of
its portfolio invested in below investment grade securities to exceed 10% of
its investment portfolio. At December 31, 1996, the yield at amortized cost
on the Company's below investment grade portfolio was 8.4% compared to 6.7%
for the Company's investment grade corporate bond portfolio. The Company es-
timates that the fair value of its below investment grade portfolio was $26.1
million, or 100.7% of amortized cost value, at December 31, 1996.
Below investment grade securities have different characteristics than invest-
ment grade corporate debt securities. Risk of loss upon default by the bor-
rower is significantly greater with respect to below investment grade securi-
ties than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other credi-
tors of the issuer. Also, issuers of below investment grade securities usu-
ally have higher levels of debt and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are invest-
ment grade issuers. The Company attempts to reduce the overall risk in its
below investment grade portfolio, as in all of its investments, through care-
ful credit analysis, strict investment policy guidelines, and diversification
by company and by industry.
The Company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability to
realize its carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than tem-
porary (i.e. if it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the security), the cost ba-
sis of the impaired security is written down to fair value, which becomes the
security's new cost basis. The amount of the writedown is included in earn-
ings as a realized loss. Future events may occur, or additional or updated
information may be received, which may necessitate future write-downs of se-
curities in the Company's portfolio. Significant write-downs in the carrying
value of investments could materially adversely affect the Company's net in-
come in future periods.
At December 31, 1996, no fixed maturity securities were deemed to have im-
pairments in value that are other than temporary. The Company's fixed matu-
rity investment portfolio had a combined yield at amortized cost of 6.9% at
December 31, 1996.
Mortgage Loans: Mortgage loans represent 10.0% of the Company's investment
portfolio. Subsequent to the acquisition, the Company purchased mortgage
loans from an affiliate to broaden its investment alternatives. Mortgages
outstanding were $31.5 million at December 31, 1996 with an estimated fair
value of $31.0 million. The Company's mortgage loan portfolio includes 18
loans with an average size of $1.7 million and average seasoning of 1.9 years
if weighted by the number of loans, and 2.0 years if weighted by mortgage
loan carrying values. The Company's mortgage loans are typically secured by
occupied buildings in major metropolitan locations and not speculative devel-
opments, and are diversified by type of property and geographic location. At
December 31, 1996, the yield on the Company's mortgage loan portfolio was
7.6%.
At December 31, 1996, no mortgage loans were delinquent by 90 days or more.
The Company does not expect to incur material losses from its mortgage loan
portfolio. The Company's loan investment strategy is consistent with that of
other life insurance subsidiaries of its ultimate parent, Equitable. Equita-
ble has experienced a historically low default rate in its mortgage loan
portfolio and has been able to recover 99% of the principal amount of problem
mortgages resolved in the last three years.
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At December 31, 1996, the Company had no investments in default. The Company
estimates its total investment portfolio, excluding policy loans, had a fair
value approximately equal to 100.0% of its amortized cost value for account-
ing purposes at December 31, 1996.
OTHER ASSETS
Accrued investment income increased $3.4 million during 1996 due to an in-
crease in new fixed income investments and in the overall size of the portfo-
lio resulting from the investment of premiums allocated to the fixed account
option of the Company's variable products.
The Company's DPAC and previous balance of PVIF, as of the purchase date,
were eliminated and an asset representing the PVIF was established for all
policies in force at the acquisition date. PVIF is amortized into income in
proportion to the expected gross profits of the in force acquired in a manner
similar to DPAC amortization. Any expenses which vary with the sales of the
Company's products are deferred and amortized. At December 31, 1996, the Com-
pany had DPAC and PVIF balances of $11.5 million and $83.1 million, respec-
tively.
Goodwill totaling $39.3 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the ac-
quisition date. Amortization of goodwill through December 31, 1996 was $0.6
million.
At December 31, 1996, the Company had $1.2 billion of separate account assets
compared to $1.0 billion at December 31, 1995. The increase in separate ac-
count assets is due to growth in sales of the Company's variable products.
At December 31, 1996, the Company had total assets of $1.7 billion, an in-
crease of 39.5% over total assets at December 31, 1995.
LIABILITIES
In conjunction with the volume of variable insurance sales, the Company's to-
tal liabilities increased $432.5 million, or 39.1%, during 1996 and totaled
$1.5 billion at December 31, 1996. Future policy benefits for annuity and in-
terest sensitive life products increased $251.6 million, or 747.2%, to $285.3
million reflecting large premium growth in the Company's fixed account option
of its variable products. Premium growth also accounted for the $158.3 mil-
lion, or 15.1%, increase in separate account liabilities to $1.2 billion at
December 31, 1996.
As of the acquisition date, the Company's existing unearned revenue reserve
was eliminated. This treatment corresponds with treatment of the present
value of in force acquired.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus
note to Equitable. The note matures on December 17, 2026. On December 17,
1996, Golden American contributed the $25 million to First Golden, acquiring
200,000 shares of common stock (100% of shares outstanding) of First Golden.
EQUITY
On December 30, 1994, the Company issued $50 million of redeemable preferred
stock to its immediate parent, BT Variable. On September 23, 1996, the pre-
ferred stock was redeemed and the proceeds were contributed to the Company as
additional paid-in capital.
The effects of inflation and changing prices on the Company are not material
since insurance assets and liabilities are both primarily monetary and remain
in balance. An effect of inflation, which has been low in recent years, is a
decline in purchasing power when monetary assets exceed monetary liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company are met by cash flow from variable
insurance premiums, investment income and maturities of fixed maturity in-
vestments and mortgage loans. The Company primarily uses funds for the pay-
ment of insurance benefits, commissions, operating expenses and the purchase
of new investments.
The Company's home office operations are currently housed in a leased loca-
tion in Wilmington, Delaware and a leased location in New York, New York. The
Company intends to spend approximately $1 million on capital needs for 1997.
The ability of Golden American to pay dividends to its parent is restricted
because prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limitation.
During 1997, Golden American could pay dividends to its parent of approxi-
mately $2.2 million without prior approval of statutory authorities. The Com-
pany has maintained adequate statutory capital and surplus and have not used
surplus relief or financial reinsurance, which have come under scrutiny by
many state insurance departments.
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The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify inade-
quately capitalized insurance companies based upon the type and mixture of
risks inherent in the company's operations. The formula includes components
for asset risk, liability risk, interest rate exposure and other factors.
Golden American has complied with the NAIC's risk-based capital reporting re-
quirements. Amounts reported indicate that Golden American has total adjusted
capital which is well above all required capital levels. First Golden intends
to comply with these requirements in 1997, as its insurance license was ap-
proved on January 2, 1997, and expects to exceed levels that require regula-
tory action.
Surplus Note: On December 17, 1996, Golden American issued a surplus note in
the amount of $25 million to Equitable. The note matures on December 17, 2026
and will accrue interest of 8.25% per annum until paid. The note and accrued
interest thereon shall be subordinate to payments due to policyholders,
claimant and beneficiary claims, as well as debts owed to all other classes
of debtors of Golden American. Any payment of principal made shall be subject
to the prior approval of the Delaware Insurance Commissioner. On December 17,
1996, Golden American contributed the $25 million to First Golden acquiring
200,000 shares of common stock (100% of shares outstanding) of First Golden.
Line of Credit: Golden American maintains a line of credit agreement with Eq-
uitable to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. The maximum borrowing allowed under this facility is $25
million expiring on December 31, 1997. At December 31, 1996, no amounts were
outstanding under this agreement.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or writ-
ten statement by the Company or any of its officers, directors or employees
is qualified by the fact that actual results of the company may differ mate-
rially from such statement due to the following important factors, among
other risks and uncertainties inherent in the Company's business:
1. Prevailing interest rate levels which may affect the ability of the Com-
pany to sell its products, the market value of the Company's investments
and the lapse rate of the Company's policies, notwithstanding product de-
sign features intended to enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations which may affect
the relative tax advantages of the Company's products.
3. Changes in the regulation of financial services, including bank sales
and underwriting of insurance products, which may affect the competitive
environment for the Company's products.
4. Other factors affecting the performance of the Company, including, but
not limited to market conduct issues, stock market performance, litigation,
insurance industry insolvencies, investment performance of the underlying
portfolios of the variable products, variable product design and sales vol-
ume by significant sellers of the company's variable products.
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 in excess of
140 sales agreements with broker-dealers, one of whom, Locust Street Securi-
ties, Inc., is an affiliate of Golden American. Two non-affiliated 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 rein-
surance agreement on a modified coinsurance basis with an affiliate of a bro-
ker-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, ac-
tuarially determined reserves to meet its obligations on outstanding Con-
tracts. Reserves, based on valuation mortality tables in general use in the
United States, where applicable, are computed to equal amounts which, to-
gether with in-
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terest on such reserves computed annually at certain assumed rates, make ade-
quate provision according to presently accepted actuarial standards of prac-
tice, for the anticipated cash flows required by the contractual obligations
and related expenses of Golden American.
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
Beginning in 1994 and continuing until August 13, 1996, Bankers Trust (Dela-
ware), a subsidiary of Bankers Trust New York Corporation ("BT New York Cor-
poration"), and Golden American became parties to a service agreement pursu-
ant to which Bankers Trust (Delaware) 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 were reimbursed by Golden American on an allocated cost ba-
sis. Charges billed to Golden American by Bankers Trust (Delaware) pursuant
to the service agreement for 1996 through its termination as of August 13,
1996, 1995 and 1994 were $464,734, $816,264 and $290,248, respectively.
Prior to 1994, Golden American had arranged with EIC Variable to perform
services related to the development and administration of its products. For
the year 1993, fees earned by EIC Variable from Golden American for these
services aggregated $2,701,000. The agreement was terminated as of January 1,
1994.
In addition, one or more affiliates of Equitable of Iowa provided to Golden
American certain personnel to perform management, administrative and clerical
services and the use of certain of its facilities. Golden American was
charged 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 an affiliate's employees on
behalf of Golden American. For the year 1993, EIC Variable allocated to
Golden American $1,503,000. 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 per-
form services related to the management of its investments and the distribu-
tion of its products. For the year 1993, Golden American incurred $311,000,
respectively, for such services. The agreement was terminated as of January
1, 1994.
Under a distribution agreement, DSI acts as the principal underwriter (as de-
fined 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, 1996, are sold primarily through two broker/dealer
institutions. For the years ended 1996, 1995 and 1994, commissions paid by
Golden American to DSI aggregated $27,065,000, $8,440,000 and $17,569,000,
respectively.
Golden American provided to DSI certain of its personnel to perform manage-
ment, administrative and clerical services and the use of certain facilities.
Golden American charged DSI for such expenses and all other general and ad-
ministrative 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, 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 for managerial and
supervisory services provided by Golden American. This fee, calculated as a
percentage of average assets in the variable separate accounts, was
$2,267,000 and $987,000 for 1996 and 1995, respectively.
EMPLOYEES
Golden American, as a result of its Service Agreements with each of Bankers
Trust (Delaware) and EIC Variable had very few direct employees. Instead,
various management services were provided by Bankers Trust (Delaware), EIC
Variable and Bankers Trust New York Corporation, as described above under
"Certain Agreements." The
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
cost of these services were allocated to Golden American. Since August 14,
1996, Golden American has looked to Equitable of Iowa and its affiliates for
management services.
Certain officers of Golden American are also officers of EIC Variable and
DSI, and their salaries are allocated among the three companies. Certain of-
ficers of Golden American is also an officer of Equitable of Iowa. See "Di-
rectors and Executive Officers."
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) un-
der a separate agreement.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
POSITIONS(S) WITH THE
NAME (AGE) COMPANY
- ----------------------------- ---------------------------
<S> <C>
Terry L. Kendall (50) Chairman, President and
Chief Executive Officer
Fred S. Hubbell (46) Director
Lawrence V. Durland, Jr. (50) Director
Paul E. Larson (44) Director, Executive Vice
President, CFO and
Assistant Secretary
Thomas L. May (48) Director
John A. Merriman (54) Director and Assistant
Secretary
Beth B. Neppl (39) Director and Vice President
Paul R. Schlaack (50) Director
Jerome L. Sychowski (55) Director, Senior Vice
President and Chief
Information Officer
Barnett Chernow (47) Executive Vice President
Dennis D. Hargens (54) Treasurer
David L. Jacobson (47) Senior Vice President
and Assistant Secretary
Stephen J. Preston (39) Senior Vice President
and Chief Actuary
Myles R. Tashman (54) Executive Vice President,
General Counsel
and Secretary
David A. Terwilliger (39) Vice President, Controller,
Assistant Secretary and
Assistant Treasurer
Edward C. Wilson (56) Executive Vice President
</TABLE>
Each director is elected to serve for one year or until the next annual meet-
ing of shareholders or until his or her successor is elected. Most directors
are directors of insurance company subsidiaries of Golden American's ultimate
parent, Equitable of Iowa Companies.
The principal positions of Golden American's directors and senior executive
officers for the past five years are listed below:
Mr. Terry L. Kendall became Director, President and Chief Executive Officer of
Golden American in September, 1993. From September 1993 through September
1996, he also served as Chairman of Golden American. Since June, 1996, he has
also served as President, Chief Executive Officer and Chairman of First Golden
American Life Insurance Company of New York, Golden American's New York sub-
sidiary. From 1982 through June 1993, he was President and Chief Executive Of-
ficer of United Pacific Life Insurance Company.
Mr. Fred S. Hubbell became Chairman, President and Chief Executive Officer of
Equitable of Iowa in 1991. He also has served as Chairman and President of Eq-
uitable Life Insurance Company of Iowa since 1987. He was elected to serve as
a director of Golden American in August 1996 and as Chairman of the Board in
September 1996. He serves in a similar capacity for most Equitable of Iowa af-
filiate companies.
Mr. Lawrence V. Durland, Jr. joined Equitable of Iowa in 1986 as a Senior Vice
President. He was elected to serve as a director of Golden American in August
1996.
Mr. Paul E. Larson joined Equitable of Iowa in 1977 and is currently an Execu-
tive Vice President, Treasurer and Chief Financial Officer (CFO). He was
elected to serve as a director of Golden American in August 1996. He was
elected to serve as Executive Vice President, CFO, and Assistant Secretary of
Golden American in December 1996.
Mr. Thomas L. May joined Equitable Life Insurance Company of Iowa in 1990 and
is currently Senior Vice President. He was elected to serve as a director of
Golden American in August 1996.
Mr. John A. Merriman joined Equitable of Iowa in 1987 and is currently Secre-
tary and General Counsel. He was elected to serve as a director of Golden
American in August 1996.
Ms. Beth B. Neppl joined Equitable of Iowa in 1987 and is currently a Vice
President. She was elected to serve as a director of Golden American in August
1996.
Mr. Paul R. Schlaack joined Equitable Investment Services, Inc. in 1984 and is
currently President and Chief Executive Officer. He was elected to serve as a
director of Golden American in August 1996.
Mr. Jerome L. Sychowski joined Equitable of Iowa in 1996 as Senior Vice Presi-
dent and Chief Information Officer. He was elected to serve as a director of
Golden American in December 1996.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
Mr. Barnett Chernow joined Golden American in October 1993 as Executive Vice
President. From 1977 through 1993, he held various positions with Reliance In-
surance Companies and was Senior Vice President and Chief Financial Officer of
United Pacific Life Insurance Company from 1984 through 1993.
Mr. Dennis D. Hargens was elected Treasurer of Golden American in December
1996. He joined Equitable Life Insurance Company of Iowa in 1961 and is cur-
rently Treasurer and was elected Treasurer of USG Annuity & Life Company in
1996.
Mr. David L. 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.
Mr. Stephen J. Preston joined Golden American in December 1993 as Senior Vice
President, Chief Actuary and Controller. He currently serves as Senior Vice
President and Chief Actuary. 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 Pa-
cific Life Insurance Company and was Vice President and Actuary upon leaving.
Mr. Myles R. Tashman joined Golden American in August 1994 as Senior Vice
President and was named Executive Vice President, General Counsel and Secre-
tary effective January 1, 1996. From 1986 through 1993, he was Senior Vice
President and General Counsel of United Pacific Life Insurance Company.
Mr. David A. Terwilliger was elected Vice President, Controller, Assistant
Secretary and Assistant Treasurer of Golden American in December 1996. He
joined Equitable Life Insurance Company of Iowa in 1979 and presently serves
as Vice President and Controller of Equitable of Iowa and several of its af-
filiates.
Mr. Edward C. Wilson joined Golden American in December, 1995 as Executive
Vice President. In December 1996, he became President of DSI. From August,
1994 to December, 1995 he was Senior Managing Director at Van Eck Global In-
vestors. From July, 1990 to August, 1994 he was Vice President and National
Sales Manager at Keyport Life Insurance Company.
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Offi-
cer of Golden American as well as the annual salary and bonus for the next
five highly compensated executive officers for the fiscal year ended December
31, 1996. Certain executive officers of Golden American are also officers of
DSI. The salaries of such individuals are allocated between Golden American
and DSI. Executive officers of Golden American are also officers of DSI. The
salaries of such individuals are allocated between Golden American and DSI
pursuant to an arrangement among these companies. Throughout 1995 and until
August 13, 1996, Mr. Kendall served as a Managing Director at Bankers Trust
New York Corporation. Compensation amounts for Mr. Kendall which are reflected
throughout these tables prior to August 14, 1996 were not charged to Golden
American, but were 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 annual salary
and bonus for Golden American's Chief Executive Officer and the next five most
highly compensated executive officers for the fiscal year ended December 31,
1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (/1/) OPTIONS (/2/) OPTIONS COMPENSATION
- ------------------ ---- -------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Kendall,...... 1996 $288,298 $400,000 $ 11,535(/4/)
President and Chief 1995 $250,000 $400,000 8,000 $ 6,706(/4/)
Executive Officer(/3/) 1994 $250,000 $200,000 $103,551 8,000
(September 1993 to
Present)
Barnett Chernow,....... 1996 $207,526 $150,000 $ 7,755(/4/)
Executive Vice 1995 $190,000 $165,000 $ 15,444(/4/)(/5/)
President 1994 $185,000 $ 35,000 500 $ 98,212(/5/)
Edward C. Wilson,...... 1996 $190,582 $327,473
Executive Vice
President
Myles R. Tashman,...... 1996 $176,138 $ 90,000 $ 5,127(/4/)
Executive Vice 1995 $160,000 $ 25,000
President, General 1994 $ 66,667
Counsel and Secretary
Mitchell R. Katcher,... 1996 $116,667 $150,000 $130,068(/4/)(/6/)
Former Executive Vice 1995 $175,000 $150,000 $ 9,389(/4/)
President 1994 $175,000 $ 62,500
Stephen J. Preston,.... 1996 $156,937 $ 58,326 $ 9,734(/4/)
Senior Vice President 1995 $140,000 $ 50,000 $ 4,721(/5/)
and Chief Actuary and 1994 $131,667
Controller
</TABLE>
- -------------------
(1) The amount shown relates to bonuses paid in 1996, 1995 and 1994. $50,000
of Mr. Wilson's bonus paid in 1996 and Mr. Chernow's bonus paid in 1994
represent signing bonuses.
(2) The number of shares underlying the restricted stock award granted in 1994
represented 1,870 shares of Bankers Trust New York Corporation at the end
of 1994. The value shown above was computed using the price of common
stock of Bankers Trust New York Corporation at the end of 1994. As of
1996, none of the executive officers listed above had any restricted stock
holdings of Bankers Trust New York Corporation. During 1996, Bankers Trust
New York Corporation redeemed the following restricted stock holdings: Mr.
Kendall 3,000 shares, value $233,062; Mr. Chernow 500 shares, value
$38,844.
(3) Mr. Kendall has served as President and Chief Executive Officer of Golden
American since September of 1993. From that time until September of 1996,
he also served as Chairman of Golden American. Until August 14, 1996, Mr.
Kendall's salary and bonuses were paid directly by Bankers Trust New York
Corporation.
(4) Contributions were 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 de-
ferred compensation and/or a cash payment. In 1996, Mr. Kendall received
$9,000 of deferred compensation and $2,535 of cash payment from the plan;
Mr. Chernow received $6,000 of deferred compensation and $1,755 of cash
payment from the plan; Mr. Tashman received $4,000 of deferred compensa-
tion and $1,127 of cash payment from the plan; Mr. Preston received $5,433
of deferred compensation and $4,301 of cash payment from the plan; Mr.
Katcher received $9,000 of deferred compensation and $2,535 of cash payment
from the plan. Mr. Wilson was not eligible for contributions to the
PartnerShare Plan in 1996. In 1995, Mr. Kendall received $2,956 of deferred
compensation and $3,750 of cash payment from the plan; Mr. Chernow received
$1,013 of deferred compensation and $1,267 of cash payment from the plan;
Mr. Katcher received $4,139 of deferred compensation and $5,250 of cash
payment from the plan. Mr. Wilson, Mr. Tashman and Mr. Preston were not
eligible for contributions to the PartnerShare Plan in 1995. In 1994, all
executives listed above were not eligible for contributions to the
PartnerShare Plan in 1994.
(5) Amounts shown for 1994 and 1995 represent relocation expenses paid on be-
half of the employee.
(6) Amount shown for 1996 includes $118,533 severance compensation.
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
OPTION GRANTS IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES TERM (/4/)
OPTIONS IN FISCAL EXERCISE EXPIRATION -------------------
NAME GRANTED (/1/) YEAR PRICE (/2/) DATE (/3/) 5% 10%
- ---- ------------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Kendall........ 20,000 36.4 $37.50 8/13/2006 $471,671 $1,195,307
Barnet Chernow.......... 8,000 14.5 $37.50 8/13/2006 $188,668 $ 478,123
Edward C. Wilson........ 8,000 14.5 $37.50 8/13/2006 $188,668 $ 478,123
Myles Tashman........... 6,000 10.9 $37.50 8/13/2006 $141,501 $ 358,592
Stephen J. Preston...... 2,000 3.6 $37.50 8/13/2006 $ 47,167 $ 119,531
</TABLE>
- -------------------
(1) Stock options granted on August 13, 1996 by Equitable of Iowa to the offi-
cers of Golden American have a five-year vesting period with 20% exercis-
able after 3rd year, an additional 30% after 4th year, and the final 50%
after 5th year. The options may vest in the event of a change on control
of Equitable of Iowa.
(2) The exercise price was equal to the fair market value of the Common Stock
on the date of grant.
(3) Incentive Stock Options have a term of ten years. They are subject to ear-
lier termination in certain events related to termination of employment.
(4) Total dollar gains based on indicated rates of appreciation of share price
over a ten-year term.
Directors of Golden American receive no additional compensation for serving as
a director.
47
<PAGE>
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 in-
tended as tax advice. The federal income tax treatment of the Contract is un-
clear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of the tax law to individual circum-
stances. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"). Treasury Department regulations, and interpretations ex-
isting 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 GUAR-
ANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY CON-
TRACT 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 are a part of, and are taxed with, the operations of
Golden American, Account B is not separately taxed as a "regulated investment
company" under the Code. Under existing federal income tax laws, investment
income and capital gains of Account B 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 at-
tributable to contract obligations are automatically applied to increase re-
serves, Golden American does not anticipate that it will incur any federal in-
come tax liability in Account B attributable to contract obligations, and
therefore Golden American does not intend to make provision for any such tax-
es. If Golden American is taxed on investment income or capital gains of Ac-
count B, then Golden American may impose a charge against Account B, as appro-
priate, 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 in-
crease 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 distribu-
tion. However, this rule allowing deferral applies only if (1) the invest-
ments of Account B are "adequately diversified" in accordance with Treasury
Department regulations, (2) Golden American, rather than the owner, is con-
sidered the owner of the assets of Account B for federal income tax purposes,
and (3) the owner is an individual. In addition to the foregoing, if the Con-
tract'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 ac-
count, such as the Divisions of Account B, are to be "adequately diversi-
fied." If a Division of Account B failed to comply with these diversifica-
tion 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-diversifica-
tion. Golden American expects that the Divisions of Account B 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, 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 in-
vestment control over the assets. In addition, the Treasury Department an-
nounced, in connection with the issuance of regulations concerning invest-
ment 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 in-
surance company, to be treated as the owner of the assets in the
48
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
account." This announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which policyholders may di-
rect 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 seg-
regated 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 re-
sult in the Owner being treated as the owner of all or a portion of the as-
sets of Account B. In addition, Golden American does not know what stan-
dards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. Golden American therefore re-
serves 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. 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 ba-
sis only. Thus, if the IRS or the Treasury Department were to issue regula-
tions or a ruling which treated an Owner of this Contract as the owner of
Account B, 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.
Non-Natural Owner. As a general rule, contracts held by "non-natural per-
sons" such as a corporation, trust or other similar entity, as opposed to a
natural person, are not treated as annuity contracts for federal tax pur-
poses. 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. 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 ap-
ply 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 con-
nection with qualified retirement plans, (3) certain 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 pur-
chase 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
Accumulation Value (determined without regard to any surrender charge, within
the meaning of the tax law) before the surrender exceeds his or her "invest-
ment 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 invest-
ment 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 nei-
ther 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 includ-
ible 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
49
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
regarding the tax treatment of systematic partial withdrawals, and it is pos-
sible that additional amounts may be includible in income.
The Contract provides a death benefit that in certain circumstances may ex-
ceed the greater of the premium payments and the Accumulation Value. As de-
scribed 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 Own-
er's need for extended medical care or because of the Owner's terminal ill-
ness. 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 mul-
tiplying (1) the fixed annuity payment by (2) the ratio of the "investment in
the contract" (defined above), adjusted for any period certain or refund fea-
ture, allocated to the fixed annuity option to the total expected amount of
fixed annuity payments for the period of the Contract (determined under Trea-
sury 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 an-
nuity 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).
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 man-
ner as a surrender, as described above, or (2) if distributed under an annu-
ity option, they are taxed in the same manner as annuity payments, as de-
scribed 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 in-
cludible 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.
If certain amounts become payable in a lump sum from a Contract, such as the
death benefit, it is possible that such amounts might be viewed as construc-
tively received and thus subject to tax, even though not actually received. A
lump sum will not be constructively received if it is applied under an annu-
ity option within 60 days after the date on which it becomes payable. (Any
annuity option selected must comply with applicable minimum distribution re-
quirements imposed by the Code.)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Contracts issued as IRAs or in connection with cer-
tain 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 pur-
poses 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 re-
flect the increase in the transferor's income.
50
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
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 transac-
tion. 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 retire-
ment 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 tax-
able amount of any payment from the Contract unless the payment is: (a) re-
ceived on or after the Owner reaches age 59 1/2; (b) attributable to the Own-
er'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 se-
ries of substantially equal periodic payments (not less frequently than annu-
ally) 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 de-
fined 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 an-
nuity 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 excep-
tion). 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 com-
bining some or all of the annuity contracts owned by an individual not issued
in connection with qualified retirement plans. For example, if a person pur-
chases 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 an-
nuity commencement date) is includible in income. In addition, if a person
purchases a Contract offered by this prospectus and also purchases at approx-
imately the same time an immediate annuity, the IRS may treat the two con-
tracts as one contract. The effects of such aggregation are not clear, howev-
er, 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 Amer-
ican 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 quali-
fied retirement plans which receive favorable treatment under the Code. Nu-
merous 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 condi-
tions of the plan itself. For example, for both surrenders and annuity pay-
ments under certain contracts issued in connection with qualified retirement
plans, there may be no "investment in the contract" and the total amount re-
ceived may be taxable. Also, special rules apply to the time at which distri-
butions 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
51
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
plans may be subject to the terms and conditions of the plans themselves, re-
gardless 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 individu-
al's earned income for the year. Also, in the case of an individual who has
less income than his or her spouse, premium payments may be made by that
individual into an IRA to the extent of (1) $2,000, or the (2) sum of (i)
the compensation includible in the gross income of the individual's spouse
for the taxable year and (ii) the compensation includible in the gross in-
come of the individual's spouse for the taxable year reduced by the amount
allowed as a deduction for IRA contributions to such spouse. 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 tax-
able 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 per-
son 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 quali-
fied retirement plan, and who have adjusted gross income in excess of
$50,000 may not deduct premium payments, and those with adjusted gross in-
come between $40,000 and $50,000 may deduct only a portion of such pay-
ments. 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 re-
tirement accounts and IRAs owned by an individual are treated as one con-
tract, 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 con-
tract that is issued as an IRA (or that is purchased by an individual re-
tirement 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. It is possible that an en-
hanced death benefit could be viewed as violating the prohibition on in-
vestment in life insurance contracts, with the result that the Contract
would not be viewed as satisfying the requirements of an IRA and would not
be a permissible investment for an individual retirement account.
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 pre-
mium payments were made to an IRA (within the limits allowed by the tax
laws), a portion of each distribution from the Contract typically is in-
cludible in income when it is distributed. In such a case, any amount dis-
tributed 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 distrib-
uted that were excluded from income). Also, in such a case, any amount dis-
52
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
tributed 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 generally 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 re-
quirements (discussed below), amounts may be "rolled over" from certain
qualified retirement plans to an IRA (or from one IRA or individual retire-
ment account to an IRA) without incurring current income tax if certain
conditions are met. Only certain types of distributions to eligible indi-
viduals 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 ex-
cludable 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 pay-
ments 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, dis-
tributions 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 con-
nection with various types of qualified retirement plans other than IRAs.
Golden American does not currently offer all of the types of qualified re-
tirement 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 employ-
ees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make de-
ductible contributions on behalf of the employees to IRAs. As discussed
above (see Individual Retirement Annuities), there is some uncertainty re-
garding the treatment of the Contract's enhanced death benefit for purposes
of certain tax rules governing IRAs (which would include SEP-IRAs). Employ-
ers intending to use the contract in connection with such plans should seek
competent advice.
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers to
establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by
both employees and employers. SIMPLE IRAs are subject to various require-
ments, including limits on the amounts that may be contributed, the persons
who may be eligible, and the time when distributions may commence. As dis-
cussed above (see Individual Retirement Annuities), there is some uncer-
tainty regarding the proper characterization of the Contract's enhanced
death benefit for purposes of certain tax rules governing IRAs (which would
include SIMPLE IRAs). Employers intending to use the Contract in connection
with a SIMPLE retirement account should seek competent advice.
Corporate and Self-Employed ("H.R. 10" or "Keogh") Pension and Profit-Shar-
ing Plans. Sections 401(a) and 403(a) of the Code permit corporate employ-
ers to establish various types of tax-favored retirement plans for employ-
ees. The Self-Employed Individuals' Tax Retirement Act of 1962, as amended,
commonly referred to as "H.R. 10" or "Keogh," permits self-employed indi-
viduals 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 pro-
vides 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
53
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
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 an-
nuity 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 associ-
ated 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 Accu-
mulation Value. It is possible that such death benefit could be character-
ized as an incidental death benefit. If the death benefit were so charac-
terized, 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 begin-
ning after December 31, 1988, (ii) earnings on those contributions, and
(iii) earnings after 1988 on amounts attributable to salary reduction con-
tributions (and earnings on those contributions) held as of the last year
beginning before January 1, 1989. These amounts can be paid only if the em-
ployee has reached age 59 1/2, separated from service, died, become disa-
bled (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 em-
ployees must be participants in an eligible deferred compensation plan.
Generally, a Contract purchased by a state or local government or a tax-ex-
empt organization will not be treated as an annuity 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 manda-
tory 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 em-
ployee'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 withhold-
54
<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
ing with respect to an eligible rollover distribution. However, this 20%
withholding will not apply to that portion of the eligible rollover distribu-
tion which, instead of receiving, the taxpayer elects to have directly trans-
ferred 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 admin-
istrator 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 circum-
stances, 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%. Regard-
less 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 pay-
ment. As discussed above, the withholding rate applicable to eligible rollover
distributions is 20%.
55
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of Golden Ameri-
can Life Insurance Company as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholder's equity, and cash
flows for the post-acquisition period from August 14, 1996 to December 31, 1996
and the pre-acquisition period from January 1, 1996 to August 13, 1996 and for
each of the years ended December 31, 1995 and 1994. 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above pres-
ent fairly, in all material respects, the consolidated financial position of
Golden American Life Insurance Company at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the post-ac-
quisition period from August 14, 1996 to December 31, 1996 and the pre-acquisi-
tion period from January 1, 1996 to August 13, 1996 and for each of the years
ended December 31, 1995 and 1994, in conformity with generally accepted ac-
counting principles.
Ernst & Young LLP
Des Moines, Iowa
February 11, 1997
56
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities, available for sale, at fair value
(cost: 1996 -- $275,153; 1995 -- $48,671)................................................ $ 275,563 $ 49,629
Equity securities, at fair value (cost: 1996 -- $36;
1995 -- $27)............................................................................. 33 29
Mortgage loans on real estate............................................................. 31,459 --
Policy loans.............................................................................. 4,634 2,021
Short-term investments.................................................................... 12,631 15,614
---------- ----------
Total Investments........................................................................ 324,320 67,293
Cash and cash equivalents................................................................. 5,839 5,046
Accrued investment income................................................................. 4,139 768
Deferred policy acquisition costs......................................................... 11,468 67,314
Present value of in force acquired........................................................ 83,051 6,057
Property and equipment, less allowances for depreciation of $63 in 1996 and $86 in 1995... 699 490
Goodwill, less accumulated amortization of $589 in 1996................................... 38,665 --
Other assets.............................................................................. 2,471 7,136
Separate account assets................................................................... 1,207,247 1,048,953
---------- ----------
Total Assets............................................................................. $1,677,899 $1,203,057
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products............................................. $ 285,287 $ 33,673
Unearned revenue reserve................................................................. 2,063 6,556
---------- ----------
287,350 40,229
Deferred income taxes...................................................................... 365 --
Surplus note............................................................................... 25,000 --
Due to affiliates.......................................................................... 1,504 675
Other liabilities.......................................................................... 15,949 15,075
Separate account liabilities............................................................... 1,207,247 1,048,953
---------- ----------
Total Liabilities........................................................................ 1,537,415 1,104,932
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 (1995 --
10,000 shares issued and outstanding)................................................... -- 50,000
Additional paid-in capital................................................................ 137,372 45,030
Unrealized appreciation (depreciation) of securities at fair value........................ 262 658
Retained earnings (deficit)............................................................... 350 (63)
---------- ----------
Total Stockholder's Equity............................................................... 140,484 98,125
---------- ----------
Total Liabilities and Stockholder's Equity............................................... $1,677,899 $1,203,057
========== ==========
</TABLE>
See accompanying notes.
57
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- ---------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996 FOR THE YEAR FOR THE YEAR
THROUGH THROUGH ENDED ENDED
DECEMBER 31, 1996 AUGUST 13, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Annuity and interest sensitive life product charges.... $ 8,768 $ 12,259 $18,388 $ 17,519
Management fee revenue................................. 877 1,390 987 --
Net investment income.................................. 5,795 4,990 2,818 560
Realized gains (losses) on investments................. 42 (420) 297 65
Other income........................................... 486 70 63 --
-------- -------- ------- --------
15,968 18,289 22,553 18,144
INSURANCE BENEFITS AND EXPENSES:
Annuity and interest sensitive life benefits:
Interest credited to account balances................. 5,741 4,355 1,322 40
Benefit claims incurred in excess of account
balances............................................. 1,262 915 1,824 (5)
Underwriting, acquisition, and insurance expenses:
Commissions........................................... 9,866 16,549 7,983 16,978
General expenses...................................... 5,906 9,422 12,650 12,921
Insurance taxes....................................... 672 1,225 952 373
Policy acquisition costs deferred..................... (11,712) (19,300) (9,804) (23,119)
Amortization:
Deferred policy acquisition costs.................... 244 2,436 2,710 4,608
Present value of in force acquired................... 2,745 951 1,552 2,164
Goodwill............................................. 589 -- -- --
-------- -------- ------- --------
15,313 16,553 19,189 13,960
Interest expense....................................... 85 -- -- 1,962
-------- -------- ------- --------
15,398 16,553 19,189 15,922
-------- -------- ------- --------
570 1,736 3,364 2,222
Income taxes........................................... 220 (1,463) -- --
-------- -------- ------- --------
Net Income............................................. $ 350 $ 3,199 $ 3,364 $ 2,222
======== ======== ======= ========
</TABLE>
See accompanying notes.
58
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-ACQUISITION
-------------------------------------------------------------------
UNREALIZED
APPRECIATION
REDEEMABLE ADDITIONAL (DEPRECIATION) RETAINED TOTAL
COMMON PREFERRED PAID-IN OF SECURITIES EARNINGS STOCKHOLDER'S
STOCK STOCK CAPITAL AT FAIR VALUE (DEFICIT) EQUITY
------ ---------- ---------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994.................... $2,500 $ 28,336 $ 62 $(2,301) $ 28,597
Issuance of 10,000
shares of preferred
stock.................. -- $ 50,000 -- -- -- 50,000
Contribution of
capital................ -- -- 8,750 -- -- 8,750
Net income for 1994.... -- -- -- -- 2,222 2,222
Unrealized depreciation
of securities at fair
value.................. -- -- -- (63) -- (63)
------ -------- -------- ------- ------- --------
Balance at December 31,
1994.................... 2,500 50,000 37,086 (1) (79) 89,506
Contribution of
capital................ -- -- 7,944 -- -- 7,944
Net income for 1995.... -- -- -- -- 3,364 3,364
Preferred stock
dividends.............. -- -- -- -- (3,348) (3,348)
Unrealized appreciation
of securities at fair
value.................. -- -- -- 659 -- 659
------ -------- -------- ------- ------- --------
Balance at December 31,
1995.................... 2,500 50,000 45,030 658 (63) 98,125
Net income for the
period January 1, 1996
to August 13, 1996..... -- -- -- -- 3,199 3,199
Preferred stock
dividends.............. -- -- -- -- (719) (719)
Unrealized depreciation
of securities at fair
value.................. -- -- -- (1,175) -- (1,175)
------ -------- -------- ------- ------- --------
Balance at August 13,
1996.................... $2,500 $ 50,000 $ 45,030 $ (517) $ 2,417 $ 99,430
====== ======== ======== ======= ======= ========
<CAPTION>
POST-ACQUISITION
-------------------------------------------------------------------
UNREALIZED
APPRECIATION
REDEEMABLE ADDITIONAL (DEPRECIATION) RETAINED TOTAL
COMMON PREFERRED PAID-IN OF SECURITIES EARNINGS STOCKHOLDER'S
STOCK STOCK CAPITAL AT FAIR VALUE (DEFICIT) EQUITY
------ ---------- ---------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14,
1996.................... $2,500 $ 50,000 $ 87,372 -- -- $139,872
Contribution of
preferred stock to
additional paid-in
capital................ -- (50,000) 50,000 -- -- --
Net income for the
period August 14, 1996
to December 31, 1996... -- -- -- -- $ 350 350
Unrealized appreciation
of securities at fair
value.................. -- -- -- $ 262 -- 262
------ -------- -------- ------- ------- --------
Balance at December 31,
1996.................... $2,500 $ -- $137,372 $ 262 $ 350 $140,484
====== ======== ======== ======= ======= ========
</TABLE>
See accompanying notes.
59
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 AUGUST 13, 1996 1995 1994
----------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 350 $ 3,199 $ 3,364 $ 2,222
Adjustments to reconcile
net income to net cash
provided by (used in)
operations:
Adjustments related to
annuity and interest
sensitive life
products:
Change in annuity and
interest sensitive
life product
reserves.............. 5,106 4,472 4,664 (1,370)
Change in unearned
revenues.............. 2,063 2,084 4,949 1,594
Increase in accrued
investment income...... (877) (2,494) (676) (24)
Policy acquisition
costs deferred......... (11,712) (19,300) (9,804) (23,119)
Amortization of
deferred policy
acquisition costs...... 244 2,436 2,710 4,608
Amortization of present
value of in force
acquired............... 2,745 951 1,552 2,164
Change in other assets,
other liabilities and
accrued income taxes... (96) 4,672 4,686 (4,543)
Provision for
depreciation and
amortization........... 1,242 703 (142) 13
Provision for deferred
income taxes........... 220 (1,463) -- --
Realized (gains) losses
on investments......... (42) 420 (297) (65)
-------- -------- ------- --------
Net cash provided by
(used in) operating
activities.............. (757) (4,320) 11,006 (18,520)
INVESTING ACTIVITIES
Sale, maturity or
repayment of
investments:
Fixed maturities--
available for sale..... 47,453 55,091 24,026 --
Fixed maturities--held
for investment......... -- -- -- 321
Equity securities...... -- -- -- 313
Mortgage loans on real
estate................. 40 -- -- --
Short-term
investments--net....... 2,629 354 -- 1,299
-------- -------- ------- --------
50,122 55,445 24,026 1,933
Acquisition of
investments:
Fixed maturities--
available for sale..... (147,170) (184,589) (61,723) --
Fixed maturities--held
for investment......... -- -- -- (857)
Equity securities...... (5) -- (10) (7)
Mortgage loans on real
estate................. (31,499) -- -- --
Policy loans--net...... (637) (1,977) (1,508) (369)
Short-term
investments--net....... -- -- (1,681) --
-------- -------- ------- --------
(179,311) (186,566) (64,922) (1,233)
Funds held in escrow
pursuant to an Exchange
Agreement.............. -- -- (1,242) (1,382)
Purchase of property
and equipment.......... (137) -- -- --
-------- -------- ------- --------
Net cash used in
investing activities.... (129,326) (131,121) (42,138) (682)
</TABLE>
See accompanying notes.
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 AUGUST 13, 1996 1995 1994
----------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Retirement of short-term debt.................................... $ -- $ -- $ -- $(40,000)
Proceeds from issuance of surplus note........................... 25,000 -- -- --
Receipts from annuity and interest sensitive life policies
credited to policyholder account balances........................ 116,819 149,750 29,501 --
Return of policyholder account balances on annuity and interest
sensitive life policies.......................................... (3,315) (2,695) (1,543) --
Net reallocations (to) from Separate Accounts.................... (10,237) (8,286) -- --
Contributions of capital by parent............................... -- -- 7,944 8,750
Issuance of preferred stock...................................... -- -- -- 50,000
Dividends paid on preferred stock................................ -- (719) (3,348) --
--------- --------- -------- --------
Net cash provided by financing activities........................ 128,267 138,050 32,554 18,750
--------- --------- -------- --------
Increase (decrease) in cash and cash equivalents................. (1,816) 2,609 1,422 (452)
Cash and cash equivalents at beginning of period................. 7,655 5,046 3,624 4,076
--------- --------- -------- --------
Cash and cash equivalents at end of period....................... $ 5,839 $ 7,655 $ 5,046 $ 3,624
========= ========= ======== ========
</TABLE>
See accompanying notes.
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include Golden American Life Insurance
Company ("Golden American") and its wholly-owned subsidiary, First Golden
American Life Insurance Company of New York ("First Golden") collectively the
"Company". First Golden was capitalized by Golden American on December 17,
1996. All significant intercompany accounts and transactions have been elimi-
nated.
Organization
Golden American offers variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
On January 2, 1997, First Golden became licensed to sell insurance products in
the state of New York. The Company's products are marketed by broker/dealers,
financial institutions and insurance agents. The Company's primary customers
are individuals and families.
On August 13, 1996, Equitable of Iowa Companies ("Equitable") acquired all
of the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its
wholly-owned subsidiaries, Golden American and Directed Services, Inc. ("DSI")
from Whitewood Properties Corporation ("Whitewood") pursuant to the terms of a
Stock Purchase Agreement between Equitable and Whitewood (the "Purchase Agree-
ment"). See Note 5 for additional information.
For financial statement purposes, the change in control of Golden American
through the acquisition of BT Variable was accounted for as a purchase acqui-
sition effective August 14, 1996. This acquisition resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at that
date. As a result, the Company's financial statements for periods subsequent
to August 13, 1996, are presented on the Post-Acquisition new basis of ac-
counting, while the financial statements for August 13, 1996 and prior periods
are presented on the Pre-Acquisition historical cost basis of accounting.
Investments
Fixed Maturities: Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities" re-
quires fixed maturity securities to be designated as either "available for
sale", "held for investment" or "trading". Sales of fixed maturities desig-
nated as "available for sale" are not restricted by SFAS No. 115. Available
for sale securities are reported at fair value and unrealized gains and losses
on these securities are included directly in stockholder's equity, after ad-
justment for related changes in deferred policy acquisition costs, present
value of in force acquired, policy reserves and deferred income taxes. At De-
cember 31, 1996 and 1995, all of the Company's fixed maturity securities are
designated as available for sale although the Company is not precluded from
designating fixed maturity securities as held for investment or trading at
some future date. Securities the Company has the positive intent and ability
to hold to maturity are designated as "held for investment". Held for invest-
ment securities are reported at cost adjusted for amortization of premiums and
discounts. Changes in the fair value of these securities, except for declines
that are other than temporary, are not reflected in the Company's financial
statements. Sales of securities designated as held for investment are severely
restricted by SFAS No. 115. Securities that are bought and held principally
for the purpose of selling them in the near term are designated as trading se-
curities. Unrealized gains and losses on trading securities are included in
current earnings. Transfers of securities between categories are restricted
and are recorded at fair value at the time of the transfer. Securities that
are determined to have a decline in value that is other than temporary are
written down to estimated fair value which becomes the security's new cost ba-
sis by a charge to realized losses in the Company's Statements of Income. Pre-
miums and discounts are amortized/accrued utilizing the scientific interest
method which results in a constant yield over the security's expected life.
Amortization/accrual of premiums and discounts on mortgage-backed securities
incorporates a prepayment assumption to estimate the securities' expected
lives.
Equity Securities: Equity securities are reported at estimated fair value if
readily marketable or at cost if not readily marketable. The change in
unrealized appreciation and depreciation of marketable equity securities (net
of related deferred income taxes, if any) is included directly in stockhold-
er's equity. Equity
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
securities that are determined to have a decline in value that is other than
temporary are written down to estimated fair value which becomes the
security's new cost basis by a charge to realized losses in the Company's
Statement of Income.
Mortgage loans: Mortgage loans on real estate are reported at cost adjusted
for amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e., when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement), the carrying value of the mortgage loan is re-
duced to the present value of expected future cash flows from the loan, dis-
counted at the loan's effective interest rate, or to the loan's observable
market price, or the fair value of the underlying collateral. The carrying
value of impaired loans is reduced by the establishment of a valuation allow-
ance which is adjusted at each reporting date for significant changes in the
calculated value of the loan. Changes in this valuation allowance are charged
or credited to income.
Other investments: Policy loans are reported at unpaid principal. Short-term
investments are reported at cost adjusted for amortization of premiums and ac-
crual of discounts.
Fair Values: Estimated fair values, as reported herein, of publicly traded
fixed maturity securities are as reported by an independent pricing service.
Fair values of conventional mortgage-backed securities not actively traded in
a liquid market are estimated using a third party pricing system. This pricing
system uses a matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Fair values of pri-
vate placement bonds are estimated using a matrix that assumes a spread (based
on interest rates and a risk assessment of the bonds) over U.S. Treasury
bonds. Estimated fair values of equity securities which consists of the
Company's investment in its registered separate accounts are based upon the
quoted fair value of the securities comprising the individual portfolios un-
derlying the separate accounts. Realized gains and losses are determined on
the basis of specific identification and average cost methods for manager ini-
tiated and issuer initiated disposals, respectively.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company con-
siders all demand deposits and interest-bearing accounts not related to the
investment function to be cash equivalents. All interest-bearing accounts
classified as cash equivalents have original maturities of three months or
less.
Deferred Policy Acquisition Costs
Certain costs of acquiring new insurance business, principally commissions
and other expenses related to the production of new business, have been de-
ferred. Acquisition costs for variable annuity and life products are being am-
ortized generally in proportion to the present value (using the assumed cred-
iting rate) of expected future gross profits. This amortization is adjusted
retrospectively, or "unlocked", when the Company revises its estimate of cur-
rent or future gross profits to be realized from a group of products. Deferred
policy acquisition costs are adjusted to reflect the pro forma impact of
unrealized gains and losses on fixed maturity securities the Company has des-
ignated as "available for sale" under SFAS No. 115.
Present Value of in Force Acquired
As a result of the acquisition of Golden American, a portion of the acquisi-
tion cost was allocated to the right to receive future cash flows from the ex-
isting insurance contracts. This allocated cost represents the present value
of in force acquired ("PVIF") which reflects the value of those purchased pol-
icies calculated by discounting actuarially determined expected cash flows at
the discount rate determined by the purchaser. Interest is imputed on the un-
amortized balance of PVIF at rates of 7.70% to 7.80%. Amortization of PVIF is
charged to expense in proportion to expected gross profits. This amortization
is adjusted retrospectively, or "unlocked", when the Company revises its esti-
mate of current or future gross profits to be realized from the insurance con-
tracts acquired. PVIF is adjusted to reflect the pro forma impact of
unrealized gains (losses) on available for sale fixed maturities.
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Property and Equipment
Property and equipment primarily represent leasehold improvements at the
Golden American headquarters, office furniture and equipment and capitalized
computer software and are not considered to be significant to the Company's
overall operations. Property and equipment are reported at cost less allow-
ances for depreciation. Depreciation expense is computed primarily on the ba-
sis of straight-line method over the estimated useful lives of the assets.
Goodwill
Goodwill was established as a result of the acquisition discussed above and
is being amortized over 25 years on a straight line basis. See Note 5 for ad-
ditional information.
Future Policy Benefits
Future policy benefits for fixed interest divisions of the variable prod-
ucts, are established utilizing the retrospective deposit accounting method.
Policy reserves represent the premiums received plus accumulated interest,
less mortality and administration charges. Interest credited to these policies
ranged from 4.00% to 7.25% during 1996.
The unearned revenue reserve represents unearned distribution fees discussed
below. These distribution fees have been deferred and are amortized over the
life of the contract in proportion to its expected gross profits.
Separate Accounts
Assets and liabilities of the separate accounts reported in the accompanying
balance sheets represent funds that are separately administered principally
for variable annuity and variable life contracts. Contractholders, rather than
the Company, bear the investment risk for variable products. At the direction
of the contractholders, the separate accounts invest the premiums from the
sale of variable annuity and variable life products in shares of specified mu-
tual funds. The assets and liabilities of the separate accounts are clearly
identified and segregated from other assets and liabilities of the Company.
The portion of the separate account assets applicable to variable annuity and
variable life contracts cannot be charged with liabilities arising out of any
other business the Company may conduct.
Variable separate account assets carried at fair value of the underlying in-
vestments generally represent contractholder investment values maintained in
the accounts. Variable separate account liabilities represent account balances
for the variable annuity and variable life 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 accompany-
ing Statement of Income.
Product charges recorded by the Company from variable annuity and variable
life products consist of charges applicable to each contract for mortality and
expense risk, cost of insurance, contract administration and surrender
charges. In addition, some variable annuity and all variable life contracts
provide for a distribution fee collected for a limited number of years after
each premium deposit. 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 an unearned revenue reserve.
Deferred Income Taxes
Deferred tax assets or liabilities are computed based on the difference be-
tween the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred tax assets or liabilities are
adjusted to reflect the pro forma impact of unrealized gains and losses on eq-
uity securities and fixed maturity securities the Company has designated as
available for sale under SFAS No. 115. Changes in deferred tax assets or lia-
bilities resulting from this SFAS No. 115 adjustment are charged or credited
directly to stockholder's equity. Deferred income tax expenses or credits re-
flected in the Company's Statement of Income are based on the changes in the
deferred tax asset or liability from period to period (excluding the SFAS No.
115 adjustment).
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Dividend Restrictions
Golden American's ability to pay dividends to its parent is restricted be-
cause prior approval of insurance regulatory authorities is required for pay-
ment of dividends to the stockholder which exceed an annual limitation. During
1997, Golden American could pay dividends to its parent of approximately
$2,186,000 without prior approval of statutory authorities. The Company has
maintained adequate statutory capital and surplus and has not used surplus re-
lief or financial reinsurance, which have come under scrutiny by many state
insurance departments.
Use Of Estimates
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the preparation period. Actual
results could differ from those estimates.
Management is required to utilize historical experience and assumptions
about future events and circumstances in order to develop estimates of mate-
rial reported amounts and disclosures. Included among the material (or poten-
tially material) reported amounts and disclosures that require extensive use
of estimates and assumptions are (1) estimates of fair values of investments
in securities and other financial instruments, as well as fair values of poli-
cyholder liabilities, (2) policyholder liabilities, (3) deferred policy acqui-
sition costs and present value of in force acquired, (4) fair values of assets
and liabilities recorded as a result of acquisition transactions, (5) asset
valuation allowances, (6) guaranty fund assessment accruals, (7) deferred tax
benefits (liabilities) and (8) estimates for commitments and contingencies in-
cluding legal matters, if a liability is anticipated and can be reasonably es-
timated. Estimates and assumptions regarding all of the preceding are inher-
ently subject to change and are reassessed periodically. Changes in estimates
and assumptions could materially impact the financial statements.
Reclassification
Certain amounts in the 1995 and 1994 financial statements have been reclas-
sified to conform to the 1996 financial statement presentation.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Company differ from related statutory-basis
financial statements principally as follows: (1) acquisition costs of acquir-
ing new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (2) an asset representing the
present value of future cash flows from insurance contracts acquired was es-
tablished as a result of an acquisition and is amortized and charged to ex-
pense; (3) future policy benefit reserves for the fixed interest divisions of
the variable products are based on full account values, rather than the
greater of cash surrender value or amounts derived from discounting methodolo-
gies utilizing statutory interest rates; (4) reserves are reported before re-
duction for reserve credits related to reinsurance ceded and a receivable is
established, net of an allowance for uncollectible amounts, for these credits
rather than presented net of these credits; (5) fixed maturity investments are
designated as "available for sale" and valued at fair value with unrealized
appreciation/depreciation, net of adjustments to deferred income taxes (if ap-
plicable) and deferred policy acquisition costs, credited/charged directly to
stockholder's equity rather than valued at amortized cost; (6) the carrying
value of fixed maturity securities is reduced to fair value by a charge to re-
alized losses in the Statements of Income when declines in carrying value are
judged to be other than temporary, rather than through the establishment of a
formula-determined statutory investment reserve (carried as a liability),
changes in which are charged directly to surplus; (7) deferred income taxes
are provided for the difference between the financial statement and income tax
bases of assets and liabilities; (8) net realized gains or losses attributed
to changes in the level of interest rates in the market are recognized when
the sale is completed rather than deferred and amortized over the remaining
life of the fixed maturity security; (9) a liability is established for antic-
ipated guaranty fund assessments, net of related anticipated premium tax cred-
its, rather than capitalized when assessed and amortized in accordance with
procedures permitted by insurance
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
regulatory authorities; (10) revenues for variable annuity and variable life
products consist of policy charges for the cost of insurance, policy adminis-
tration charges, amortization of policy initiation fees and surrender charges
assessed rather than premiums received; and (11) assets and liabilities are
restated to fair values when a change in ownership occurs, with provisions for
goodwill and other intangible assets, rather than continuing to be presented
at historical cost.
Net income (loss) for Golden American, as determined in accordance with
statutory accounting practices was $(9,188,000) in 1996, $(4,117,000) in 1995
and $(11,260,000) in 1994. Total statutory capital and surplus was $80,430,000
at December 31, 1996 and $66,357,000 at December 31, 1995.
3. INVESTMENT OPERATIONS
Investment Results
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH AUGUST DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 13, 1996 1995 1994
----------------- --------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities.............................................. $5,083 $4,507 $1,610 $142
Equity securities............................................. 103 -- -- 1
Mortgage loans on real estate................................. 203 -- -- --
Policy loans.................................................. 78 73 56 11
Short-term investments........................................ 441 341 899 226
Other, net.................................................... 2 22 148 99
Funds held in escrow.......................................... -- 145 166 83
------ ------ ------ ----
Gross investment income....................................... 5,910 5,088 2,879 562
Less investment expenses...................................... (115) (98) (61) (2)
------ ------ ------ ----
Net investment income......................................... $5,795 $4,990 $2,818 $560
====== ====== ====== ====
</TABLE>
Realized gains (losses) are as follows:
<TABLE>
<CAPTION>
REALIZED*
-----------------------------------------------------------
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH AUGUST DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 13, 1996 1995 1994
----------------- --------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Available for sale........................................... $42 $(420) $297
Held for investment.......................................... -- -- -- $ 2
Equity securities............................................. -- -- -- 63
--- ----- ---- ---
Realized gains (losses) on investments........................ $42 $(420) $297 $65
=== ===== ==== ===
</TABLE>
- -------------------
* See Note 6 for the income tax effects attributable to realized gains and
losses on investments.
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The change in unrealized appreciation (depreciation) on securities at fair
value is as follows:
<TABLE>
<CAPTION>
UNREALIZED
-------------------------------------------------------------
POST-ACQUISITION PRE-ACQUISITION
------------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH AUGUST DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996** 13, 1996 1995 1994
------------------- --------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Available for sale......................................... $410 $(2,087) $ 958 $ (65)
Held for investment........................................ -- -- 90 --
Equity securities........................................... (3) 1 3 (63)
---- ------- ------ -----
Unrealized appreciation (depreciation) of securities........ $407 $(2,086) $1,051 $(128)
--------------------------------------------------
==== ======= ====== =====
</TABLE>
- -------------------
** On August 13, 1996, all fixed maturities and equity securities in the
Company's investment portfolio were marked to market.
At December 31, 1996 and December 31, 1995, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturity securities, all
of which are designated as available for sale, are as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and governmental
agencies and authorities:
Mortgage-backed securities...... $ 70,902 $ 122 $(247) $ 70,777
Other........................... 3,082 2 (4) 3,080
Public utilities................. 35,893 193 (38) 36,048
Investment grade corporate....... 134,487 586 (466) 134,607
Below investment grade
corporate........................ 25,921 249 (56) 26,114
Mortgage-backed securities....... 4,868 69 -- 4,937
-------- ------ ----- --------
Total............................ $275,153 $1,221 $(811) $275,563
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and governmental
agencies and authorities--Other.. $13,334 $176 $13,510
Public utilities................. 5,276 26 5,302
Investment grade corporate....... 27,042 700 $(31) 27,711
Mortgage-backed securities....... 3,019 87 -- 3,106
------- ---- ---- -------
Total............................ $48,671 $989 $(31) $49,629
======= ==== ==== =======
</TABLE>
At December 31, 1996, net unrealized investment gains on fixed maturities
designated as available for sale totaled $410,000. This appreciation caused an
increase to stockholder's equity of $265,000 at December 31, 1996 (net of de-
ferred income taxes of $145,000). No fixed maturity securities were designated
as held for investment at December 31, 1996 or 1995. Short-term investments
with maturities of 30 days or less have been excluded from the above sched-
ules. Amortized cost approximates fair value for these securities.
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1996, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
POST-ACQUISITION
-------------------
ESTIMATED
AMORTIZED FAIR
DECEMBER 31, 1996 COST VALUE
----------------- --------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Due within one year...................................... $ 15,908 $ 15,930
Due after one year through five years.................... 122,958 123,487
Due after five years through ten years................... 60,517 60,432
-------- --------
199,383 199,849
Mortgage-backed securities............................... 75,770 75,714
-------- --------
Total.................................................... $275,153 $275,563
======== ========
</TABLE>
An analysis of sales, maturities and principal repayments of the Company's
fixed maturities portfolio is as follows:
<TABLE>
<CAPTION>
GROSS GROSS PROCEEDS
AMORTIZED REALIZED REALIZED FROM
COST GAINS LOSSES SALE
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
For the period August 14, 1996 through
December 31, 1996:
Scheduled principal repayments, calls
and tenders........................... $ 1,612 $ 1,612
Sales................................. 45,799 $115 $ (73) 45,841
------- ---- ----- -------
Total.................................. $47,411 $115 $ (73) $47,453
======= ==== ===== =======
For the period January 1, 1996 through
August 13, 1996:
Scheduled principal repayments, calls
and tenders........................... $ 1,801 $ 1,801
Sales................................. 53,710 $152 $(572) 53,290
------- ---- ----- -------
Total.................................. $55,511 $152 $(572) $55,091
======= ==== ===== =======
Year ended December 31, 1995:
Scheduled principal repayments, calls
and tenders........................... $20,279 $305 $ (16) $20,568
Sales................................. 3,450 8 -- 3,458
------- ---- ----- -------
Total.................................. $23,729 $313 $ (16) $24,026
======= ==== ===== =======
Year ended December 31, 1994:
Scheduled principal repayments,
tenders (available for sale only) and
calls--held for investment............ $ 319 $ 2 $ -- $ 321
------- ---- ----- -------
Total.................................. $ 319 $ 2 $ -- $ 321
======= ==== ===== =======
</TABLE>
Investment Valuation Analysis: The company analyzes its investment portfolio
at least quarterly in order to determine if the carrying value of any of its
investments has been impaired. The carrying value of debt and equity securi-
ties is written down to fair value by a charge to realized losses when an im-
pairment in value appears to be other than temporary. During 1996 and 1995, no
investments were identified as having an impairment other than temporary.
Investments on Deposit: At December 31, 1996 and 1995, affidavits of depos-
its covering bonds with a par value of $6,605,000 and $2,695,000, respective-
ly, were on deposit with regulatory authorities pursuant to certain statutory
requirements.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Investment Diversifications: The Company's investment policies related to
its investment portfolio require diversification by asset type, company and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by regu-
latory authorities. Fixed maturity investments included investments in various
government bonds and government or agency mortgage-backed securities (27% in
1996 and 1995), public utilities (13% in 1996, 11% in 1995), basic industrials
(30% in 1996, 20% in 1995) and financial companies (18% in 1996, 30% in 1995).
Mortgage loans on real estate have been analyzed by geographical location and
17% of all mortgage loans are in Georgia. There are no other concentrations of
mortgage loans in any state exceeding ten percent in 1996. Mortgage loans on
real estate have also been analyzed by collateral type with significant con-
centrations identified in office buildings (36% in 1996), industrial buildings
(31% in 1996) and multi-family residential buildings (27% in 1996). Equity se-
curities and investments accounted for by the equity method are not signifi-
cant to the Company's overall investment portfolio.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of stockhold-
er's equity at December 31, 1996.
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" re-
quires disclosure of estimated fair value of all financial instruments, in-
cluding both assets and liabilities recognized and not recognized in a
Company's balance sheet, unless specifically exempted. SFAS No. 119, "Disclo-
sure about Derivative Financial Instruments and Fair Value of Financial In-
struments" requires additional disclosures about derivative financial instru-
ments. Most of the Company's investments, insurance liabilities and debt fall
within the standards' definition of a financial instrument. Although the
Company's insurance liabilities are specifically exempted from this disclosure
requirement, estimated fair value disclosure of these liabilities is also pro-
vided in order to make the disclosures more meaningful. Accounting, actuarial
and regulatory bodies are continuing to study the methodologies to be used in
developing fair value information, particularly as it relates to such things
as liabilities for insurance contracts. Accordingly, care should be exercised
in deriving conclusions about the Company's business or financial condition
based on the information presented herein.
The Company closely monitors the composition and yield of its invested as-
sets, the duration and interest credited on insurance liabilities and result-
ing interest spreads and timing of cash flows. These amounts are taken into
consideration in the Company's overall management of interest rate risk, which
attempts to minimize exposure to changing interest rates through the matching
of investment cash flows with amounts expected to be due under insurance con-
tracts. As discussed below, the Company has used discount rates in its deter-
mination of fair values for its liabilities which are consistent with market
yields for related assets. The use of the asset market yield is consistent
with management's opinion that the risks inherent in its asset and liability
portfolios are similar. This assumption, however, might not result in values
consistent with those obtained through an actuarial appraisal of the Company's
business or values that might arise in a negotiated transaction.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The following compares carrying values as shown for financial reporting pur-
poses with estimated fair values.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Balance sheet financial assets:
Fixed maturities available for sale................. $ 275,563 $ 275,563
Equity securities................................... 33 33
Mortgage loans on real estate....................... 31,459 30,979
Short-term investments.............................. 12,631 12,631
Cash and cash equivalents........................... 5,839 5,839
Other receivables................................... 4,214 4,214
Separate account assets............................. 1,207,247 1,207,247
---------- ----------
1,536,986 1,536,506
Deferred policy acquisition costs.................... 11,468 --
Present value of in force acquired................... 83,051 --
Goodwill............................................. 38,665 --
Deferred income taxes on fair value adjustments...... -- 7,741
Non-financial assets................................. 3,095 3,095
---------- ----------
Total assets......................................... $1,673,265 $1,547,342
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Balance sheet financial liabilities:
Future policy benefits (net of related policy
loans):
Annuity products................................... $ 280,076 $ 253,012
Interest sensitive life products................... 2,640 2,368
---------- ----------
282,716 255,380
Surplus note......................................... 25,000 28,878
Separate account liabilities......................... 1,207,247 1,119,158
---------- ----------
1,514,963 1,403,416
Non-financial liabilities............................ 17,818 17,818
---------- ----------
Total liabilities.................................... 1,532,781 1,421,234
Stockholder's equity................................. 140,484 126,108
---------- ----------
Total liabilities and stockholder's equity........... $1,673,265 $1,547,342
========== ==========
</TABLE>
The following methods and assumptions were used by the Company in estimating
fair values.
Fixed maturities: Estimated fair values of publicly traded securities are as
reported by an independent pricing service. Estimated fair values of conven-
tional mortgage-backed securities not actively traded in a liquid market are
estimated using a third party pricing system. This pricing system uses a ma-
trix calculation assuming a spread over U.S. Treasury bonds based upon the ex-
pected average lives of the securities.
Equity securities: Estimated fair values of equity securities, which consist
of the Company's investment in the portfolios underlying its separate ac-
counts, are based upon the quoted fair value of the individual securities com-
prising the individual portfolios underlying the separate accounts. For equity
securities not actively traded, estimated fair values are based upon values of
issues of comparable yield and quality.
Mortgage loans on real estate: Fair values are estimated by discounting ex-
pected cash flows, using interest rates currently offered for similar loans.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Short-term investments, cash and cash equivalents, and other
receivables: Carrying values reported in the Company's historical cost basis
balance sheet approximate estimated fair value for these instruments, due to
their short-term nature.
Deferred policy acquisition costs, present value of in force acquired and
goodwill: For historical cost purposes, the recovery of policy acquisition
costs and present value of in force acquired is based on the realization,
among other things, of future interest spreads and gross premiums on in force
business. Because these cash flows are considered in the computation of the
future policy benefit cash flows, the deferred policy acquisition cost and
present value of in force acquired balances do not appear on the estimated
fair value balance sheet. Goodwill does not appear in the estimated fair value
balance sheet because no cash flows are related to this asset.
Separate account assets: Separate account assets represent the estimated
fair values of the underlying securities in the Company's historical cost and
estimated fair value basis balance sheets.
Future policy benefits: Estimated fair values of the Company's liabilities
for future policy benefits for the fixed interest division of the variable
products are based upon discounted cash flow calculations. Cash flows of fu-
ture policy benefits are discounted using the market yield rate of the assets
supporting these liabilities. Estimated fair values are presented net of the
estimated fair value of corresponding policy loans due to the interdependent
nature of the cash flows associated with these items.
Surplus note: Estimated fair value of the Company's surplus note was based
upon discounted future cash flows using a discount rate approximating the
Company's return on invested assets.
Separate account liabilities: Separate account liabilities are reported at
full account value in the Company's historical cost balance sheet. Estimated
fair values of separate account liabilities are based upon assumptions using
an estimated long-term average market rate of return to discount future cash
flows. The reduction in fair values for separate account liabilities reflect
the present value of future revenue from product charges, distribution fees or
surrender charges.
Deferred income taxes on fair value adjustments: Deferred income taxes have
been reported at the statutory rate for the differences (except for those at-
tributed to permanent differences) between the carrying value and estimated
fair value of assets and liabilities set forth herein.
Non-financial assets and liabilities: Values are presented at historical
cost. Non-financial assets consist primarily of property and equipment, re-
ceivable from the Separate Accounts and restricted stock assets. Non-financial
liabilities consist primarily of outstanding checks, guaranty fund assessments
payable, payables for investments and suspense accounts.
At December 31, 1995, the carrying amounts reported for the financial in-
struments consisting primarily of short-term investments, policy loans, the
adjustable principal amount promissory note and insurance and annuity reserves
approximate fair value.
SFAS No. 107 and SFAS No. 119 require disclosure of estimated fair value in-
formation about financial instruments, whether or not recognized in the con-
solidated balance sheets, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, estimated fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the de-
rived fair value estimates cannot be substantiated by comparison to indepen-
dent markets and, in many cases, could not be realized in immediate settlement
of the instrument. The above presentation should not be viewed as an appraisal
as there are several factors, such as the fair value associated with customer
or agent relationships and other intangible items, which have not been consid-
ered. In addition, interest rates and other assumptions might be modified if
an actual appraisal were to be performed. Accordingly, the aggregate estimated
fair value amounts presented herein are limited by each of these factors and
do not purport to represent the underlying value of the Company.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
5. ACQUISITION
Transaction: On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable from Whitewood, a wholly-owned subsidiary of
Bankers Trust, pursuant to the terms of the Purchase Agreement dated as of May
3, 1996 between Equitable and Whitewood. In exchange for the outstanding capi-
tal stock of BT Variable, Equitable paid the sum of $93,000,000 in cash to
Whitewood in accordance with the terms of the Purchase Agreement. Equitable
also paid the sum of $51,000,000 in cash to Bankers Trust to retire certain
debt owed by BT Variable to Bankers Trust pursuant to a revolving credit ar-
rangement. Subsequent to the acquisition, the BT Variable, Inc. name was
changed to EIC Variable, Inc.
Accounting Treatment: The acquisition was accounted for as a purchase re-
sulting in a new basis of accounting, reflecting estimated fair values for as-
sets and liabilities at August 13, 1996. The purchase price was allocated to
the three companies purchased--BT Variable, DSI and Golden American. Goodwill
was established for the excess of the acquisition cost over the fair value of
the net assets acquired and pushed down to Golden American. The acquisition
cost is preliminary with respect to the final settlement of taxes with Bankers
Trust and estimated expenses and, as a result, goodwill may change. The allo-
cation of the purchase price to Golden American was approximately
$139,872,000. The amount of goodwill relating to the acquisition was
$39,254,000 at the acquisition date and is being amortized over 25 years on a
straight line basis. The carrying value of goodwill will be reviewed periodi-
cally for any indication of impairment in value.
Pro Forma Information (Unaudited): The following pro forma information is
presented as if the acquisition had occurred on January 1, 1995. The informa-
tion is combined to reflect the purchase accounting in the pre-acquisition pe-
riods of January 1, 1996 through August 13, 1996 and for the year ended Decem-
ber 31, 1995. This information is intended for informational purposes only and
may not be indicative of the Company's future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues..................................................... $35,955 $25,149
Net income................................................... 799 1,093
</TABLE>
The primary pro forma effects are revised amortization of deferred policy
acquisition costs, present value of in force acquired, unearned revenue, good-
will and the elimination of deferred tax benefits.
Present Value of In Force Acquired: As part of the acquisition, a portion of
the acquisition cost was allocated to the right to receive future cash flows
from the insurance contracts existing with Golden American at the date of ac-
quisition. This allocated cost represents the present value of in force ac-
quired ("PVIF") which reflects the value of those purchased policies calcu-
lated by discounting the actuarially determined expected future cash flows at
the discount rate determined by Equitable.
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 AUGUST 13, 1996 1995 1994
----------------- --------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance............................................. $85,796 $ 6,057 $ 7,620 $ 9,784
Imputed interest.............................................. 2,465 273 548 696
Amortization.................................................. (5,210) (1,224) (2,100) (2,860)
Adjustment for unrealized gains on available for sale
securities.................................................... -- 11 (11) --
------- ------- ------- -------
Ending balance................................................ $83,051 $ 5,117 $ 6,057 $ 7,620
</TABLE>
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Pre-Acquisition PVIF represents the remaining value assigned to in force
contracts when Bankers Trust purchased Golden American from Mutual Benefit on
September 30, 1992. See Note 8, contingent liability for additional informa-
tion.
Interest is imputed on the unamortized balance of PVIF at rates of 7.70% to
7.80% for the period August 14, 1996 through December 31, 1996. PVIF is
charged to expense and adjusted for the unrealized gains (losses) on available
for sale securities. Based on current conditions and assumptions as to the fu-
ture events on acquired policies in force, the expected approximate net amor-
tization for the next five years, relating to the balance of the PVIF as of
December 31, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997.................................................. $9,664
1998.................................................. 10,109
1999.................................................. 9,243
2000.................................................. 7,919
2001.................................................. 6,798
</TABLE>
6. INCOME TAXES
The Company files a federal income tax return separate from its parent com-
pany. Under the Internal Revenue Service Code, a newly acquired insurance com-
pany must file a separate return for 5 years. Deferred income taxes have been
established based upon the temporary differences, the reversal of which will
result in taxable or deductible amounts in future years when the related asset
or liability is recovered or settled.
At December 31, 1995 and 1994, Golden American had net operating loss
("NOL") carryforwards for federal income tax purposes of approximately
$22,600,000 and $17,400,000, respectively. As a result of the election made in
connection with the acquisition, the Company will be treated as a new taxpayer
commencing on August 14, 1996. For the period August 14, 1996 through December
31, 1996, the Company incurred a NOL of $4,725,000.
Income Tax Expense
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- ---------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996
THROUGH THROUGH AUGUST
DECEMBER 31, 1996 13, 1996
----------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Taxes provided in consolidated statements of income--deferred............................. $220 $(1,463)
Taxes provided in consolidated statement of changes in stockholder's equity on unrealized
gains--deferred........................................................................... 145 --
---- -------
$365 $(1,463)
==== =======
</TABLE>
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Income tax expense (credits) attributed to realized gains and losses on in-
vestments amounted to $15,000 and $(147,000) and for the periods August 14,
1996 through December 31, 1996, and January 1, 1996 through August 13, 1996,
respectively. The effective tax rate on income before income taxes and equity
income (loss) is different from the prevailing federal income tax rate as fol-
lows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
----------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
AUGUST 14, 1996 JANUARY 1, 1996 YEAR ENDED YEAR ENDED
THROUGH THROUGH AUGUST DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 13, 1996 1995 1994
----------------- --------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Income before income taxes.................................... $570 $ 1,736 $3,364 $2,222
Income tax at federal statutory rate.......................... 200 607 1,177 778
Tax effect (decrease) of:
Realization of NOL carryforwards............................. -- (1,214) -- --
Dividends received deduction................................. -- -- (350) (368)
Other items.................................................. 20 -- 17 (210)
Valuation allowance.......................................... -- (856) (844) (200)
---- ------- ------ ------
Income tax expense (benefit).................................. $220 $(1,463) $ -- $ --
==== ======= ====== ======
</TABLE>
Deferred Income Taxes
The tax effect of temporary differences giving rise to the Company's de-
ferred income tax assets and liabilities at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
---------------- ---------------
DECEMBER 31, 1996 1995
------------ ---------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Future policy benefits.................................................................... $19,102 $15,520
Deferred policy acquisition costs......................................................... 1,985 3,666
Goodwill.................................................................................. 5,918 --
Net operating loss carryforwards.......................................................... 1,653 7,891
Other..................................................................................... 235 57
------- -------
28,893 27,134
Deferred tax liabilities:
Net unrealized appreciation of available for sale fixed maturity securities............... 145 --
Deferred policy acquisition costs......................................................... -- 23,560
Unamortized cost assigned to present value of in force acquired........................... 29,068 2,120
Other..................................................................................... 45 598
------- -------
29,258 26,278
Valuation allowance, for deferred tax assets............................................... -- (856)
------- -------
Deferred income tax liability.............................................................. $ 365 $ --
======= =======
</TABLE>
7. 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 in-
surance products issued by Golden American which as of December 31, 1996 are
sold primarily through two broker/dealer institutions. For the periods August
14, 1996, through December 31, 1996 and January 1, 1996 through August 13,
1996, Golden American paid
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
commissions to DSI totaling $9,995,000 and $17,070,000, respectively. For the
years ended December 31, 1995, and 1994, commissions paid by Golden American
to DSI aggregated $8,440,000 and $17,569,000, respectively.
Golden American charged DSI for various expenses and all other general and
administrative costs, first on the basis of direct charges when identifiable,
with the remainder allocated based on the estimated amount of time spent by
Golden American's employees on behalf of DSI. For the year ended December 31,
1994 expenses allocated to DSI were $1,983,000.
Golden American provides certain managerial and supervisory services to DSI.
In 1996 and 1995, this fee was calculated as a percentage of average assets in
the variable separate accounts. For the periods August 14, 1996 through Decem-
ber 31, 1996 and January 1, 1996 through August 13, 1996 the fee was $877,000
and $1,390,000, respectively. This fee was $987,000 for 1995.
On August 14, 1996, the Company began purchasing investment management serv-
ices from an affiliate. Payments for these services totaled $72,000 through
December 31, 1996. On August 14, 1996, all employees of Golden American, ex-
cept wholesalers, became statutory employees of Equitable Life Insurance Com-
pany of Iowa, an affiliate.
Surplus Note: On December 17, 1996, Golden American issued a surplus note in
the amount of $25,000,000 to Equitable. The note matures on December 17, 2026
and will accrue interest of 8.25% per annum until paid. The note and accrued
interest thereon shall be subordinate to payments due to policyholders, claim-
ant and beneficiary claims, as well as debts owed to all other classes of
debtors of Golden American. Any payment of principal made shall be subject to
the prior approval of the Delaware Insurance Commissioner. On December 17,
1996, Golden American contributed the $25,000,000 to First Golden acquiring
200,000 shares of common stock (100% of outstanding stock) of First Golden.
Line of Credit: Golden American maintains a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. Under the current agreement, which became effective
December 1, 1996 and expires on December 31, 1997, Golden American can borrow
up to $25,000,000. Interest on any borrowings is charged at the rate of
Equitable's monthly average aggregate cost of short-term funds plus 1.00%. For
the period August 14 through December 31, 1996, the Company paid $85,000 of
interest under this agreement. At December 31, 1996, no amounts were outstand-
ing under this agreement.
Short-term Debt: All short-term debt was repaid as of December 30, 1994. In-
terest paid during 1994 was $1,962,000. The repayment of amounts under this
loan had been guaranteed by Bankers Trust.
Stockholder's Equity: On September 23, 1996, EIC Variable, Inc. (formally
known as BT Variable, Inc.) contributed $50,000,000 of Preferred Stock to the
Company's additional paid-in capital.
8. COMMITMENTS AND CONTINGENCIES
Contingent Liability: In a transaction that closed on September 30, 1992,
Bankers Trust Company ("Bankers Trust") acquired from Mutual Benefit Life In-
surance Company in Rehabilitation ("Mutual Benefit"), in accordance with the
terms of an Exchange Agreement, all of the issued and outstanding capital
stock of Golden American and DSI and certain related assets for consideration
with an aggregate value of $13,200,000 and contributed them to BT Variable.
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, prior to August 13, 1996,
was contingently supported by a $5,000,000 note payable from Golden American
and a $6,000,000 letter of credit from Bankers Trust. Bankers Trust had esti-
mated that the contingent liability due from Golden American amounted to
$439,000 at August 13, 1996 and December 31, 1995. At August 13, 1996 the bal-
ance of the escrow account established to fund the contingent liability was
$4,293,000 ($4,150,000 at December 31, 1995).
On August 13, 1996, Bankers Trust made a cash payment to Golden American in
an amount equal to the balance of the escrow account less the $439,000 contin-
gent liability discussed above. In exchange, Golden American irrevocably as-
signed to Bankers Trust all of Golden American's rights to receive any amounts
to
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
be disbursed from the escrow account in accordance with the terms of the Ex-
change Agreement. Bankers Trust also irrevocably agreed to make all payments
becoming due under the Golden American note and to indemnify Golden American
for any liability arising from the note.
Reinsurance: At December 31, 1996, Golden American had reinsurance treaties
with reinsurers covering a significant portion of the mortality risks under
its variable contracts with unaffiliated reinsurers. Golden American remains
liable to the extent its reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance in force for life mortality risks were
$58,368,000 and $24,709,000 at December 31, 1996 and 1995. Included in the ac-
companying financial statements are net considerations to reinsurers of
$875,000, $600,000, $2,800,000 and $2,400,000 and net policy benefits recov-
eries of $654,000, $1,267,000, $3,500,000 and $1,900,000 for the periods Au-
gust 14, 1996 through December 31, 1996, and January 1, 1996 through August
13, 1996 and the years ended 1995 and 1994, respectively.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial state-
ments are presented net of the effects of the treaty which increased income by
$10,000 and $56,000 for the periods August 14, 1996 through December 31, 1996
and January 1, 1996 through December 31, respectively. In 1995 and 1994, net
income was reduced by $109,000 and $27,000, respectively.
Guaranty Fund Assessments: Assessments are levied on the Company by life and
health guaranty associations in most states in which the Company is licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In
some states, these assessments can be partially recovered through a reduction
in future premium taxes. The Company cannot predict whether and to what extent
legislative initiatives may affect the right to offset. Based upon information
currently available from the National Organization of Life and Health Insur-
ance Guaranty Associations (NOLHGA), the Company believes that it is probable
these insolvencies will result in future assessments which could be material
to the Company's financial statements if the Company's reserve is not suffi-
cient. The Company regularly reviews its reserve for these insolvencies and
updates its reserve based upon the Company's interpretation of information
from the NOLHGA annual report. The associated cost for a particular insurance
company can vary significantly based upon its fixed account premium volume by
line of business and state premiums levels as well as its potential for pre-
mium tax offset. Accordingly, the Company accrued and charged to expense an
additional $291,000 for the period August 14, 1996 through December 31, 1996
and $480,000 for the period January 1, 1996 through August 13, 1996. At Decem-
ber 31, 1996, the Company has an undiscounted reserve of $771,000 to cover es-
timated future assessments (net of related anticipated premium tax credits)
and has established an asset totaling $3,000 for assessments paid which may be
recoverable through future premium tax offsets. The Company believes this re-
serve is sufficient to cover expected future insurance guaranty fund assess-
ments, based upon previous premium levels, and known insolvencies at this
time.
Litigation: In the ordinary course of business, the Company is engaged in
litigation, none of which management believes is material.
Vulnerability from Concentrations: The Company has various concentrations in
its investment portfolio (see Note 3 for further information). The Company's
asset growth, net investment income and cash flow are primarily generated from
the sale of variable products and associated future policy benefits and sepa-
rate account liabilities. A significant portion of the Company's sales are
generated by two broker/dealers. Substantial changes in tax laws that would
make these products less attractive to consumers, extreme fluctuations in in-
terest rates or stock market returns which may result in higher lapse experi-
ence than assumed, could cause a severe impact to the Company's financial con-
dition.
Other Commitments: At December 31, 1996, outstanding commitments to fund
mortgage loans on real estate totaled $14,250,000.
76
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION............ 1
Description of Golden
American Life Insurance
Company................. 1
Safekeeping of Assets... 1
The Administrator....... 1
Independent Auditors.... 2
Distribution of
Contracts............... 2
Performance
Information............. 2
IRA Partial Withdrawal
Option.................. 9
Other Information....... 9
Financial Statements of
Separate Account B...... 10
Financial Statements of
The Managed Global
Account of Separate
Account D............... 10
Appendix -- Description
of Bond Ratings......... A-1
</TABLE>
77
<PAGE>
(This page has been intentionally left blank.)
78
<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. AD-
DRESS THE FORM TO OUR CUSTOMER SERVICE CENTER, THE ADDRESS IS SHOWN ON THE COV-
ER.
................................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR SEPA-
RATE ACCOUNT B
PLEASE PRINT OR TYPE
-------------------------------------
NAME
-------------------------------------
SOCIAL SECURITY NUMBER
-------------------------------------
STREET ADDRESS
-------------------------------------
CITY, STATE, ZIP
(IN 6050 DVA PLUS (5/97)
................................................................................
79
<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 1.075)
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 Guaran-
tee Period is 8.0%; and that no prior transfers or partial withdrawals affect-
ing 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 1.075)
2. N = 2,555 (365 X 7)
3. Amount that must be withdrawn = $114,530/ 1.07 /2,555/365/ = $124,230
------
[ (1.0825) ]
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]
A1
<PAGE>
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 1.075)
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>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Wilmington, Delaware
IN 3306 DVA PLUS 5/97
<PAGE>
PART II
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the Indemnification of
Directors and Officers of the Registrant are applicable:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS
Delaware General Corporation Law, Title 8, Section 145
provides that corporations incorporated in Delaware may
indemnify their officers, directors, employees or agents
for threatened, pending or past legal action by reason
of the fact he/she is or was a director, officer,
employee or agent. Such indemnification is provided for
under the Company's By-Laws under Article VI.
Indemnification includes all liability and loss suffered
and expenses (including attorneys' fees) reasonably
incurred by such indemnitee. Prepayment of expenses is
permitted, however, reimbursement is required if it is
ultimately determined that indemnification should not
have been given.
DIRECTORS' AND OFFICERS' INSURANCE
The directors, officers, and employees of the
registrant, in addition to the indemnifications
described above, are indemnified through the blanket
liability insurance policy of Bankers Trust Company, an
affiliate of Registrant, for liabilities not covered
through the indemnification provided under the By-Laws.
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1 Underwriting Agreement Between Golden American Life
Insurance Company and Directed Services, Inc.
(Incorporated by reference to registrant's pre-
effective amendment No. 1 to the Registration
Statement Filed with the Securities and Exchange
Commission on October 6, 1988 (File No. 33-23351)).
3(a) Articles of Incorporation of Golden American Life
Insurance Company (Incorporated herein by reference
to the depositor's post-effective amendment No. 17
to the registration statement on Form N-4 filed
with the Securities and Exchange Commission on May
2, 1994 (File No. 33-23351)).
3(b) (i) By-laws of Golden American Life Insurance
Company (Incorporated herein by reference to the
depositor's initial registration statement on Form
N-4 filed with the Securities and Exchange
Commission on July 27, 1988 (File No. 33-23351)).
(ii) By-laws of Golden American Life Insurance
Company, as amended (Incorporated herein by
reference to the depositor's post-effective
amendment No. 5 to the registration statement on
Form N-4 filed with the Securities and Exchange
Commission on May 2, 1991 (File No. 33-23351)).
(iii) Certificate of Amendment of the By-laws of MB
Variable Life Insurance Company, as amended
(Incorporated herein by reference to the
depositor's registration statement on Form N-3
filed with the Securities and Exchange Commission
on August 19, 1992 (File No. 33-51028)).
(iv) By-laws of Golden American, as amended
(12/21/93) (Incorporated herein to the depositor's
post-effective amendment No. 17 to the registration
statement filed with the Securities and Exchange
Commission on May 2, 1994 (File No. 33-23351)).
4(a) Individual Deferred Variable and Fixed Annuity
Contract. (1)
4(b) Discretionary Group Deferred Variable and Fixed
Annuity Contract. (1)
4(c) Individual Deferred Variable and Fixed Annuity
Application. (1)
4(d) Group Deferred Variable and Fixed Annuity
Enrollment Form. (1)
4(e) Individual Deferred Combination Variable and Fixed
Annuity Contract. (3)
4(f) Discretionary Group Deferred Combination Variable
and Fixed Annuity Contract. (3)
4(g) Individual Deferred Variable Annuity Contract. (3)
4(h) External Exchange Program Endorsement. (2)
4(i) DVA Update Program Schedule Page. (2)
4(j) Individual Retirement Annuity Rider Page. (2)
4(k) Individual Deferred Combination Variable and Fixed
Annuity Application. (3)
4(l) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form. (3)
4(m) Individual Deferred Variable Annuity Application. (3)
5 Opinion and Consent of Myles R. Tashman, Esq.
23(a) Consent of Sutherland, Asbill & Brennan, L.L.P.
23(b) Consent of Ernst & Young LLP, independent auditors.
24(a) Powers of Attorney.
27 Financial Data Schedule
_______________
(1) Incorporated herein by reference to Pre-Effective
Amendment No. 1 of this registration statement filed
with the Securities and Exchange Commission on February
13, 1995.
(2) Incorporated herein by reference to Amendment No. 3 of
this registration statement filed with the Securities
and Exchange Commission on September 7, 1995.
(3) Incorporated herein by reference to Amendment No. 4 of
this registration statement filed with the Securities
and Exchange Commission on May 1, 1996.
(b) FINANCIAL STATEMENT SCHEDULE.
(1) All financial statements are included in the Prospectus
as indicated therein
(2) Schedules I, III and IV follow:
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance
Sheet
December 31, 1996 Cost 1 Value Amount
_______________________________________________________________________________
<S> <C> <C> <C>
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States Government and govern-
mental agencies and authorities $73,984 $73,857 $73,857
Public utilities 35,893 36,048 36,048
Investment grade corporate 134,487 134,607 134,607
Below investment grade corporate 25,921 26,114 26,114
Mortgage-backed securities 4,868 4,937 4,937
___________ ___________ ___________
Total fixed maturities, available
for sale 275,153 275,563 275,563
Equity securities:
Common stocks: industrial, miscel-
laneous and all other 36 33 33
Mortgage loans on real estate 31,459 31,459
Policy loans 4,634 4,634
Short-term investments 12,631 12,631
___________ ___________
Total investments $323,913 $324,320
=========== ===========
<FN>
Note 1: Cost is defined as original cost for stocks and other invested assets,
amortized cost for bonds and unpaid principal for policy loans and
mortgage loans on real estate, adjusted for amortization of premiums
and accrual of discounts.
</TABLE>
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
<TABLE>
<CAPTION>
Column Column Column Column Column Column
A B C D E F
________________________________________________________________________________
Future
Policy Other
De- Benefits, Policy
ferred Losses, Claims Insur-
Policy Claims Un- and ance
Acqui- and earned Bene- Premiums
sition Loss Revenue fits and
Segment Costs Expenses Reserve Payable Charges
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
POST-ACQUISITION
________________________________________________________________________________
Period August 14, 1996
through December 31, 1996:
Life insurance $11,469 $285,287 $2,063 -- $8,768
PRE-ACQUISITION
________________________________________________________________________________
Period January 1, 1996
through August 13, 1996:
Life insurance 85,265 176,914 8,826 -- 12,259
Year ended December 31, 1995:
Life insurance 67,314 33,673 6,556 -- 18,388
Year ended December 31, 1994:
Life insurance 60,662 1,051 1,759 -- 17,519
</TABLE>
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
Column Column Column Column Column Column
A G H I J K
________________________________________________________________________________
Amorti-
Benefits zation
Claims, of
Losses Deferred
Net and Policy Other
Invest- Settle- Acqui- Opera-
ment ment sition ting Premiums
Segment Income Expenses Costs Expenses Written
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
POST-ACQUISITION
________________________________________________________________________________
Period August 14, 1996
through December 31, 1996:
Life insurance $5,795 $7,003 $244 $8,066 --
PRE-ACQUISITION
________________________________________________________________________________
Period January 1, 1996
through August 13, 1996:
Life insurance 4,990 5,270 2,436 8,847 --
Year ended December 31, 1995:
Life insurance 2,818 3,146 2,710 13,333 --
Year ended December 31, 1994:
Life insurance 560 35 4,608 9,317 --
</TABLE>
SCHEDULE IV
REINSURANCE
GOLDEN AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
_______________________________________________________________________________
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
At December 31, 1996:
Life insurance in
force $86,192,000 $58,368,000 -- $27,824,000 --
============ ============ ========= ============ ==========
At December 31, 1995:
Life insurance in
force $38,383,000 $24,709,000 -- $13,674,000 --
============ ============ ========= ============ ==========
At December 31, 1994:
Life insurance in
force $30,227,000 $23,061,000 -- $7,166,000 --
============ ============ ========= ============ ==========
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement
shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has
duly caused this amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wilmington and State of Delaware,
on the 1st day of May, 1997.
GOLDEN AMERICAN LIFE
INSURANCE COMPANY
(Registrant)
By: /s/Terry L. Kendall
------------------------
Terry L. Kendall*
President and Chief
Executive Officer
Attest: /s/Marilyn Talman
----------------------
Marilyn Talman
Vice President, Assistant Secretary
and Associate General Counsel
As required by the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in
the capacities indicated on April 30, 1997.
Signature Title
/s/Terry L. Kendall President, Director
- -------------------- and Chief Executive
Terry L. Kendall* Officer of Depositor
/s/Paul E. Larson Executive Vice President,
- -------------------- Director, Chief Financial
Paul E. Larson* Officer and Assistant Secretary
DIRECTORS OF DEPOSITOR
/s/Fred S. Hubbell* /s/Lawrence V. Durland*
- ---------------------- -----------------------
Fred S. Hubbell* Lawrence V. Durland*
/s/Thomas L. May* /s/John A. Merriman*
- ---------------------- -----------------------
Thomas L. May* John A. Merriman*
/s/Beth B. Neppl* /s/Paul R. Schlaack*
- ---------------------- -----------------------
Beth B. Neppl* Paul R. Schlaack*
/s/Jerome L. Sychowski
- ----------------------
Jerome L. Sychowski
By: /s/ Marilyn Talman, Attorney-in-Fact
------------------------------------------
Marilyn Talman
_________________________
*Executed by Marilyn Talman on behalf of those indicated pursuant
to Power of Attorney.
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
5 Opinion and Consent of Myles R. Tashman, Esq.. . . . . . . . . .
23(a) Consent of Sutherland, Asbill & Brennan, L.L.P.. . . . . . . . .
23(b) Consent of Ernst & Young LLP, Independent Auditors . . . . . . .
24 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . .
27 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . .
<PAGE>
Exhibit 5 Opinion and Consent of Myles R. Tashman, Esq.
<PAGE>
Exhibit 5
GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street, Suite 400, Wilmington, DE 19801
Tel: 302-576-3400
Fax: 302-576-3450
April 30, 1997
Board of Directors
Golden American Life Insurance Company
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Ladies and Gentlemen:
In my capacity as Executive Vice President and Secretary of
Golden American Life Insurance Company, a Delaware
domiciled corporation ("Company"), I have supervised the
preparation of the registration statement for the Deferred
Combination Variable and Fixed Annuity Contract
("Contract") to be filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933.
I am of the following opinion:
(1) The Company was organized in accordance with the
laws of the State of Delaware and is a duly authorized
stock life insurance company under the laws of Delaware and
the laws of those states in which the Company is admitted
to do business;
(2) The Company is authorized to issue the Contracts
in those states in which it is admitted and upon compliance
with applicable local law;
(3) The Contracts, when issued in accordance with the
prospectus contained in the aforesaid registration
statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in
accordance with their terms.
In arriving at the foregoing opinion, I have made such
examination of law and examined such records and other
documents as in my judgment are necessary or appropriate.
I hereby consent to the filing of this opinion as an
exhibit to the aforesaid registration statement and to the
reference to me under the caption "Legal Matters" in the
prospectus contained in said registration statement. In
giving this consent I do not thereby admit that I come
within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the Rules
and Regulations of the Securities and Exchange Commission
thereunder.
Sincerely,
/s/ Myles R. Tashman
Myles R. Tashman
Executive Vice President, General Counsel
and Secretary
<PAGE>
Exhibit 23(a) Consent of Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
Sutherland, Asbill & Brennan, L.L.P. ATLANTA
Tel: (202) 383-0100 1275 Pennsylvania Ave, NW AUSTIN
Fax: (202) 637-3593 Washington, DC 20004-2404 NEW YORK
WASHINGTON
April 30, 1997
Board of Directors
Golden American Life Insurance Company
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 8 to
the registration statement on Form S-1 (File No. 33-87272) for Golden American
Life Insurance Company. In giving this consent, we do not admit that we are in
the category of persons whose consent isrequired under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By:/s/Susan S. Krawczyk
----------------------------
Susan S. Krawczyk
<PAGE>
Exhibit 23(b) Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated February 11, 1997, with
respect to the financial statements of Separate Account B, and February
9, 1996 (except Note 6, as to which the date is August 27, 1996) with
respect to the financial statements of The Managed Global Account of Separate
Account D in the Statement of Additional Information incorporated by reference
from registration statement (Form N-4 No. 33-59261) filed with the Securities
and Exchange Commission contemporaneously with this registration statement.
We also consent to the use of our report dated February 11, 1997, with respect
to the financial statements of Golden American Life Insurance Company, and to
the reference to our firm under the captions "Experts" and "Financial
Statements" in the Prospectus included in this Amendment No. 8 to the
Registration Statement (Form S-1 No. 33-87272) of Golden American Life
Insurance Company.
Our audit also included the financial statement schedules of Golden American
Life Insurance Company included in Item 16(b)(2). These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/Ernst & Young LLP
Des Moines, Iowa
April 24, 1997
<PAGE>
Exhibit 24 Powers of Attorney
<PAGE>
Exhibit 24
GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street, Suite 400, Wilmington, DE 19803
Phone: (302) 576-3400
Fax: (302) 576-3520
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned,
being duly elected Directors and officers of Golden American Life
Insurance Company ("Golden American"), constitute and appoint
Myles R. Tashman, and Marilyn Talman, and each of them, his or
her true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution for him or her in his or her
name, place and stead, in any and all capacities, to sign Golden
American's registration statements and applications for exemptive
relief, 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
s/he might or could do in person, hereby ratifying and affirming
all that said attorneys-in-fact and agents, or any of them, or
his or her substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Terry L. Kendall Director, President and April 21, 1997
- ----------------------- --------------------
Terry L. Kendall Chief Executive
Officer
/s/ Paul E. Larson Director, President and April 14, 1997
- ----------------------- --------------------
Paul E. Larson Director, Executive
Vice President, Chief
Financial Officer and
Assistant Secretary
/s/ Fred S. Hubbell Director and Chairman April 14, 1997
- ----------------------- --------------------
Fred S. Hubbell
/s/ Lawrence V. Durland Director April 14, 1997
- ----------------------- --------------------
Lawrence V. Durland
/s/ Thomas L. May Director April 14, 1997
- ----------------------- --------------------
Thomas L. May
John A. Merriman Director and Assistant April 14, 1997
- ----------------------- --------------------
John A. Merriman Secretary
Beth B. Neppl Director and Vice April 14, 1997
- ----------------------- --------------------
Beth B. Neppl President
Paul R. Schlaack Director April 14, 1997
- ----------------------- --------------------
Paul R. Schlaack
Jerome L. Sychowski Director April 14, 1997
- ----------------------- --------------------
Jerome L. Sychowski
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND STATEMENTS ON INCOME AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> AUG-14-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 275,563
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 33
<MORTGAGE> 31,459
<REAL-ESTATE> 0
<TOTAL-INVEST> 324,320
<CASH> 5,839
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 11,468
<TOTAL-ASSETS> 1,677,899
<POLICY-LOSSES> 285,287
<UNEARNED-PREMIUMS> 2,063
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 25,000
0
0
<COMMON> 2,500
<OTHER-SE> 137,984
<TOTAL-LIABILITY-AND-EQUITY> 1,677,899
0
<INVESTMENT-INCOME> 5,795
<INVESTMENT-GAINS> 42
<OTHER-INCOME> 10,131
<BENEFITS> 7,003
<UNDERWRITING-AMORTIZATION> 244
<UNDERWRITING-OTHER> 8,066
<INCOME-PRETAX> 570
<INCOME-TAX> 220
<INCOME-CONTINUING> 350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
