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As filed with the Securities and Exchange Commission on November 30, 1998
Registration No. 333-65009
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement under The Securities Act of 1933
Amendment No. 1
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 E. Roth, Esq.
1001 Jefferson Street, Suite 400 Sutherland Asbill & Brennan LLP
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,
check the following box ................................................ [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box [ ]
____________________________________________________________________________
Pursuant to Rule 429 under the Securities Act of 1933, a prospectus herein
also relates to Registration Statement Nos. 333-28743 and 333-51949.
Calculation of Registration Fee
____________________________________________________________________________
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Proposed Maximum Proposed Amount of
Title of Securities Amount Being Offering Price Maximum Aggregate Registration
Being Registered Registered (1) Per Unit (1) Offering Price(1) Fee(2)
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<S> <C> <C> <C> <C>
Annuity Contracts
Annuity Contracts
(Interests in N/A N/A $1,050,000,000 $309,750
Fixed Account)
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(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) Amounts previously registered in connection with File Nos. 333-28743 and
333-51949 were $100,320,000 and $350,000,000, respectively.
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PART I
The Prospectus contained herein does not contain all of the
information permitted by Securities and Exchange Commission
Regulations. Therefore, this Registration Statement on Form
S-1 for Golden American Life Insurance Company ("Golden
American") incorporates by reference the Statement of
Additional Information for the GoldenSelect PREMIUM PLUS
Combination Variable and Fixed Annuity, and Part C (Other
Information) contained in the Registration Statement on Form
N-4 (Post-Effective Amendment No. 3, File Nos. 333-28755,
811-5626, filed contemporaneously with Registration Statement
on or about November 30, 1998) 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.
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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 PREMIUM PLUS
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This prospectus describes group and individual deferred variable
annuity Contracts (the "Contract") offered by Golden American Life
Insurance Company ("Golden American" "we" "our" or "us"). The Owner
("you" or "your") purchases the Contract with an Initial Premium and is
permitted to make additional premium payments.
The Contract is funded by two accounts, Separate Account B ("Account
B") and the Fixed Account (collectively, the "Accounts").
Twenty-three 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"), the Warburg Pincus Trust (the "WP Trust") and the PIMCO
Variable Insurance Trust (the "PIMCO 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 6 months
and 1, 3, 5, 7 and 10 years. We reserve the right at any time to
increase or decrease the number of Guarantee Periods offered. Not all
Guarantee Periods may be available.
This prospectus describes the Contract and provides background
information regarding Account B and the Fixed Account. The prospectuses
for the GCG Trust, the WP Trust and the PIMCO Trust (individually, "a
Trust," and collectively, "the Trusts"), which must accompany this
prospectus, provide information regarding investment activities and
policies of the Trusts.
You may allocate your premiums and Credits among the twenty-three
Divisions and the Fixed Allocations available under the Contract in any
way you choose, subject to certain restrictions. You may change the
allocation of your Accumulation Value during a Contract Year free of
charge. We reserve the right, however, to assess a charge for each
allocation change after the twelfth allocation change in a Contract
Year.
Your Accumulation Value in Account B will vary in accordance with the
investment performance of the Divisions selected by you. Therefore, you
bear the entire investment risk for all amounts allocated to Account B.
You also bear investment risk with respect to surrenders, partial
withdrawals, transfers and annuitization from a Fixed Allocation prior
to the end of the applicable Guarantee Period. Such surrender, partial
withdrawal, transfer or annuitization may be subject to a Market Value
Adjustment, which could have the effect of either increasing or
decreasing your Accumulation Value.
We will pay a death benefit to the Beneficiary if the Owner dies prior
to the Annuity Commencement Date or the Annuitant dies prior to the
Annuity Commencement Date when the Owner is other than an individual.
This prospectus describes your principal rights and limitations and
sets forth the information concerning the Accounts that investors
should know before investing. A Statement of Additional Information,
dated December 7, 1998, about Account 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 Statement of
Additional Information may be found on the last page of this
prospectus. The Statement of Additional Information is incorporated
herein by reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT
INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT
TO MARKET FLUCTUATION, REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL
INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT
VALID UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE GCG TRUST,
THE WP TRUST AND THE PIMCO 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.
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ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
<S><C>
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company Wilmington, Delaware 19801 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: DECEMBER 7, 1998
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TABLE OF CONTENTS
PAGE
DEFINITION OF TERMS 1
SUMMARY OF THE CONTRACT 3
FEE TABLE 5
CONDENSED FINANCIAL AND OTHER
INFORMATION 9
Index of Investment Experience 9
Financial Statements 9
Performance Related Information 9
INTRODUCTION 10
FACTS ABOUT THE COMPANY AND THE
ACCOUNTS 10
Golden American 10
The Trusts 11
Separate Account B 11
Account B Divisions 12
Changes Within Account B 17
The Fixed Account 17
FACTS ABOUT THE CONTRACT 20
The Owner 20
The Annuitant 20
The Beneficiary 21
Change of Owner or Beneficiary 21
Availability of the Contract 21
Types of Contracts 21
Your Right to Select or Change Contract
Options 21
Premiums 22
Qualified Plans 22
Making Additional Premium Payments 22
Crediting Premium Payments 22
Restrictions on Allocation of Premium
Payments 23
Your Right to Reallocate 23
Dollar Cost Averaging 24
What Happens if a Division is Not
Available 25
Additional Credit to Premium 25
Your Accumulation Value 26
Accumulation Value in Each Division 26
Measurement of Investment Experience 26
Cash Surrender Value 27
Surrendering to Receive the Cash
Surrender Value 27
Partial Withdrawals 27
Automatic Rebalancing 29
Proceeds Payable to the Beneficiary 29
Death Benefit Options 30
Reports to Owners 31
When We Make Payments 31
CHARGES AND FEES 32
Charge Deduction Division 32
PAGE
Charges Deducted from the
Accumulation Value 32
Trust Expenses 34
CHOOSING YOUR ANNUITIZATION OPTIONS 34
Annuitization of Your Contract 34
Annuity Commencement Date
Selection 35
Frequency Selection 35
The Annuitization Options 35
Payment When Named Person Dies 36
OTHER CONTRACT PROVISIONS 36
In Case of Errors in Application
Information 36
Contract Changes - Applicable Tax Law 36
Your Right to Cancel or Exchange
Your Contract 36
Other Contract Changes 37
Group or Sponsored Arrangements 37
Selling the Contract 37
REGULATORY INFORMATION 38
Voting Rights 38
State Regulation 38
Legal Proceedings 38
Legal Matters 38
Experts 38
MORE INFORMATION ABOUT GOLDEN
AMERICAN LIFE INSURANCE COMPANY 39
Selected Financial Data 39
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 40
Directors and Executive Officers 57
Compensation Tables and Other
Information 58
FEDERAL TAX CONSIDERATIONS 61
Introduction 61
Tax Status of Golden American 61
Taxation on Non-qualified Annuities 61
IRA Contracts and Other Qualified
Retirement Plans 64
Federal Income Tax Withholding 68
UNAUDITED FINANCIAL STATEMENTS OF
GOLDEN AMERICAN LIFE INSURANCE
COMPANY 69
AUDITED FINANCIAL STATEMENTS OF
GOLDEN AMERICAN LIFE INSURANCE
COMPANY 79
STATEMENT OF ADDITIONAL INFORMATION 104
Table of Contents 104
APPENDIX A A1
Market Value Adjustment Example A1
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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 plus any Credit.
Thereafter, the Accumulation Value will reflect the premiums paid, plus
any Credit, investment experience of the Divisions and interest
credited to your Fixed Allocations, charges deducted and any partial
withdrawals.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION -- An enhanced death
benefit option that may be elected only at issue and only if the Owner
or Annuitant (when the Owner is other than an individual) is age 79 or
younger. The enhanced death benefit provided by this option is the
highest Accumulation Value on any Contract Anniversary on or prior to
the Owner turning age 80, as adjusted for additional premiums, credits
and partial withdrawals. The death benefit may be reduced for any
Credit applied within 12 months prior to the date of death.
ANNUITANT -- The person designated by the Owner to be the measuring
life in determining Annuity Payments.
ANNUITY COMMENCEMENT DATE -- The date on which Annuity Payments begin.
ANNUITY OPTIONS -- Options the Owner selects that determine the form
and amount of Annuity Payments.
ANNUITY PAYMENT -- The periodic payment an Owner receives. It may be
either a fixed or a variable amount based on the Annuity Option chosen.
ATTAINED AGE -- The Issue Age of the Owner or Annuitant plus the number
of full years elapsed since the Contract Date.
BENEFICIARY -- The person designated to receive benefits in the case of
the death of the Owner or the Annuitant (when the Owner is other than
an individual).
BUSINESS DAY -- Any day the New York Stock Exchange ("NYSE") is open
for trading, exclusive of Federal holidays, or any day on which the SEC
requires that mutual funds, unit investment trusts or other investment
portfolios be valued.
CASH SURRENDER VALUE -- The amount the Owner receives upon surrender of
the Contract, including any Market Value Adjustment.
CHARGE DEDUCTION DIVISION -- The Division from which all charges are
deducted if so designated by you. The Charge Deduction Division
currently is the Liquid Asset Division.
CONTINGENT ANNUITANT -- The person designated by the Owner who, upon
the Annuitant's death prior to the Annuity Commencement Date, becomes
the Annuitant.
CONTRACT -- The entire Contract consisting of the basic Contract and
any riders or endorsements.
CONTRACT ANNIVERSARY -- The anniversary of the Contract Date.
CONTRACT DATE -- The date on which we have received the Initial Premium
and upon which we begin determining the Contract values. It may or may
not be the same as the Issue Date. This date is used to determine
Contract months, processing dates, years and anniversaries.
CONTRACT PROCESSING DATES -- The days when we deduct certain charges
from the Accumulation Value. If the Contract Processing Date is not a
Valuation Date, it will be on the next succeeding Valuation Date. The
Contract Processing Dates will be once each year on the Contract
Anniversary.
CONTRACT PROCESSING PERIOD -- The first Contract processing period
begins with the Contract Date and ends at the close of business on the
first Contract Processing Date. All subsequent Contract processing
periods begin at the close of business on the most recent Contract
Processing Date and extend to the close of business on the next
Contract Processing Date. There is one Contract processing period each
year.
CONTRACT YEAR -- The period between Contract anniversaries.
CREDIT -- An amount added to the Contract's Accumulation Value at the
time a premium payment is made.
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.
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DIVISIONS -- The investment options available under Account B.
ENDORSEMENTS -- An endorsement changes or adds provisions to the
Contract.
EXPERIENCE FACTOR -- The factor which reflects the investment
experience of the portfolio in which a Division invests and also
reflects the charges assessed against the Division for a Valuation
Period.
FIXED ACCOUNT -- An Account which contains all of our assets that
support Owner Fixed Allocations and any interest credited thereto.
FIXED ALLOCATION -- An amount allocated to the Fixed Account that is
credited with a Guaranteed Interest Rate for a specified Guarantee
Period.
FREE LOOK PERIOD -- The period of time within which the Owner may
examine the Contract and return it for a refund.
GUARANTEED INTEREST RATE -- The effective annual interest rate which we
will credit for a specified Guarantee Period. The Guaranteed Interest
Rate will never be less than 3%.
GUARANTEE PERIOD -- The period of time for which a rate of interest is
guaranteed to be credited to a Fixed Allocation. We currently offer
Guarantee Periods with durations of 6 months (actual Guarantee Period
of one-half or 0.5 year) and 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 80 or
younger. The enhanced death benefit provided by this option is equal to
premiums paid plus Credits accumulated at an annual rate of return of
7%, except those invested in the Liquid Asset Division, Limited
Maturity Bond Division, and the Fixed Account, as adjusted for
additional premiums, Credits and partial withdrawals. Any Credit
applied within twelve months prior to the date of death may reduce the
death benefit. Each accumulated initial or additional premium payment,
including any Credit and reduced by any partial withdrawals taken will
continue to grow at 7% until it reaches the maximum enhanced death
benefit.
SPECIALLY DESIGNATED DIVISION -- The Division to which distributions
from a portfolio underlying a Division in which reinvestment is not
available will be allocated unless you specify otherwise. The Specially
Designated Division currently is the Liquid Asset Division.
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 less an amount equal to all
Credits applied within 12 months prior to the date of the death; (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.
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SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information
regarding the Contract and the Accounts which fund the Contract.
Information concerning the Series underlying the Divisions of Account B
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 prospectus and in the Contract. The Contract, together with any
Riders or Endorsements, constitutes the entire agreement between you
and us and should be retained.
This prospectus has been designed to provide you with the necessary
information to make a decision on purchasing the Contract. You have a
choice of investments. We do not promise that your Accumulation Value
will increase. Depending on the investment experience of the Divisions
and interest credited to the Fixed Allocations in which you are
invested, your Accumulation Value, Cash Surrender Value and death
benefit may increase or decrease on any day. You bear the investment
risk.
DESCRIPTION OF THE CONTRACT
This Contract provides a 4% Credit to each Purchase Payment which
increases the Accumulation Value, except for certain circumstances. See
Additional Credit to Premium. 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, a "qualified plan." A qualified plan is an
individual retirement annuity ("IRA") or another annuity meeting the
requirements of section 408(b) or other sections of the Internal
Revenue Code of 1986, as amended (the "Code"), an individual retirement
annuity ("Roth IRA") meeting the requirements of section 408A of the
Code, or some other retirement plan meeting the respective section of
the Code. For a Contract funding a qualified plan, distributions may be
made to you to satisfy requirements imposed by Federal tax law. The
second type of purchaser is one who purchases a Contract outside of a
qualified plan ("non-qualified plan").
The Contract also offers a choice of Annuity Options to which you may
apply all or a portion of the Accumulation Value on the Annuity
Commencement Date or the Cash Surrender Value upon surrender of the
Contract. See Choosing Your Annuity Options.
AVAILABILITY
We can issue a Contract if both the Annuitant and the Owner are not
older than age 85 and accept additional premium payments until either
the Annuitant or Owner reaches the Attained Age of 85 for non-qualified
plans (age 70 for qualified plans, except for rollover contributions
and contributions to a Roth IRA). 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 Sponsored Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. You must receive our
prior approval before making a premium payment that causes the
Accumulation Value of all annuities that you maintain with us to exceed
$1,000,000.
The annual limits on contributions to IRAs and Roth IRAs are described
under Federal Tax Considerations.
THE DIVISIONS
Each of the twenty-three Divisions of Account B offered under this
prospectus invests 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"), a corresponding Series of the WP Trust, managed
by Warburg Pincus Asset Management, Inc. ("Warburg") or a corresponding
Series of the PIMCO Trust, managed by Pacific Investment Management
Company ("PIMCO"). The GCG Trust and DSI have retained several
portfolio managers to manage the assets of each Series of the GCG
Trust. 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
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Value also reflects premium payments, Credits, 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 Allocations which we credit with fixed rates of interest for the
Guarantee Periods you select. We reset the interest rates for new
Guarantee Periods periodically based on our sole discretion. We may
offer Guarantee Periods from 6 months to ten years. We currently offer
Guarantee Periods with durations of 6 months and 1, 3, 5, 7 and 10
years. Additionally, we may offer one or more additional Guarantee
Periods only in conjunction with dollar cost averaging -- DCA Fixed
Allocations.
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 Period may be subject to a Market Value
Adjustment, which could have the effect of either increasing or
decreasing your Accumulation Value. We will not apply a Market Value
Adjustment on a surrender, partial withdrawal, transfer or
annuitization made within 30 days prior to the Maturity Date of the
applicable Guarantee Period or certain transfers made in connection
with the dollar cost averaging program. Systematic withdrawals from a
Fixed Allocation also are not subject to a Market Value Adjustment.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment, subject to certain exceptions,
to a surrender, partial withdrawal, transfer or annuitization from a
Fixed Allocation made prior to the end of a Guarantee Period. The
Market Value Adjustment does not apply to amounts invested in 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 Commencement Date. See Facts About the Contract, Cash Surrender
Value and Surrendering to Receive the Cash Surrender Value.
TAKING PARTIAL WITHDRAWALS
After the Free Look Period, prior to the Annuity Commencement Date and
while the Contract is in effect, you may take partial withdrawals from
the Accumulation Value of your Contract. You may elect in advance to
take systematic partial withdrawals on a monthly, quarterly, or annual
basis. If you have an IRA Contract or a Roth IRA Contract, you may
elect IRA partial withdrawals on a monthly, quarterly or annual basis.
Partial withdrawals are subject to certain restrictions as defined in
this prospectus, including a surrender charge and a Market Value
Adjustment. Partial withdrawals above a specified percentage of your
Accumulation Value may be subject to a surrender charge. See Facts
About the Contract, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount
transferred from either the Limited Maturity Bond Division or the
Liquid Asset Division or from a Fixed Allocation with either a 6 month
or a one year Guarantee Period to the (other) Divisions of Account B on
a monthly basis with the objective of shielding your investment from
short-term price fluctuations. We may also offer one or more DCA Fixed
Allocations with a Guarantee Period of 6 months or one year only in
conjunction with dollar cost averaging. 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 administering our allocation and certain other
administrative rules, we deem this period to end 15 days after the
Contract is mailed from our Customer Service Center. Some states may
require that we provide a longer free look period. In some states we
restrict the Initial Premium allocation during the Free Look Period.
See 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.
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DEATH BENEFIT OPTIONS
The Contract provides a death benefit to the Beneficiary if the Owner
dies prior to the Annuity Commencement Date. Subject to our rules,
there are three death benefit options that may be available to you
under the Contract: the Standard Death Benefit Option; the 7% Solution
Enhanced Death Benefit Option; and the Annual Ratchet Enhanced Death
Benefit Option. See Facts About the Contract, Death Benefit Options. We
may offer a reduced death benefit under certain group and sponsored
arrangements. See 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 restrictions we impose. See Facts About the Contract,
Restrictions on Allocation of Premium Payments. We then may deduct an
annual Contract fee from your Accumulation Value. See Other Contract
Provisions, Charges and Fees. We may reduce certain charges under group
or sponsored arrangements. See Other Contract Provisions, 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.
FEDERAL INCOME TAXES
The ultimate effect of Federal income taxes on the amounts held under
an annuity Contract, on Annuity Payments and on the economic benefits
to the Owner, Annuitant or Beneficiary depends on Golden American's tax
status and upon the tax status of the individuals concerned. In
general, an Owner is not taxed on increases in value under an annuity
Contract until some form of distribution is made under it. There may be
tax penalties if you make a withdrawal or surrender the Contract before
reaching age 59 1/2. See Federal Tax Considerations.
OTHER CONTRACTS
We offer other variable annuity contracts which also invest in many of
the same Series of the Trusts. These contracts may have different
charges that could affect contract performance, and may offer different
benefits more suitable to your needs. To obtain information about these
contracts, contact your agent, or call 1-800-366-0066.
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FEE TABLE
TRANSACTION EXPENSES(1)
Contingent Deferred Sales Charge(2) (imposed as a percentage of premium
payments withdrawn upon excess partial withdrawal or surrender):(3)
COMPLETE YEARS ELAPSEDSURRENDER
SINCE PREMIUM PAYMENT CHARGE
0 8%
1 8%
2 8%
3 8%
4 7%
5 6%
6 5%
7 3%
8 1%
9+ 0%
Excess Allocation Charge ............................ $0(4)
ANNUAL CONTRACT FEES:
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.)
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SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each
Division):(5)
STANDARD ENHANCED DEATH BENEFIT
------------------------------
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
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Mortality and Expense Risk
Charge ................... 1.25% 1.40% 1.55%
Asset Based Administrative
Charge ................... 0.15% 0.15% 0.15%
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Total Separate Account
Expenses ................. 1.40% 1.55% 1.70%
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net
assets of a Series or on the combined average daily net assets of the
indicated groups of Series):
OTHER EXPENSES(7) TOTAL EXPENSES
MANAGEMENT AFTER EXPENSE AFTER EXPENSE
SERIES FEES(6) REIMBURSEMENT(8) REIMBURSEMENT(8)
------ ---------- ----------------- ----------------
Multiple Allocation, Fully
Managed, Capital Appreciation,
Rising Dividends, All-Growth,
Real Estate, Hard Assets,
Value Equity, Strategic
Equity, and Small Cap Series: 0.98% 0.01% 0.99%
Mid-Cap Growth and Total
Return Series(9): 0.96% 0.01% 0.97%
Research Series(9): 0.96% 0.00% 0.96%
Growth Opportunities, Growth
& Income and Value + Growth
Series: 1.10% 0.01% 1.11%
Developing World Series: 1.75% 0.05% 1.80%
Global Fixed Income Series: 1.60% 0.00% 1.60%
Limited Maturity Bond and
Liquid Asset Series: 0.60% 0.01% 0.61%
THE WP TRUST ANNUAL EXPENSES (as a percentage of the average daily net
assets of a Series):
OTHER EXPENSES TOTAL EXPENSES
AFTER EXPENSE AFTER EXPENSE
SERIES FEES REIMBURSEMENT(10) REIMBURSEMENT(10)
------ ---- ----------------- -----------------
International Equity
Portfolio: 1.00% 0.36% 1.36%
THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of a Series):
OTHER
SERIES FEES EXPENSES(11) TOTAL EXPENSES(11)
------ ---- ------------ ------------------
PIMCO High Yield Bond
Portfolio: 0.50% 0.25% 0.75%
PIMCO StocksPLUS Growth
and Income Portfolio: 0.40% 0.25% 0.65%
__________________________
(1)A Market Value Adjustment, which may increase or decrease your
Accumulation Value, may apply to certain transactions. See Market
Value Adjustment.
(2)We also deduct a charge for premium taxes (which can range from 0%
to 3.5% of premium) from your Accumulation Value upon surrender,
excess partial withdrawals or on the Annuity Commencement Date. See
Premium Taxes.
(3)For purposes of calculating the surrender charge for the excess
partial withdrawal, (i) we treat premium payments as being
withdrawn on a first-in first-out basis, and (ii) amounts withdrawn
which are not considered an excess partial withdrawal are not
treated as a withdrawal of any premium payments. See Charges
Deducted from the Accumulation Value, Surrender Charge for Excess
Partial Withdrawals.
(4)We reserve the right to impose a charge in the future at a maximum
of $25 for each allocation change in excess of twelve per Contract
Year. See Excess Allocation Charge.
(5)See Facts About the Contract, Death Benefit Options, for a
description of the Contract's Standard and Enhanced Death Benefit
Options.
(6)Management Fees decline as combined assets increase (see Account B
Divisions and the Trust prospectuses for details).
6
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<PAGE>
(7)Other Expenses generally consist of independent trustees fees and
expenses and certain expenses associated with investing in
international markets. Other Expenses are estimated for the Growth
Opportunities and Developing World Series, since as of December 31,
1997, these Series had not yet commenced operations.
(8)DSI has agreed voluntarily to reimburse expenses and waive
management fees, if necessary, to maintain total expenses at the
levels shown for the Research, and the Global Fixed Income Series
(formerly the International Fixed Income Portfolio). This agreement
will remain in place through December 31, 1999, and after that time
may be terminated at any time. Without this agreement and based on
current estimates, Total Expenses would be 0.97%, and 1.65%, for
the Research and the Global Fixed Income Series, respectively.
(9)The assets of the Mid-Cap Growth, Research and the Total Return
Series will be combined to determine the actual fee payable to DSI.
(10)Total Expenses are based on actual expenses for the fiscal year
ended December 31, 1997. Expenses for the Portfolio were reduced by
0.1% for the fiscal year ended December 31, 1997 as a result of
certain arrangements that served to offset portions of the
Portfolio's transfer agent expense. After reflecting these
arrangements, "Total Expenses (after fee waivers)" for the
Portfolio were 1.35% for the fiscal year ended December 31, 1997.
(11)PIMCO has agreed to waive some or all of its administrative fee,
subject to potential future reimbursement, to the extent that total
portfolio operating expenses would exceed 0.75% of average daily net
assets of the High Yield Bond Portfolio and 0.65% of average daily
net assets of the StocksPLUS Growth and Income Portfolio due to
payment by the Portfolios of their pro rata portions of Trustees'
fees. Absent this contractual undertaking, the Portfolios' total
operating expenses, based on estimates for the current fiscal year,
would be 0.88% and 0.77%, respectively.
EXAMPLES:
The examples do not take into account any deduction for premium taxes.
Premium taxes currently range from 0% to 3.5% of premium payments.
There may be surrender charges if you choose to annuitize within the
first five 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:
-----------------------------------------------------------------
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Multiple Allocation $108.91 $168.67 $221.09 $319.65
Fully Managed $108.91 $168.67 $221.09 $319.65
Capital Appreciation $108.91 $168.67 $221.09 $319.65
Rising Dividends $108.91 $168.67 $221.09 $319.65
All-Growth $108.91 $168.67 $221.09 $319.65
Real Estate $108.91 $168.67 $221.09 $319.65
Hard Assets $108.91 $168.67 $221.09 $319.65
Value Equity $108.91 $168.67 $221.09 $319.65
Strategic Equity $108.91 $168.67 $221.09 $319.65
Small Cap $108.91 $168.67 $221.09 $319.65
Growth Opportunities $110.16 $172.38 $227.23 $331.64
Developing World $117.29 $193.46 $261.81 $397.64
Mid-Cap Growth $108.71 $168.05 $220.06 $317.63
Research $108.60 $167.74 $219.55 $316.62
Total Return $108.71 $168.05 $220.06 $317.63
Growth & Income $110.06 $172.07 $226.72 $330.65
Value + Growth $110.06 $172.07 $226.72 $330.65
Global Fixed Income $115.23 $187.39 $251.91 $379.02
International Equity $112.75 $180.07 $239.90 $356.13
High Yield Bond $106.42 $161.21 $208.69 $295.18
StocksPLUS Growth and
Income $105.38 $158.08 $203.48 $284.80
Limited Maturity Bond $104.96 $156.83 $201.39 $280.62
Liquid Asset $104.96 $156.83 $201.39 $280.62
-----------------------------------------------------------------
7
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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:
-----------------------------------------------------------------
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Multiple Allocation $ 28.91 $ 88.67 $151.09 $319.65
Fully Managed $ 28.91 $ 88.67 $151.09 $319.65
Capital Appreciation $ 28.91 $ 88.67 $151.09 $319.65
Rising Dividends $ 28.91 $ 88.67 $151.09 $319.65
All-Growth $ 28.91 $ 88.67 $151.09 $319.65
Real Estate $ 28.91 $ 88.67 $151.09 $319.65
Hard Assets $ 28.91 $ 88.67 $151.09 $319.65
Value Equity $ 28.91 $ 88.67 $151.09 $319.65
Strategic Equity $ 28.91 $ 88.67 $151.09 $319.65
Small Cap $ 28.91 $ 88.67 $151.09 $319.65
Growth Opportunities $ 30.16 $ 92.38 $157.23 $331.64
Developing World $ 37.29 $113.46 $191.81 $397.64
Mid-Cap Growth $ 28.71 $ 88.05 $150.06 $317.63
Research $ 28.60 $ 87.74 $149.55 $316.62
Total Return $ 28.71 $ 88.05 $150.06 $317.63
Growth & Income $ 30.06 $ 92.07 $156.72 $330.65
Value + Growth $ 30.06 $ 92.07 $156.72 $330.65
Global Fixed Income $ 35.23 $107.39 $181.91 $379.02
International Equity $ 32.75 $100.07 $169.90 $356.13
High Yield Bond $ 26.42 $ 81.21 $138.69 $295.18
StocksPLUS Growth and
Income $ 25.38 $ 78.08 $133.48 $284.80
Limited Maturity Bond $ 24.96 $ 76.83 $131.39 $280.62
Liquid Asset $ 24.96 $ 76.83 $131.39 $280.62
-----------------------------------------------------------------
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 Enhanced 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 EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN, SUBJECT TO THE GUARANTEES UNDER THE CONTRACT.
8
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- ----------------------------------------------------------------------
CONDENSED FINANCIAL AND OTHER INFORMATION
INDEX OF INVESTMENT EXPERIENCE
The following table gives the index of investment experience for each
Division of Account B available under the Contract for each death
benefit option. Information for the Growth Opportunities, Developing
World, High Yield Bond and StocksPLUS Growth and Income Divisions is
not available because they had not commenced operations as of December
31, 1997. The Divisions became available on October 1, 1997, and
started with the index of investment experience as shown below, except
for the Growth Opportunities and Developing World Divisions which
became available for investment on February 19, 1998 and the High Yield
Bond and StocksPLUS Growth and Income Divisions which became available
for investment on May 1, 1998. The index of investment experience is
equal to the value of a unit for each Division of the Accounts. The
total investment value of each Division as of the end of 1997 is shown
in the right hand columns.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE TOTAL INVESTMENT VALUE
---------------------------------------------------- ----------------------------
IN THOUSANDS
------------
ANNUAL 7%
DIVISION STANDARD ANNUAL RATCHET 7% SOLUTION STANDARD RATCHET SOLUTION
- -------- -------- -------------- ----------- -------- ------- --------
10/1/97 12/31/97 10/1/97 12/31/97 10/1/97 12/31/97 12/31/97 12/31/97 12/31/97
------- -------- ------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multiple Allocation $20.55 $20.55 $20.29 $20.28 $19.99 $19.97 $ 542 $ 269 $ 699
Fully Managed $19.49 $19.66 $19.24 $19.40 $18.96 $19.11 $ 725 $ 552 $2,064
Capital Appreciation $21.95 $22.05 $21.78 $21.87 $21.57 $21.65 $ 267 $ 449 $1,449
Rising Dividends $19.30 $20.09 $19.19 $19.96 $19.05 $19.81 $1,105 $ 686 $3,360
All-Growth $15.42 $14.28 $15.22 $14.09 $15.00 $13.88 $ 725 $ 551 $ 563
Real Estate $25.25 $25.48 $24.92 $25.14 $24.56 $24.76 $ 272 $ 204 $1,102
Hard Assets $24.00 $20.57 $23.68 $20.29 $23.34 $19.99 $ 88 $ 98 $ 213
Value Equity $18.85 $18.28 $18.78 $18.20 $18.67 $18.09 $ 517 $ 737 $2,117
Strategic Equity $14.14 $14.31 $14.10 $14.26 $14.04 $14.20 $ 188 $ 229 $ 704
Small Cap $13.85 $12.88 $13.82 $12.84 $13.78 $12.81 $ 754 $ 259 $1,280
Mid-Cap Growth $18.94 $18.52 $18.88 $18.45 $18.79 $18.36 $ 666 $ 253 $ 885
Research $19.33 $18.87 $19.24 $18.77 $19.15 $18.67 $1,106 $ 561 $2,892
Total Return $15.82 $16.10 $15.75 $16.02 $15.68 $15.94 $ 874 $ 415 $2,354
Growth & Income $15.99 $15.41 $15.95 $15.36 $15.92 $15.32 $1,569 $2,472 $3,772
Value + Growth $15.18 $13.03 $15.14 $12.99 $15.10 $12.96 $1,274 $ 447 $2,938
Limited Maturity
Bond $15.72 $15.91 $15.52 $15.70 $15.29 $15.47 $ 268 $ 159 $ 195
Liquid Asset $13.71 $13.83 $13.53 $13.65 $13.33 $13.44 $1,818 $ 846 $4,009
Global Fixed Income $11.99 $11.87 $11.93 $11.81 $11.87 $11.75 $ 41 $ 4 $ 76
International Equity $11.57 $ 9.90 $11.62 $ 9.95 $11.60 $ 9.92 $ 381 $ 359 $ 724
</TABLE>
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years
ended December 31, 1997 and 1996 (as well as the auditors' report
thereon) appear in the Statement of Additional Information. The
unaudited financial statements of Golden American for the nine months
ended September 30, 1998 and the audited financial statements of Golden
American prepared in accordance with generally accepted accounting
principles for the years ended December 31, 1997 and 1996 (as well as
the auditors' report thereon) are contained in the Prospectus.
PERFORMANCE RELATED INFORMATION
Performance information for the Divisions of Account B, including the
yields, standard annual total returns, and other non-standard measures
of performance may appear in reports and promotional literature to
current or prospective Owners. Such performance data will be computed,
or accompanied by performance data computed, in accordance with
standards defined by the SEC.
Current yield for the Liquid Asset Division will be based on income
received by a hypothetical investment over a given 7-day period (less
expenses accrued during the period), and then "annualized" (i.e.,
assuming that the 7-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). "Effective
yield" for the Liquid Asset Division is calculated in a manner similar
to that used to calculate yield,
9
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<PAGE>
but when annualized, the income earned
by the investment is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding
effect of earnings.
For the remaining Divisions, quotations of yield will be based on all
investment income per unit (Accumulation Value divided by the index of
investment experience, see Facts About the Contract, Measurement of
Investment Experience, Index of Investment Experience and Unit Value)
earned during a given 30-day period, less expenses accrued during the
period ("net investment income"). Quotations of average annual total
return for any Division will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in a
Contract over a period of one, five, and ten years (or, if less, up to
the life of the Division), and will reflect the deduction of the
applicable surrender charge, the administrative charge and the
applicable mortality and expense risk charge. See Charges and Fees.
Quotations of total return may simultaneously be shown for other
periods that do not take into account certain contractual charges, such
as the surrender charge.
Performance information for a Division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index
("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money
Market Institutional Averages, or other indices measuring performance
of a pertinent group of securities so that investors may compare a
Division's results with those of a group of securities widely regarded
by investors as representative of the securities markets in general;
(ii) other variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or
tracked by other ratings services, including VARDS, companies,
publications, or persons who rank separate accounts or other investment
products on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses. Performance
information for any Division reflects only the performance of a
hypothetical Contract under which the Accumulation Value is allocated
to a Division during a particular time period on which the calculations
are based. Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of the
portfolio of the Series of the respective Trust in which the Division
invests and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in
the future. For a description of the methods used to determine yield
and total return for the Divisions, see the Statement of Additional
Information. Reports and promotional literature may also contain other
information including the ranking of any Division derived from rankings
of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by rating services, companies,
publications, or other persons who rank separate accounts or other
investment products on overall performance or other criteria.
- ----------------------------------------------------------------------
INTRODUCTION
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.
- ----------------------------------------------------------------------
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
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 Delaware and is a wholly owned subsidiary of Equitable
of Iowa Companies, Inc. ("Equitable of Iowa") which, in turn, is a
wholly owned subsidiary of ING Groep N.V. ("ING"). Prior to December
30, 1993, Golden American was a Minnesota corporation. Prior to August
13, 1996, Golden American was a wholly owned indirect subsidiary of
Bankers Trust Company. We are authorized to do business in all States,
except New York, and the District of Columbia. In May 1996, we
established a subsidiary, First Golden American Life Insurance Company
of New York, which is authorized to do business in New York and
Delaware. 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.
10
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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 of Iowa
Securities Network, Inc., Directed Services, Inc. ("DSI"), and Golden
American. On October 24, 1997, ING acquired all interest in Equitable
of Iowa and its subsidiaries including Golden American. ING, based in
The Netherlands, is a global financial services holding company with
over $307.6 billion in assets at December 31, 1997. Equitable of Iowa
and another ING affiliate own ING Investment Management, LLC, who
assumed certain portfolio management responsibilities for the GCG
Trust as of January 1, 1998.
THE TRUSTS
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." 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 WP Trust is also an open-end management investment company. The WP
Trust's shares are available to separate accounts of life insurance
companies including that of Golden American and Equitable Life
Insurance Company of Iowa and to certain qualified pension and
retirement plans.
The PIMCO Trust is also an open-end management investment company. The
Series of the PIMCO Trust were designated to be used as investment
vehicles by separate accounts of insurance companies, including Golden
American, for both variable annuity contracts and variable life
insurance policies and by qualified pension and retirement plans.
Golden American does not anticipate any inherent difficulties arising
from the mixed and/or shared funding or sales to pension or retirement
plans by the GCG Trust, the WP Trust or the PIMCO Trust. However, there
is a possibility that, due to differences in tax treatment or other
considerations, the interests of Contractowners of various contracts
participating in the Trusts may conflict. The Board of Trustees of the
GCG Trust, the WP Trust and PIMCO Trust, DSI, Warburg, PIMCO and we and
any other insurance companies participating in the Trusts are required
to monitor events to identify any material conflicts that arise from
the use of the GCG Trust, the WP Trust and/or the PIMCO Trust for mixed
and/or shared funding between various policy owners and pension and
retirement plans. In the event of a material conflict, Golden American
will take the necessary steps including removing the Separate Account
from that Trust, to resolve the matter. See the GCG Trust, WP Trust and
PIMCO Trust prospectuses for more information.
You will find complete information about the Trusts, including the
risks associated with each Series, in the accompanying Trusts'
prospectuses. You should read them carefully in conjunction with this
prospectus before investing. Additional copies of the Trusts'
prospectuses may be obtained 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 annuity Contracts and for other purposes as permitted by
applicable laws and regulations. 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 annuity Contracts investing in
Account B which are not discussed in this prospectus. 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 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 assets 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.
11
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Account B was established on July 14, 1988 to invest in mutual funds,
unit investment trusts or other investment portfolios which we
determine to be suitable for the Contract's purposes. Account B is
treated as a unit investment trust under Federal securities laws. It is
registered with the SEC under the Investment Company Act of 1940 (the
"1940 Act") as an investment company and meets the definition of a
separate account under the Federal securities laws. It is governed by
the laws of Delaware, our state of domicile, and may also be governed
by the laws of other states in which we do business. Registration with
the SEC does not involve any supervision by the SEC of the management
or investment policies or practices of Account B.
ACCOUNT B DIVISIONS
Account B is divided into Divisions. Currently, each Division of
Account B offered under this prospectus invests in a portfolio of the
GCG Trust, the WP Trust or the PIMCO Trust. DSI serves as the Manager
to each Series of the GCG Trust, Warburg serves as the investment
adviser to the WP Trust, and PIMCO serves as Adviser to each Series of
the PIMCO Trust. See the Trusts' prospectuses for details. The GCG
Trust, and DSI have retained several portfolio managers to manage the
assets of the respective 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 various factors, including, in certain cases, how
well the portfolio managers anticipate changing economic and market
conditions. Account B also has other Divisions investing in other
series which are not available to the Contract described in this
prospectus.
DSI and PIMCO provide the overall business management and
administrative services 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 and PIMCO are responsible for providing or procuring, at their own
expense, the services reasonably necessary for the ordinary operation
of the Series of the GCG and PIMCO Trusts. DSI and PIMCO do 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 or
the PIMCO Trust, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the GCG and PIMCO Trusts prospectuses for
details.
The GCG Trust pays DSI for its services a fee, payable monthly, based
on the annual rates of the average daily net assets of the respective
Series shown in the tables below. DSI (and not the Trust) pay each
portfolio manager a monthly fee for managing the assets of the
respective Series. The WP Trust pays Warburg a fee for managing the
International Equity Portfolio of the WP Trust.
12
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THE GCG TRUST
SERIES FEES (based on combined assets of the
indicated groups of Series)
- ------ -------------------------------------
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising 0.95% of next $1.250 billion;
Dividends, All-Growth, Real Estate, 0.90% of next $1.5 billion; and
Hard Assets, Value Equity, Strategic 0.85% of amount in excess of $3.5
Equity, and Small Cap Series: billion
Growth Opportunities Series, Growth & 1.10% of first $250 million;
Income and Value + Growth Series: 1.05% of next $400 million;
1.00% of next $450 million; and
0.95% of amount in excess of $1.1
billion
Mid-Cap Growth, Total Return, 1.00% of first $250 million in
and Research Series: combined assets of these
Series;
0.95% of next $400 million;
0.90% of next $450 million; and
0.85% of amount in excess of $1.1
billion
Developing World Series: 1.75%
Global Fixed Income Series: 1.60%
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
- ----------------------------------------------------------------------
THE WP TRUST
SERIES FEES
- ------ ----
International Equity Portfolio: 1.00%
- ----------------------------------------------------------------------
The PIMCO Trust pays PIMCO an advisory fee (see the table following)
and an administrative fee of 0.25%, each payable monthly, based on the
average daily net assets of each of the Series for managing the assets
of the Series and for administering the Trust.
THE PIMCO TRUST
SERIES FEES
- ------ ----
PIMCO High Yield Bond Portfolio: 0.50%
PIMCO StocksPLUS Growth and
Income Portfolio: 0.40%
- ----------------------------------------------------------------------
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 income, consistent with the preservation of
capital and elimination of unnecessary risk.
INVESTMENTS -- Investment in equity and debt securities and the use of
certain sophisticated investment strategies and techniques.
PORTFOLIO MANAGER -- Zweig Advisors Inc.
13
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FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE -- High total investment return over the long term,
consistent with the preservation of capital and prudent investment
risk.
INVESTMENTS -- Pursues an active asset allocation strategy whereby
investments are allocated, based upon an evaluation of economic and
market trends and the anticipated relative total return available,
among three asset classes -- debt securities, equity securities and
money market instruments.
PORTFOLIO MANAGER -- T. Rowe Price Associates, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE -- Long-term capital growth.
INVESTMENTS -- Invests in common stocks and preferred stock that will
be allocated among various categories of stocks referred to as
"components" which consist of the following: (i) The Growth Component
- -- Securities that the portfolio manager believes have the following
characteristics: stability and quality of earnings and positive
earnings momentum; dominant competitive positions; and demonstrate
above-average growth rates as compared to published S&P 500 earnings
projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e.,
securities selling at a discount to asset value and securities with a
relatively low price/earnings ratio. The securities eligible for this
component may include real estate stocks, such as securities of
publicly owned companies that, in the portfolio manager's judgment,
offer an optimum combination of current dividend yield, expected
dividend growth, and discount to current real estate value.
PORTFOLIO MANAGER -- INVESCO (NY), Inc. (formerly 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 following four criteria: consistent dividend
increases; substantial dividend increases; reinvested profits; and an
under-leveraged balance sheet.
PORTFOLIO MANAGER -- Kayne Anderson Investment Management, LLC
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 estate industry listed on national exchanges or
on the National Association of Securities Dealers Automated Quotation
System.
PORTFOLIO MANAGER -- EII Realty Securities, Inc.
HARD ASSETS DIVISION
HARD ASSETS SERIES
OBJECTIVE -- Long-term capital appreciation.
INVESTMENTS -- Investment in equity and debt securities of companies
engaged in the exploration, development, production, management, and
distribution of hard assets.
PORTFOLIO MANAGER -- Van Eck Associates Corporation
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VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE -- Capital appreciation with a secondary objective of
dividend income.
INVESTMENTS -- Investment primarily in equity securities of U.S. and
foreign issuers which, when purchased, meet quantitative standards
believed by the Portfolio Manager to indicate above average financial
soundness and high intrinsic value relative to price.
PORTFOLIO MANAGER -- Eagle Asset Management, Inc.
STRATEGIC EQUITY DIVISION
STRATEGIC EQUITY SERIES
OBJECTIVE -- Long-term capital appreciation.
INVESTMENTS -- Investment primarily in equity securities based on
various equity market timing techniques. The amount of the Series'
assets allocated to equities shall vary from time to time to seek
positive investment performance from advancing equity markets and to
reduce exposure to equities when risk/reward characteristics 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.
GROWTH OPPORTUNITIES DIVISION
GROWTH OPPORTUNITIES SERIES
OBJECTIVE -- Capital appreciation.
INVESTMENTS -- Investment primarily in equity securities of domestic
companies emphasizing companies with market capitalizations of $1
billion or more.
PORTFOLIO MANAGER -- Montgomery Asset Management, LLC
GROWTH & INCOME DIVISION
GROWTH & INCOME SERIES
OBJECTIVE -- 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 SERIES
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 $2.0 billion.
PORTFOLIO MANAGER -- Robertson, Stephens & Company Investment
Management, L.P.
DEVELOPING WORLD DIVISION
DEVELOPING WORLD SERIES
OBJECTIVE -- Capital appreciation.
INVESTMENTS -- Investment primarily in equity securities of companies
in countries having economies and markets generally considered to be
emerging or developing.
PORTFOLIO MANAGER -- Montgomery Asset Management, LLC
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MID-CAP GROWTH DIVISION (formerly the OTC Division)
MID-CAP GROWTH SERIES
OBJECTIVE -- Long-term growth of capital.
INVESTMENTS -- Investment primarily in equity securities with medium
market capitalization.
PORTFOLIO MANAGER -- Massachusetts Financial Services Company
RESEARCH DIVISION
RESEARCH SERIES
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 SERIES
OBJECTIVE -- Above-average income consistent with prudent employment of
capital.
INVESTMENTS -- Investment primarily in equity securities.
PORTFOLIO MANAGER -- Massachusetts Financial Services Company
GLOBAL FIXED INCOME DIVISION (formerly the International Fixed Income
Division)
GLOBAL FIXED INCOME SERIES
OBJECTIVE -- High Total Return.
INVESTMENTS -- Investment primarily in both domestic and foreign debt
securities and related foreign currency transactions. The total return
will be sought through a combination of current income, capital gains
and gains in currency positions.
PORTFOLIO MANAGER -- Baring International Investment Limited
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE -- Highest current income consistent with low risk to
principal and liquidity. Also seeks to enhance its total return through
capital appreciation when market factors indicate that capital
appreciation may be available without significant risk to principal.
INVESTMENTS -- Investment primarily in a diversified portfolio of
limited maturity debt securities. No individual security will at the
time of purchase have a remaining maturity longer than seven years and
the dollar-weighted average maturity of the Series will not exceed five
years.
PORTFOLIO MANAGER -- ING Investment Management, LLC
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE -- High level of current income consistent with the
preservation of capital and liquidity.
INVESTMENTS -- Obligations of the U.S. Government and its agencies and
instrumentalities; bank obligations; commercial paper and short-term
corporate debt securities.
TERM -- All issues maturing in less than one year.
PORTFOLIO MANAGER -- ING Investment Management, LLC
The following Division invests in the designated Series of the WP
Trust.
INTERNATIONAL EQUITY DIVISION
INTERNATIONAL EQUITY PORTFOLIO
OBJECTIVE -- Long-term capital appreciation.
INVESTMENTS -- Investment primarily in a broadly diversified portfolio
of equity securities of companies that have their principal business
activities and interests outside of the United States.
PORTFOLIO MANAGER -- Warburg Pincus Asset Management, Inc.
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The following Divisions invest in designated Series of the PIMCO Trust.
HIGH YIELD BOND DIVISION
PIMCO HIGH YIELD BOND PORTFOLIO
OBJECTIVE -- Maximize total return.
INVESTMENTS -- Invests in at least 65% of its assets in a diversified
portfolio of junk bonds rated at least B by Moody's Investor Services,
Inc. or Standard & Poor's Rating Services, a Division of the McGraw
Hill Cos., Inc., or, if unrated, determined by the Adviser to be of
comparable quality.
PORTFOLIO MANAGER -- PIMCO
STOCKSPLUS GROWTH AND INCOME DIVISION
PIMCO STOCKSPLUS GROWTH AND INCOME PORTFOLIO
OBJECTIVE -- Total return that exceeds the total return of the S&P 500.
INVESTMENTS -- Invests in common stocks, options, futures, options on
futures and swaps consistent with its portfolio management strategy to
attempt to equal or exceed the performance of the S&P 500.
PORTFOLIO MANAGER -- PIMCO
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 combine two or more Divisions, or to substitute a new
portfolio for the portfolio in which a Division invests. A substitution
may become necessary if, in our judgment, a portfolio no longer suits
the purposes of the Contract. This may happen due to a change in laws
or regulations, or a change in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for
investment, or for some other reason. In addition, we reserve the right
to transfer assets of Account B, which we determine to be associated
with the class of Contracts to which your Contract belongs, to another
account. If necessary, we will get prior approval from the insurance
department of our state of domicile before making such a substitution
or transfer. We will also get any required approval from the SEC and
any other required approvals before making such a substitution or
transfer. We will notify you as soon as practicable of any proposed
changes.
When permitted by law, we reserve the right to:
(1)deregister Account B under the 1940 Act;
(2)operate Account B as a management company under the 1940 Act if it
is operating 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;
(4)restrict or eliminate any voting rights as to Account B; and
(5)combine Account B with other accounts.
THE FIXED ACCOUNT
Premium payments and Credits may be allocated to the Fixed Account at
the time of the Initial Premium payment or as subsequently made. Note
certain restrictions may apply; see Crediting Premium Payments. In
addition, all or part of your Accumulation Value may be transferred to
the Fixed Account. Assets supporting amounts allocated to the Fixed
Account are available to fund the claims of all classes of our
customers, Owners and other creditors. Interests under your Contract
relating to the Fixed Account are registered under the Securities Act
of 1933 but the Fixed Account is not registered under the 1940 Act.
SELECTING A GUARANTEE PERIOD. You may select one or more Fixed
Allocations with specified Guarantee Periods for investment. Each
Fixed Allocation will have a Maturity Date corresponding to the last
day of the calendar month of the applicable Guarantee Period. We
currently offer Guarantee Periods with durations of 6 months (actual
Guarantee Period of one-half or 0.5 year) and 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
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available
for new allocations, and we may offer one or more additional Guarantee
Periods (called DCA Fixed Allocations) only in conjunction with dollar
cost averaging. The interest rates credited to DCA Fixed Allocations
may differ from one another as well as from the regular Fixed
Allocations. Except as noted following or discussed in "Dollar Cost
Averaging - DCA Fixed Allocations," DCA Fixed Allocations are treated
the same as Fixed Allocations. If we are offering DCA Fixed
Allocations, any premium payment and Credit allocated to a Fixed
Allocation will be automatically allocated to a DCA Fixed Allocation
with the corresponding Guarantee Period unless you specify to us at
the time of the premium payment that you are allocating to a regular
Fixed Allocation.
Your Accumulation Value in the Fixed Account equals the sum of your
Fixed Allocations, plus Credits, plus the interest credited thereto, as
adjusted for any partial withdrawals, reallocations or other charges we
may impose. Your Fixed Allocation will be credited with the Guaranteed
Interest Rate in effect on the date we receive and accept your premium
or reallocation of Accumulation Value. The Guaranteed Interest Rate
will be credited daily to yield the quoted Guaranteed Interest Rate.
GUARANTEED INTEREST RATES. Each Guarantee Period will have an interest
rate that is guaranteed. We do not have a specific formula for
establishing the Guaranteed Interest Rates for the different Guarantee
Periods. The determination made will be influenced by, but not
necessarily correspond to, interest rates available on fixed income
investments which we may acquire with the amounts we receive as premium
payments or reallocations of Accumulation Value under the Contracts.
These amounts will be invested primarily in investment-grade fixed
income securities including: securities issued by the United States
Government or its agencies or instrumentalities, which issues may or
may not be guaranteed by the United States Government; debt securities
that have an investment grade rating, at the time of purchase, within
the four highest grades assigned by Moody's Investor Services, Inc.
(Aaa, Aa, A or Baa), Standard & Poor's Ratings 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
Government National Mortgage Association, or that have an investment
grade rating at the time of purchase within the four highest grades
described above; other debt investments; commercial paper; and cash or
cash equivalents. You will have no direct or indirect interest in these
investments. We will also consider other factors in determining the
Guaranteed Interest Rates, including regulatory and tax requirements,
sales commissions and administrative expenses borne by us, general
economic trends and competitive factors. We cannot predict or guarantee
the level of future interest rates. However, no Fixed Allocation will
ever have a Guaranteed Interest Rate of less than 3% per year.
We may offer interest rate specials from time to time during which
times the interest rates declared for new premiums are higher than the
base rate supported by current investment yields. Interest rates
credited to a DCA Fixed Allocation may differ from one another, as well
as from other Fixed Allocations. Renewal rates for such rate specials
will be derived from the base rate not the special rates initially
declared. Such rate specials are offered at our discretion and only if
you have a Fixed Allocation.
While the foregoing generally describes our investment strategy with
respect to the Fixed Account, we are not obligated to invest according
to any particular strategy, except as may be required by Delaware and
other state insurance laws.
TRANSFERS FROM A FIXED ALLOCATION. You may transfer your Accumulation
Value from a Fixed Allocation to one or more new Fixed Allocations with
new Guarantee Periods of any length offered by us or to the Divisions
of Account B. 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.
Accumulation Value cannot be transferred from a DCA Fixed Allocation
to a new DCA Fixed Allocation although you may transfer your
Accumulation Value from a DCA Fixed Allocation to one or more new
Fixed Allocations or the Divisions of Account B.
Transfers from a Fixed Allocation made within 30 days prior to the
Maturity Date of the applicable Guarantee Period or pursuant to the
dollar cost averaging program will not be subject to a Market Value
Adjustment. All other transfers from your Fixed Allocations will be
subject to a Market Value Adjustment. The minimum amount that can be
transferred to or from any Fixed Allocation is $100. If a transfer
request would reduce the Accumulation Value remaining in your Fixed
Allocation to less than $100, we will treat such transfer request as a
request to transfer the entire Accumulation Value in such Fixed
Allocation.
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At the end of a Fixed Allocation's Guarantee Period, you may transfer
amounts in that Fixed Allocation to the Divisions and one or more new
Fixed Allocations with Guarantee Periods of any length then offered by
us. You may not, however, transfer amounts to any Fixed Allocation with
a Guarantee Period that extends beyond your Annuity Commencement Date.
At least 30 calendar days prior to a Maturity Date of any of your Fixed
Allocations, or earlier if required by state law, we will send you a
notice of the Guarantee Periods then available. Prior to the Maturity
Date of your Fixed Allocations you must notify us as to which Division
or new Guarantee Period you have selected. If timely instructions are
not received, we will transfer your Accumulation Value in the maturing
Fixed Allocation to a Fixed Allocation with a Guarantee Period equal in
length to the expiring Guarantee Period. If such Guarantee Period is
not available or extends beyond your Annuity Commencement Date, we will
transfer your Accumulation Value in the maturing Fixed Allocation to
the next shortest Guarantee Period which does not extend beyond the
Annuity Commencement Date. If no such Guarantee Period is available, we
will transfer your Accumulation Value to the Specially Designated
Division.
PARTIAL WITHDRAWALS FROM A FIXED ALLOCATION. Prior to the Annuity
Commencement Date and while your Contract is in effect, you may take
partial withdrawals from the Accumulation Value in a Fixed Allocation
by sending satisfactory notice to our Customer Service Center. You may
make systematic withdrawals of interest earnings only from a Fixed
Allocation under our Systematic Partial Withdrawal Option. (See,
Partial Withdrawals, Systematic Partial Withdrawal Option.) Systematic
withdrawals from a Fixed Allocation are not permitted if such Fixed
Allocation participates in the dollar cost averaging program.
Withdrawals from a Fixed Allocation taken within 30 days prior to the
Maturity Date and systematic withdrawals are not subject to a Market
Value Adjustment; however, a surrender charge may be imposed.
Withdrawals may have federal income tax consequences, including a 10%
penalty tax. See Surrender Charge, Surrender Charge for Excess Partial
Withdrawals and Federal Tax Considerations.
If you specify a Fixed Allocation from which your partial withdrawal
will be made, we will assess the partial withdrawal against that Fixed
Allocation. If you do not specify the investment option from which the
partial withdrawal will be taken, we will not assess your partial
withdrawal against any Fixed Allocations unless the partial withdrawal
exceeds the Accumulation Value in the Divisions of Account B. 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.
MARKET VALUE ADJUSTMENT. We will apply a Market Value Adjustment,
determined by application of the formula described below, in the
following circumstances: (i) whenever you make a withdrawal or transfer
from a Fixed Allocation, other than withdrawals or transfers made
within 30 days prior to the Maturity Date of the applicable Guarantee
Period, systematic partial withdrawals, or pursuant to the dollar cost
averaging program; and (ii) on the Annuity Commencement Date with
respect to any Fixed Allocation having a Guarantee Period that does not
end on or within 30 days after the Annuity Commencement Date.
The Market Value Adjustment is determined by multiplying the amount
withdrawn, transferred or annuitized by the following factor:
( 1+I )^(N/365)
(---------) -1
(1+J+.0050)
Where "I" is the Index Rate for a Fixed Allocation as of the first day
of the applicable Guarantee Period; "J" is: (a) for a Fixed Allocation
of one year or more, 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 (b) for a Fixed Allocation of six months, the Index
Rate for new Fixed Allocations with a six month Guarantee Period, at
the time of the withdrawal, transfer or annuitization; and "N" is the
remaining number of days in the Guarantee Period at the time of the
withdrawal, transfer or annuitization.
The Index Rate is the average of the Ask Yields for U.S. Treasury
Strips as reported by a national quoting service for the applicable
maturity. The average currently is based on the period from the 22nd
day of the calendar
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month two months prior to the calendar month of the
Index Rate determination to the 21st day of the calendar month
immediately prior to the month of determination. The applicable
maturity is the maturity date for these U.S. Treasury Strips on or next
following the last day of the Guarantee Period. If the Ask Yields are
no longer available, the Index Rate will be determined using a suitable
replacement method approved where required.
We currently calculate the Index Rate once each calendar month.
However, we reserve the right to calculate the Index Rate more
frequently than monthly, but in no event will such Index Rate be based
upon a period of less than 28 days.
The Market Value Adjustment may result in either an increase or
decrease in the Accumulation Value of your Fixed Allocation. If a full
surrender, transfer or annuitization from the Fixed Allocation has been
requested, the balance of the Market Value Adjustment will be added to
or subtracted from the amount surrendered, transferred or annuitized.
If a partial withdrawal, transfer or annuitization has been requested,
the Market Value Adjustment will be calculated on the total amount that
must be withdrawn, transferred or annuitized in order to provide the
amount requested. If a negative Market Value Adjustment exceeds the
Accumulation Value in the Fixed Allocation, such transaction will be
considered a full surrender, transfer or annuitization. The Appendix
contains several examples which illustrate the application of the
Market Value Adjustment.
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FACTS ABOUT THE CONTRACT
THE OWNER
You are the Owner. You are also the Annuitant unless another Annuitant
is named in the application or enrollment form. You have the rights and
options described in the Contract. One or more persons may own the
Contract. If there are multiple Owners named, the age of the oldest
Owner shall determine the applicable death benefit.
Death of an Owner activates the death benefit provision. In the case of
a sole Owner who dies prior to the Annuity Commencement Date, we will
pay the Beneficiary the death benefit when due. The sole Owner's estate
will be the Beneficiary if no Beneficiary designation is in effect, or
if the designated Beneficiary has predeceased the Owner. In the case of
a joint Owner of the Contract dying prior to the Annuity Commencement
Date, we will designate the surviving Owner(s) as the Beneficiary(ies).
This supersedes any previous Beneficiary designation.
In the case where the Owner is a trust and a beneficial Owner of the
trust has been designated, the beneficial Owner will be treated as the
Owner of the Contract solely for the purpose of determining the death
benefit provisions. If a beneficial Owner is changed or added after the
Contract Date, this will be treated as a change of Owner for purposes
of determining the death benefit. See Change of Owner or Beneficiary.
If no beneficial Owner of the Trust has been designated, the
availability of enhanced death benefits will be determined by the age
of the Annuitant at issue.
THE ANNUITANT
The Annuitant is the person designated by the Owner to be the measuring
life in determining Annuity Payments. The Owner will receive the
annuity benefits of the Contract if the Annuitant is living on the
Annuity Commencement Date. If the Annuitant dies before the Annuity
Commencement Date, and a Contingent Annuitant has been named, the
Contingent Annuitant becomes the Annuitant (unless the Owner is not an
individual, in which case the death benefit becomes payable). Once
named, the Annuitant may not be changed at any time.
If there is no Contingent Annuitant when the Annuitant dies prior to
the Annuity Commencement Date, the Owner will become the Annuitant. The
Owner may designate a new Annuitant within 60 days of the death of the
Annuitant.
If there is no Contingent Annuitant when the Annuitant dies prior to
the Annuity Commencement Date and the Owner is not an individual, we
will pay the Beneficiary the death benefit then due. The Beneficiary
will be as provided in the Beneficiary designation then in effect. If
no Beneficiary designation is in effect, or if there is no designated
Beneficiary living, the Owner will be the Beneficiary. If the Annuitant
was the sole Owner and there is no Beneficiary designation, the
Annuitant's estate will be the Beneficiary.
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Regardless of whether a death benefit is payable, if the Annuitant dies
and any Owner is not an individual, such death will trigger application
of the distribution rules imposed by Federal tax law.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death benefit proceeds and
who becomes the successor Owner if the Owner dies prior to the Annuity
Commencement Date. We pay death benefit proceeds to the primary
Beneficiary (unless there are joint Owners, in which case death
proceeds are payable to the surviving Owner(s)). See Proceeds Payable
to the Beneficiary.
If the Beneficiary dies before the Annuitant or Owner, the death
benefit proceeds are paid to the contingent Beneficiary, if any. If
there is no surviving Beneficiary, we pay the death benefit proceeds to
the Owner's estate.
One or more persons may be named as Beneficiary or contingent
Beneficiary. In the case of more than one Beneficiary, unless otherwise
specified, we will assume any death benefit proceeds are to be paid in
equal shares to the surviving Beneficiaries.
You have the right to change Beneficiaries during the Annuitant's
lifetime unless you have designated an irrevocable Beneficiary. When an
irrevocable Beneficiary has been designated, you and the irrevocable
Beneficiary may have to act together to exercise certain rights and
options under the Contract.
CHANGE OF OWNER OR BENEFICIARY
During the Annuitant's lifetime and while your Contract is in effect,
you may transfer ownership of the Contract (if purchased in connection
with a non-qualified plan) subject to our published rules at the time
of the change. A change in Ownership may affect the amount of the death
benefit and the guaranteed death benefit. You may also change the
Beneficiary. To make either of these changes, you must send us written
notice of the change in a form satisfactory to us. The change will take
effect as of the day the notice is signed. The change will not affect
any payment made or action taken by us before recording the change at
or Customer Service Center. See Federal Tax Considerations,
Assignments, Pledges and Gratuitous Transfers.
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 connection with an individual retirement
account or other qualified plan. In the latter cases, the Contract will
be issued without an Individual Retirement Annuity endorsement, and the
rights of the participant under the Contract will be affected by the
terms and conditions of the particular individual retirement trust or
custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial
account will impose minimum distribution rules, which may require
distributions to commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. For both
Individual Retirement Annuities and individual retirement accounts, the
minimum Initial Premium is $1,500. The annual limits on contributions
to IRAs and Roth IRAs are described under Federal Tax Considerations.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN OTHER THAN A ROTH
IRA, DISTRIBUTION MUST COMMENCE NOT LATER THAN APRIL 1ST OF THE
CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH YOU ATTAIN AGE 70
1/2. IF YOU OWN MORE THAN ONE QUALIFIED PLAN, YOU SHOULD CONSULT YOUR
TAX ADVISOR.
NON-QUALIFIED CONTRACTS. The Contract may fund any non-qualified plan.
Non-qualified Contracts do not qualify for any tax-favored treatment
other than the benefits provided for by annuities.
YOUR RIGHT TO SELECT OR CHANGE CONTRACT OPTIONS
Before the Annuity Commencement Date, you may change the Annuity
Commencement Date, frequency of Annuity Payments or the Annuity Option
by sending a written request to our Customer Service Center. The
Annuitant may not be changed at any time.
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PREMIUMS
You purchase the Contract with an Initial Premium. After the end of the
Free Look Period, you may make additional premium payments. See Making
Additional Premium Payments. The minimum Initial Premium is $10,000 for
a non-qualified Contract and $1,500 for a qualified Contract.
You must receive our prior approval before making a premium payment
that causes the Accumulation Value of all annuities that you maintain
with us to exceed $1,000,000. We may change the minimum initial or
additional premium requirements for certain group or sponsored
arrangements. See Group or Sponsored Arrangements.
QUALIFIED PLANS
For IRA Contracts, the annual premium on behalf of any individual
Contract may not exceed $2,000. Provided your spouse does not make a
contribution to an IRA, you may set up a spousal IRA even if your
spouse has earned some compensation during the year. The maximum
deductible amount for a spousal IRA program is the lesser of $2,250 or
100% of your compensation reduced by the contribution (if any) made by
you for the taxable year to your own IRA. However, no more than $2,000
can go to either your or your spouse's IRA in any one year. For
example, $1,750 may go to your IRA and $500 to your spouse's IRA. These
maximums are not applicable if the premium is the result of a rollover
from another qualified plan.
For Roth IRA Contracts, the annual premium on behalf of any individual
Contract, together with the total amount of any contributions you have
made to any non-Roth IRAs (except for rollover contributions), may not
exceed the lesser of $2,000 or 100% of your compensation. Contributions
to a Roth IRA are subject to income limits. See IRA Contracts and Other
Qualified Retirement Plans.
WHERE TO MAKE PAYMENTS. Remit premium payments to our Customer Service
Center. The address is shown on the cover. We will send you a
confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the Free Look
Period. We can accept additional premium payments until either the
Annuitant or Owner reaches the Attained Age of 85 under non-qualified
plans. For qualified plans, no contributions may be made to an IRA
Contract other than a Roth IRA for the taxable year in which you attain
age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The Initial Premium will be accepted or rejected within two business
days of receipt by us if accompanied by information sufficient to
permit us to determine if we are able to issue a Contract. We may
retain an Initial Premium for up to five business days while attempting
to obtain information sufficient to enable us to issue the Contract. If
we are unable to do so within five business days, the applicant or
enrollee will be informed of the reasons for the delay and the Initial
Premium will be returned immediately unless the applicant or enrollee
consents to our retaining the Initial Premium until we have received
the information we require. Thereafter, all additional premiums will be
accepted on the day received.
In certain states we will also accept, by agreement with
broker-dealers, transmittal of initial and additional premium payments
by wire order from the broker-dealer to our Customer Service Center.
Such transmittals must be accompanied by a simultaneous telephone
facsimile or other electronic data transmission containing the
essential information we require to open an account and allocate the
premium payment. Contact our Customer Service Center to find out about
state availability and broker-dealer requirements.
Upon our acceptance of premium payments received via wire order and
accompanied by sufficient electronically transmitted data, we will
issue the Contract, allocate the premium payment and Credit according
to your instructions, and invest the payment at the value next
determined following receipt. See Restrictions on Allocation of Premium
Payments. Wire orders not accompanied by sufficient data to enable us
to accept the premium payment may be retained for up to five business
days while we attempt to obtain information sufficient to enable us to
issue the Contract. If we are unable to do so, our Customer Service
Center will inform the broker-dealer, on behalf of the applicant or
enrollee, of the reasons for the delay and return the premium payment
immediately to the broker-dealer for return to the applicant or
enrollee, unless the applicant or enrollee specifically consents to
allow us to retain the premium payment until our Customer Service
Center receives the required information.
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On the date we receive and accept your initial or additional premium
payment:
(1)We allocate the Initial Premium and any Credit among the Divisions
and Fixed Allocations according to your instructions, subject to
any restrictions. See Restrictions on Allocation of Premium
Payments. For additional premium payments, the Accumulation Value
will increase by the amount of the premium and any Credit. If we do
not receive instructions from you, the increase in the Accumulation
Value will be allocated among the Divisions in proportion to the
amount of Accumulation Value in each Division as of the date we
receive and accept the additional premium payment. If there is no
Accumulation Value in the Divisions, the increase in the
Accumulation Value will be allocated to a Fixed Allocation with the
shortest Guarantee Period then available.
(2)For an Initial Premium, we calculate your applicable death benefit.
When an additional premium payment is made, we increase your
applicable death benefit in accordance with the death benefit
option in effect for your contract.
Following receipt and acceptance of the wire order and accompanying
data, and investment of the premium payment, we will follow one of the
two procedures set forth below. The one we follow is determined by
state availability and the procedures of the broker-dealer which
submitted the wire order.
(1)We will issue the Contract. However, until we have received and
accepted a properly completed application or enrollment form, we
reserve the right to rescind the Contract. If the form is not
received within fifteen days of receipt of the premium payment, we
will refund the Accumulation Value adjusted for any applicable
Market Value Adjustment less any Credit plus any charges we
deducted, and the Contract will be voided. Some states require that
we return the premium paid. In these states, different rules will
apply.
(2)Based on the information provided, we will issue the Contract. We
will mail the Contract to you, together with an Application
Acknowledgment Statement. You must execute the Application
Acknowledgment Statement and return it to us at our Customer
Service Center. Until we receive the executed Application
Acknowledgment 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 plus Credit designated for a
Division of Account B or the Fixed Account 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 plus Credit 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 Period you have
chosen; however we reserve the right to allocate to the Specially
Designated Division for the Free Look Period, then to your selected
Fixed Allocations.
YOUR RIGHT TO REALLOCATE
You may reallocate your Accumulation Value among the Divisions and
Fixed Allocations at the end of the Free Look Period. We currently do
not assess a charge for allocation changes made during a Contract Year.
We reserve the right, however, to assess a $25 charge for each
allocation change after the twelfth allocation change in a Contract
Year. We require that each reallocation of your Accumulation Value
equal at least $100 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 a Trust. We also reserve the right to modify or terminate
your right to reallocate your Accumulation Value at any time in
accordance with applicable law. Reallocations from the Fixed Account
are subject to the Market Value Adjustment unless taken as part of the
dollar cost averaging program or within 30 days prior to the Maturity
Date of the applicable Guarantee Period. To make a reallocation change,
you must provide us with satisfactory notice at our Customer Service
Center. All reallocation changes must be submitted by the earlier of
4:00 p.m. eastern time or the close of the New York Stock Exchange.
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We reserve the right to limit the number of reallocations of your
Accumulation Value among the Divisions and Fixed Allocations or refuse
any reallocation request if we believe that: (a) excessive trading by
you or a specific reallocation request may have a detrimental effect on
unit values or the share prices of the underlying Series; or (b) we are
informed by a 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 respective Trust.
Where permitted by law, we may accept your authorization of third party
reallocation on your behalf, subject to our rules. We may suspend or
cancel such acceptance at any time. We will notify you of any such
suspension or cancellation. We may restrict the Divisions and Fixed
Allocations that will be available to you for reallocations of premiums
during any period in which you authorize such third party to act on
your behalf. We will give you prior notification of any such
restrictions. However, we will not enforce such restrictions if we are
provided evidence satisfactory to us that: (a) such third party has
been appointed by a court of competent jurisdiction to act on your
behalf; or (b) such third party has been appointed by you to act on
your behalf for all your financial affairs.
Some restrictions may apply based on the free look provisions of the
state where the Contract is issued. See Your Right to Cancel or
Exchange Your Contract.
DOLLAR COST AVERAGING
If you have at least $1,200 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 on a
monthly basis from one of those Divisions or such Fixed Allocation to
the (other) Divisions of Account B.
The main objective of dollar cost averaging is to attempt to shield
your investment from short-term price fluctuations. Since the same
dollar amount is transferred to other Divisions each month, more units
are purchased in a Division if the value per unit is low and less units
are purchased if the value per unit is high.
Therefore, a lower than average value per unit may be achieved over the
long term. This plan of investing allows investors to take advantage of
market fluctuations but does not assure a profit or protect against a
loss in declining markets.
Dollar cost averaging may be elected at issue or at a later date. The
minimum amount that may be transferred each month is $100. The maximum
amount which may be transferred is equal to your Accumulation Value in
the Limited Maturity Bond Division, the Liquid Asset Division or a
Fixed Allocation with a one year Guarantee Period when you elect the
dollar cost averaging program, divided by 12.
The transfer date will be the same calendar day each month as the
Contract Date. The dollar amount will be allocated to the Divisions in
which you are invested in proportion to your Accumulation Value in each
Division unless you specify otherwise. If, on any transfer date, your
Accumulation Value is equal to or less than the amount you have elected
to have transferred, the entire amount will be transferred and the
program will end. You may change the transfer amount once each Contract
Year, or cancel this program by sending satisfactory notice to our
Customer Service Center at least seven days before the next transfer
date. Any allocation under this program will not be included in
determining if the excess allocation charge will apply. We currently do
not permit transfers under the dollar cost averaging program from Fixed
Allocations with other than one year Guarantee Periods. Transfers from
a Fixed Allocation under the dollar cost averaging program will not be
subject to a Market Value 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.
DCA FIXED ALLOCATIONS. The dollar cost averaging program with respect
to a Fixed Allocation and a DCA Fixed Allocation operate concurrently
but are independent of each other. Dollar cost averaging from a DCA
Fixed Allocation works in a manner similar to the program for Fixed
Allocations, but with the following differences. A DCA Fixed Allocation
must be selected upon payment of an initial or additional premium of at
least $1,200 allocated to the DCA Fixed Allocation. Your entire
Accumulation Value in the DCA Fixed Allocation will be transferred on a
monthly basis, in a set dollar amount (the "DCA Transfer Amount") to
the Division(s) of Account B selected by you and based on the
allocation percentage determined by you. The monthly DCA Transfer
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Amount is the initial Accumulation Value in your DCA Fixed Allocation,
divided by the number of months in the Guarantee Period. The last DCA
Transfer Amount will also include the interest credited. The DCA
Transfer Amount is fixed and is not affected in the event you make any
transfers from a DCA Fixed Allocation outside the scope of the dollar
cost averaging program. Therefore any transfers from a DCA Fixed
Allocation made outside the scope of the dollar cost averaging program
may reduce the number of transfers made under dollar cost averaging.
You may have Accumulation Value in more than one DCA Fixed Allocation
or Fixed Allocation at the same time, but all transfers under the
dollar cost averaging program from all Fixed Allocations will be
allocated to all Division(s) of Account B selected by you in the same
allocation percentage.
If you terminate dollar cost averaging for a DCA Fixed Allocation, any
remaining Accumulation Value in the DCA Fixed Allocation will be
transferred immediately to the Liquid Asset Division, unless you give
us alternate transfer instructions. Such a transfer may not be made to
another DCA Fixed Allocation and may be subject to a Market Value
Adjustment.
We may in the future stop offering DCA Fixed Allocations or otherwise
modify, suspend or terminate this program or the dollar cost averaging
program. Any such change would not affect dollar cost averaging
allocation currently in operation.
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 distribution, unless you specify otherwise, to the
Specially Designated Division.
Such a distribution can occur when (a) an investment portfolio matures,
or (b) a distribution from a portfolio or Division cannot be reinvested
in the portfolio or Division due to the unavailability of securities
for acquisition. When an investment portfolio matures, we will notify
you in writing 30 days in advance of that date. To elect an allocation
of the distribution to other than the Specially Designated Division,
you must provide satisfactory notice to us at least seven days prior to
the date the portfolio matures. Such allocations are not counted for
purposes of the number of free allocation changes permitted. When a
distribution from a portfolio or Division cannot be reinvested in the
portfolio due to the unavailability of securities for acquisition, we
will notify you promptly after the allocation has occurred. If within
30 days you allocate the Accumulation Value from the Specially
Designated Division to other Divisions or Fixed Allocations of your
choice, such allocations will not be included in determining if the
excess allocation charge will apply.
ADDITIONAL CREDIT TO PREMIUM
A Credit will be added to each premium payment applied to the
Accumulation Value. The Credit will be applied pro rata to each
Division or Fixed Allocation in the same ratio as the premium payment
is allocated. The Credit is equal to 4% of the premium payment applied
to the Accumulation Value. In any of the following circumstances, the
Credit may not be payable:
(1)If you return your Contract within your Free Look Period, any
Credit will be deducted from the refund amount;
(2)If a death benefit becomes payable, any Credit based on any premium
payment received within one year prior to the date of death of the
Owner or Annuitant (when the Owner is other than an individual) may
reduce the death benefit payable; and
(3)If any surrender charge is waived under the Waiver of Surrender
Charge Rider: (i) the Accumulation Value will be reduced for all
Credits applied within one year prior to the date such surrender
charges are waived; and (ii) no Credit will be applied to any
premium payment received after the earliest date on which any
surrender charges are waived.
Any gains or losses attributable to a Credit will not be considered
part of any Credit deducted from any refund amount or death benefit.
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YOUR ACCUMULATION VALUE
Your Accumulation Value is the sum of the amounts in each of the
Divisions and the Fixed Allocations in which you are invested, and is
the amount available for investment at any time. You select the
Divisions and Fixed Allocations to which to allocate your Accumulation
Value. We adjust your Accumulation Value on each Valuation Date to
reflect the Divisions' investment performance and interest credited to
your Fixed Allocations, any additional premium payments and Credits or
partial withdrawals since the previous Valuation Date, and on each
Contract processing date to reflect any deduction of the annual
Contract fee. Your Accumulation Value is applied to your choice of an
Annuity Option on the Annuity Commencement Date subject to our
published rules at such time. See Choosing an Income Plan.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE. On the Contract Date, your Accumulation Value is
allocated to each Division as you have specified, unless the Contract
is issued in a state that requires the return of premium payments
during the Free Look Period, in which case, the portion of your Initial
Premium not allocated to a Fixed Allocation, and any Credit thereon,
will be allocated to the Specially Designated Division during the Free
Look Period. See Your Right to Cancel or Exchange Your Contract.
ON EACH VALUATION DATE. At the end of each subsequent Valuation Period,
the amount of Accumulation Value in each Division will be calculated as
follows:
(1)We take the Accumulation Value in the Division at the end of the
preceding Valuation Period.
(2)We multiply (1) by the Division's net rate of return for the
current Valuation Period.
(3)We add (1) and (2).
(4)We add to (3) any additional premium payments and Credits allocated
to the Division during the current Valuation Period.
(5)We add or subtract allocations to or from that Division during the
current Valuation Period.
(6)We subtract from (5) any partial withdrawals and any associated
charges allocated to that Division during the current Valuation
Period.
(7)We subtract from (6) the amounts allocated to that Division for:
(a)any Contract fees; and
(b)any charge for premium taxes.
All amounts in (7) are allocated to each Division in the proportion
that (6) bears to the Accumulation Value in Account B, unless the
Charge Deduction Division has been specified. See Charges Deducted from
the Accumulation Value.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE AND UNIT VALUE. The investment
experience of a Division is determined on each Valuation Date. We use
an index to measure changes in each Division's experience during a
Valuation Period. We set the index at $10 when the first investments in
a Division are made, unless the underlying Series in which the Division
invests has been available under other contracts for some period of
time. See Condensed Financial Information, Index of Investment
Experience, for the initial index value for each Division when the
Division became available under the Contract. The index for a current
Valuation Period equals the index for the preceding Valuation Period
multiplied by the experience factor for the current Valuation Period.
We may express the value of amounts allocated to the Divisions in terms
of units. We determine the number of units for a given amount on a
Valuation Date by dividing the dollar value of that amount by the index
of investment experience for that date. The index of investment
experience is equal to the value of a unit.
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HOW WE DETERMINE THE EXPERIENCE FACTOR. For Divisions of Account B the
experience factor reflects the investment experience of the Series of
the Trust in which a Division invests as well as the charges assessed
against the Division for a Valuation Period. The factor is calculated
as follows:
(1)We take the net asset value of the portfolio in which the Division
invests at the end of the current Valuation Period.
(2)We add to (1) the amount of any dividend or capital gains
distribution declared for the investment portfolio and reinvested
in such portfolio during the current Valuation Period. We subtract
from that amount a charge for our taxes, if any.
(3)We divide (2) by the net asset value of the portfolio at the end of
the preceding Valuation Period.
(4)We subtract the applicable daily mortality and expense risk charge
from each Division for each day in the Valuation Period.
(5)We subtract the daily asset based administrative charge from each
Division for each day in the Valuation Period.
Calculations for Divisions investing in a Series are made on a per
share basis.
NET RATE OF RETURN FOR A DIVISION. The net rate of return for a
Division during a Valuation Period is the experience factor for that
Valuation Period minus one.
CASH SURREnDER VALUE
Your Contract's Cash Surrender Value fluctuates daily with the
investment results of the Divisions, interest credited to Fixed
Allocations and any Market Value Adjustment. We do not guarantee any
minimum Cash Surrender Value. On any date before the Annuity
Commencement Date while the Contract is in effect, the Cash Surrender
Value is calculated as follows:
(1)We take the Contract's Accumulation Value;
(2)We adjust (1) for any Market Value Adjustment;
(3)We deduct from (2) any surrender charge and any charge for premium
taxes; and
(4)We deduct from (3) any charges incurred but not yet deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
The Contract may be surrendered by the Owner at any time while the
Annuitant is living and before the Annuity Commencement Date.
A surrender will be effective on the date your written request and the
Contract are received at our Customer Service Center. The Cash
Surrender Value is determined and all benefits under the Contract will
then be terminated, as of that date. For administrative purposes, we
will reallocate your funds to the Specially Designated Division prior
to processing the surrender. This reallocation will have no effect on
the Cash Surrender Value. You may receive the Cash Surrender Value in a
single sum payment or apply it under one or more Annuity Options. See
The Annuity Options. We will usually pay the Cash Surrender Value
within seven days but we may delay payment. See When We Make Payments.
PARTIAL WITHDRAWALS
Prior to the Annuity Commencement Date, while the Annuitant is living
and the Contract is in effect, you 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.
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There are three options available for selecting partial withdrawals,
the Conventional Partial Withdrawal Option, the Systematic Partial
Withdrawal Option and the IRA Partial Withdrawal Option. All three
options are described below. The maximum amount you may withdraw each
Contract Year without incurring a surrender charge is 10% 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 $100. A conventional partial withdrawal
from a Fixed Allocation may be subject to a Market Value Adjustment.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION. This option may be elected at the
time you apply for a Contract, or at a later date. This option may be
elected to commence in a Contract Year where a conventional partial
withdrawal has been taken. However, it may not be elected while the IRA
Partial Withdrawal Option is in effect.
You may choose to receive systematic partial withdrawals on a monthly,
quarterly, 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 select 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 subject to the following maximums, but in no event can
a payment be less than $100:
FREQUENCY MAXIMUM
--------- --------
Monthly 0.833%
Quarterly 2.50%
Annual 10.00%
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 0.833% of the
Accumulation Value equaled $300, the withdrawal amount would be reduced
to $300. If a percentage is selected and the amount to be
systematically withdrawn based on that percentage would be less than
the minimum of $100, we would increase the amount to $100 provided it
does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum
percentage we will send the amount and then cancel the option. For
example, if you selected 0.67% to be systematically withdrawn on a
monthly basis and that amount equaled $90, and since $100 is less than
0.833% of the Accumulation Value, we would send $100. If 0.67% equaled
$75, and since $100 is more than 0.833% of the Accumulation Value we
would send $75 and then cancel the option. In such a case, in order to
receive systematic partial withdrawals in the future, you would be
required to submit a new notice to our Customer Service Center.
Systematic Partial Withdrawals from Fixed Allocations are limited to
interest earnings during the prior month, 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 withdrawal date. However, you may not change the amount
or percentage of your withdrawals in any Contract Year during which you
have previously taken a conventional partial withdrawal.
IRA PARTIAL WITHDRAWAL OPTION. If you have an IRA Contract and will
attain age 70 1/2 in the current calendar year, distributions may be
made to you to satisfy requirements imposed by Federal tax law. IRA
partial withdrawals provide payout of amounts required to be
distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations. We
will send you
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a notice before your distributions commence, and you may
elect this option at that time, or at a later date. You may not elect
IRA partial withdrawals while the Systematic Partial Withdrawal Option
is in effect. If you do not elect the IRA Partial Withdrawal Option,
and distributions are required by Federal tax law, distributions
adequate to satisfy the requirements imposed by Federal tax law may be
made. Thus, if the Systematic Partial Withdrawal Option is in effect,
distributions under that option must be adequate to satisfy the
mandatory distribution rules imposed by Federal tax law.
You may choose to receive IRA partial withdrawals on a monthly,
quarterly or annual frequency. You select the day of the month when the
withdrawals will be made, but it cannot be later than the 28th day of
the month. If no date is selected, the withdrawals will be made on the
same calendar day of the month as the Contract Date.
At your request, we will determine the amount that is required to be
withdrawn from your Contract each year based on the information you
give us and various choices you make. For information regarding the
calculation and choices you have to make, see the Statement of
Additional Information. The minimum dollar amount you can withdraw is
$100. At the time we determine the required partial withdrawal amount
for a taxable year based on the frequency you select, if that amount is
less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the Accumulation Value, we will
cancel the Contract and send you the amount of the Cash Surrender
Value.
You may change the payment frequency of your withdrawals once each
Contract Year or cancel this option at any time by sending us
satisfactory notice to our Customer Service Center at least seven days
prior to the next scheduled withdrawal date.
An IRA partial withdrawal in excess of the amount allowed under the
Systematic Partial Withdrawal Option may be subject to a Market Value
Adjustment.
PARTIAL WITHDRAWALS IN GENERAL. CONSULT YOUR TAX ADVISOR REGARDING THE
TAX CONSEQUENCES ASSOCIATED WITH TAKING PARTIAL WITHDRAWALS. A partial
withdrawal made before the taxpayer reaches age 59 1/2 may result in
imposition of a tax penalty of 10% of the taxable portion withdrawn.
See Federal Tax Considerations for more details.
AUTOMATIC REBALANCING
If you have at least $10,000 of Accumulation Value invested in the
Divisions, you may elect to participate in our automatic rebalancing
program. Automatic rebalancing provides you with an easy way to
maintain the particular asset allocation that you and your financial
advisor have determined are most suitable for your individual long-term
investment goals. We do not charge a fee for participating in our
automatic rebalancing program.
Under the program you may elect to have all your allocations among the
Divisions rebalanced on a quarterly, semi-annual, or annual calendar
basis. The minimum size of an allocation to a Division must be in full
percentage points. Rebalancing does not affect any amounts that you
have allocated to the Fixed Account. The program may be used in
conjunction with the systematic partial withdrawal option only where
such withdrawals are taken pro rata. Automatic rebalancing is not
available if you participate in dollar cost averaging. Automatic
rebalancing will not take place during the Free Look Period.
To participate in automatic rebalancing you must submit to our Customer
Service Center written notice in a form satisfactory to us. We will
begin the program on the last Valuation Date of the applicable calendar
period in which we receive the notice. You may cancel the program at
any time. The program will automatically terminate if you choose to
reallocate your Accumulation Value among the Divisions or if you make
an additional premium payment or partial withdrawal on other than a pro
rata basis. Additional premium payments and partial withdrawals
effected on a pro rata basis will not cause the automatic rebalancing
program to terminate.
PROCEEDS PAYABLE TO THE BENEFICIARY
If the Owner or the Annuitant (when the Owner is other than an
individual) dies prior to the Annuity Commencement Date, we will pay
the Beneficiary the death benefit proceeds under the Contract. Such
amount may be received in a single sum or applied to any of the Annuity
Options. See The Annuity Options. If we do not receive a request to
apply the death benefit proceeds to an Annuity Option, a single sum
distribution will be made. Any Credit based on any premium received
within one year prior to the date of death of the Owner or
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Annuitant
(when the Owner is other than an individual) may be deducted from the
death benefit proceeds payable. Any gains or losses attributable to a
Credit will not be considered part of any Credit deducted from any
refund amount or death benefit. Any distributions from non-qualified
Contracts must comply with applicable Federal tax law distribution
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 80 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 less
an amount equal to all Credits applied within one year prior to the
date of death; (ii) total premium payments less any partial
withdrawals; (iii) the Cash Surrender Value; and (iv) the enhanced
death benefit less an amount equal to all Credits applied within one
year prior to the date of death (see below).
We may offer a reduced death benefit under certain group and sponsored
arrangements. 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 less an amount
equal to all Credits applied within one year prior to the date of
death; (ii) total premiums less any partial withdrawals; and (iii) the
Cash Surrender Value.
7% SOLUTION ENHANCED DEATH BENEFIT OPTION.
(1)We take the enhanced death benefit from the prior Valuation Date.
On the Contract Date, the enhanced death benefit is equal to the
Initial Premium plus any Credits.
(2)We calculate interest on (1) for the current Valuation Period at
the enhanced death benefit interest rate, which rate is an annual
rate of 7%; except that with respect to amounts in the Liquid Asset
Division and Limited Maturity Bond Division, the interest rate
applied to such amounts will be the respective net rate of return
for such Divisions during the current Valuation Period, if it is
less than an annual rate of 7%; and except with respect to amounts
in a Fixed Allocation, the interest rate applied to such amounts
will be the interest credited to such Fixed Allocation during the
current Valuation Period, if it is less than an annual rate of 7%.
Each accumulated initial or additional premium payment and Credit
reduced by any partial withdrawals (including any associated Market
Value Adjustment and surrender charge incurred) allocated to such
premium will continue to grow at the enhanced death benefit
interest rate until reaching the maximum enhanced death benefit.
Such maximum enhanced death benefit is equal to two times the
cumulative premiums paid plus two times the cumulative Credits
applied, less an adjustment to reflect partial withdrawals. Each
partial withdrawal reduces the maximum enhanced death benefit as
follows: first, the maximum enhanced death benefit is reduced by
any partial withdrawal of earnings; second, the maximum enhanced
death benefit is reduced in proportion to the reduction in the
Accumulation Value for other partial withdrawals of premium (in
each case, including 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. Once
partial withdrawals in any contract year exceed 7% of the
cumulative premiums, partial withdrawals will reduce the enhanced
death benefit in proportion to the reduction in Accumulation Value.
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(3)We add (1) and (2).
(4)We add to (3) any additional premiums paid and any Credits applied
during the current Valuation Period.
(5)We subtract from (4) any partial withdrawals (including any Market
Value Adjustments and surrender charges incurred) made during the
current Valuation Period.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION.
(1)We take the enhanced death benefit from the prior Valuation Date.
On the Contract Date, the enhanced death benefit is equal to the
Initial Premium plus any Credits.
(2)We add to (1) any additional premiums paid and any Credits applied
since the prior Valuation Date and subtract from (1) any partial
withdrawals (including any Market Value Adjustments and surrender
charges incurred) taken since the prior Valuation Date.
(3)On a Valuation Date that occurs on or prior to the Owner's Attained
Age 80 which is also a Contract Anniversary, we set the enhanced
death benefit equal to the greater of (2) or the Accumulation Value
as of such date.
On all other Valuation Dates, the enhanced death benefit is equal to
(2).
HOW TO CLAIM PAYMENTS TO BENEFICIARY. We must receive due proof of the
death of the Owner or the Annuitant (if the Owner is other than an
individual) (such as an official death certificate) at our Customer
Service Center before we will make any payments to the Beneficiary. We
will calculate the death benefit as of the date we receive due proof of
death. The Beneficiary should contact our Customer Service Center for
instructions.
REPORTS TO OWNERS. We will send you a report once each calendar quarter
within 31 days after the end of each calendar quarter. The report will
show the Accumulation Value, the Cash Surrender Value, and the death
benefit as of the end of the calendar quarter. The report will also
show the allocation of your Accumulation Value as of such date and the
amounts deducted from or added to the Accumulation Value since the last
report. The report will also include any other information that may be
currently required by the insurance supervisory official of the
jurisdiction in which the Contract is delivered.
We will also send you copies of any shareholder reports of the
portfolios or securities in which Account B 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 information needed to process the payment.
However, we may delay payment of amounts derived from the Divisions if
it is not practical for us to value or dispose of shares of Account B
because:
(1)The NYSE is closed for trading;
(2)The SEC determines that a state of emergency exists;
(3)An order or pronouncement of the SEC permits a delay for the
protection of Owners; or,
(4)The check used to pay the premium has not cleared through the
banking system. This may take up to 15 days.
During such times, as to amounts allocated to the Divisions, we may
delay:
(1)Determination and payment of any Cash Surrender Value;
(2)Determination and payment of any death benefit if death occurs
before the Annuity Commencement Date;
(3)Allocation changes of the Accumulation Value; or,
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(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.
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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 expenses 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. In the event there are any
profits from fees and charges deducted under the Contract, including
but not limited to mortality and expense risk charges, such profits
could be used to finance distribution of the contracts.
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to have all charges against the
Accumulation Value deducted from the Liquid Asset Division. We call
this the Charge Deduction Division Option, and within this context
refer to the Liquid Asset Division as the Charge Deduction Division. If
you do not elect this option, or if the amount of the charges is
greater than the amount in the Division, the charges will be deducted
as discussed below. You may also choose to elect or cancel this option
while the Contract is in force by sending satisfactory notice to our
Customer Service Center.
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium
payments and Credits in the Divisions and the Fixed Allocations you
select, subject to certain restrictions. See Restrictions on Allocation
of Premium Payments. We then may deduct certain amounts from your
Accumulation Value. We may reduce certain fees and charges, including
any surrender, administration, and mortality and expense risk charges,
under group or sponsored arrangements. See Group or Sponsored
Arrangements. Unless you have elected the Charge Deduction Division,
charges are deducted proportionately from all affected Divisions in
which you are invested. If there is no Accumulation Value in those
Divisions, we will deduct charges from your Fixed Allocations starting
with the Guarantee Periods nearest their Maturity Dates until such
charges have been paid. The charges we deduct are:
SURRENDER CHARGE. A contingent deferred sales charge ("Surrender
Charge") is imposed as a percentage of each premium payment if the
Contract is surrendered or an excess partial withdrawal is taken during
the nine year period from the date we receive and accept such premium
payment. The percentage of premium payments deducted at the time of
surrender or excess partial withdrawal depends upon the number of
complete years that have elapsed since that premium payment was made.
We determine the surrender charge as a percentage of each premium
payment as follows:
COMPLETE YEARS ELAPSED SURRENDER
SINCE PREMIUM PAYMENT CHARGE
--------------------- ---------
0 8%
1 8%
2 8%
3 8%
4 7%
5 6%
6 5%
7 3%
8 1%
9+ 0%
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:
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(1)you begin receiving qualified extended medical care on or after the
first Contract anniversary for at least 45 days during any
continuous 60-day period, and your request for the surrender or
withdrawal, together with all required proof of such qualified
extended medical care, must be received at our Customer Service
Center during the term of such care or within ninety days after the
last day upon which you received such care.
(2)you are first diagnosed by a qualifying medical professional, on or
after the first Contract Anniversary, as having a Qualifying
Terminal Illness. Written proof of terminal illness, satisfactory
to us, must be received at our Customer Service Center. We reserve
the right to require an examination by a physician of our choice.
See Additional Credit to Premium. 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 10% of your Accumulation Value on the date of
the withdrawal minus any amount withdrawn during that Contract Year.
Where you are receiving systematic partial withdrawals, any combination
of conventional partial withdrawals taken and any systematic partial
withdrawals expected to be received in a Contract Year will be
considered in determining the amount of the excess partial withdrawal.
Such a withdrawal will be considered a partial surrender of the
Contract and we will impose a surrender charge and any associated
premium tax. See Facts About the Contract, The Fixed Account, Market
Value Adjustment. Such charges will be deducted from the Accumulation
Value in proportion to the Accumulation Value in each Division or Fixed
Allocation from which the excess partial withdrawal was taken. In
instances where the excess partial withdrawal equals the entire
Accumulation Value in each such Division or Fixed Allocation, charges
will be deducted proportionately from all other Divisions and Fixed
Allocations in which you are invested.
For purposes of calculating the surrender charge for the excess partial
withdrawal, (i) we treat premium payments as being withdrawn on a
first-in first-out basis, and (ii) amounts withdrawn which are not
considered an excess partial withdrawal are not treated as a withdrawal
of any premium payments. Although we treat premium payments as being
withdrawn before earnings for purposes of calculating the surrender
charge for excess partial withdrawals, the Federal income tax law
treats earnings as withdrawn first. See Federal Tax Considerations,
Taxation of Non-Qualified Annuities.
For example, the following assumes an Initial Premium payment of
$10,000 and additional premium payments of $10,000 in each of the
second and third Contract Years, for total premium payments under the
Contract of $30,000. It also assumes a partial withdrawal at the
beginning of the fifth Contract Year of 15% of the Accumulation Value
of $35,000.
In this example, $3,500 ($35,000 x .10) 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
$5,250 ($35,000 x .15). Therefore, $1,750 ($5,250-$3,500) is considered
an excess partial withdrawal of a part of the Initial Premium payment
of $10,000 and would be subject to a 7% surrender charge of $122.50
($1,750 x .07). This example does not take into account any Market
Value Adjustment or deduction of any premium taxes.
PREMIUM TAXES. We make a charge for state and local premium taxes in
certain states which can range from 0% to 3.5% of premium. The charge
depends on the Owner's state of residence. We reserve the right to
change this amount to conform with changes in the law or if the Owner
changes state of residence.
Premium taxes are generally incurred on the Annuity Commencement Date
and a charge for such premium taxes is then deducted from your
Accumulation Value on such date. However, some jurisdictions impose a
premium tax at the time that initial and additional premiums are paid,
regardless of the Annuity Commencement Date. In those states we may
initially defer collection of the amount of the charge for premium
taxes from your Accumulation Value and deduct it against Accumulation
Value on surrender of the Contract, excess partial withdrawals or on
the Annuity Commencement Date.
ADMINISTRATIVE CHARGE. The administrative charge is incurred at the
beginning of the Contract processing period and deducted at the end of
each Contract processing period. We deduct this charge when determining
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the Cash Surrender Value payable if you surrender the Contract prior to
the end of a Contract processing period. If the Accumulation Value at
the end of the Contract processing period equals or exceeds $100,000 or
the sum of the premiums paid equals or exceeds $100,000, the charge is
zero. Otherwise, the amount deducted is $40 per Contract Year.
EXCESS ALLOCATION CHARGE. We currently do not assess a charge for
allocation changes made during a Contract Year. We reserve the right,
however, to assess a $25 charge for each allocation change after the
twelfth allocation change in a Contract Year. This amount represents
the maximum we will charge. The charge would be deducted from the
Divisions and the Fixed Allocations from which each such reallocation
is made in proportion to the amount being transferred from each such
Division and Fixed Allocation unless you have chosen to use the Charge
Deduction Division. Any allocations or transfers due to the election of
dollar cost averaging and reallocation under the provision What Happens
if a Division is Not Available will not be included in determining if
the excess allocation charge should apply.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE. The amount of the mortality and
expense risk charge depends on the death benefit option that has been
elected. If the Standard Death Benefit Option is elected, the charge is
equivalent, on an annual basis, to 1.25% of the assets in each
Division. The charge is deducted on each Valuation Date at the rate of
.003446% for each day in the Valuation Period. If an enhanced death
benefit is elected, the charge is equivalent, on an annual basis, to
1.40% for the Annual Ratchet Death Benefit Option, or 1.55% 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 .003863% or
.004280%, 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,
the WP Trust and the PIMCO Trust. Please read the respective Trust
prospectus for details.
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CHOOSING YOUR ANNUITIZATION OPTIONS
ANNUITIZATION OF YOUR CONTRACT
If the Annuitant and Owner are living on the Annuity Commencement Date,
we will begin making payments to the Owner under an income plan. We
will make these payments under the Annuity Option chosen. You may
change an Annuity Option by making a written request to us at least 30
days prior to the Annuity Commencement Date of the Contract. The amount
of the payments will be determined by applying your Accumulation Value
adjusted for any applicable Market Value Adjustment on the Annuity
Commencement Date in accordance with The Annuity Options section below,
subject to our published rules at such time. See When We Make Payments.
You may also elect an Annuity Option on surrender of the Contract for
its Cash Surrender Value or you may choose one or more Annuity Options
for the payment of death benefit proceeds while it is in effect and
before the Annuity Commencement Date. If, at the time of the Owner's
death or the Annuitant's death (if the Owner is not an individual), no
option has been chosen for paying death benefit proceeds, the
Beneficiary may choose an option within 60 days. In all events,
payments of death benefit proceeds must comply with the distribution
requirements of applicable Federal tax law.
The minimum monthly annuity income payment that we will make is $20. We
may require that a single sum payment be made if the Accumulation Value
is less than $2,000 or if the calculated monthly annuity income payment
is less than $20.
For each option we will issue a separate written agreement putting the
option into effect. Before we pay any annuity benefits, we require the
return of the Contract. If your Contract has been lost, we will require
that you complete and return the applicable Contract form. Various
factors will affect the level of annuity benefits
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including the Annuity
Option chosen, the applicable payment rate used and the investment
results of the Divisions and interest credited to the Fixed allocations
in which the Accumulation Value has been invested.
Some annuity options may provide only for fixed payments. Fixed Annuity
Payments are regular payments, the amount of which is fixed and
guaranteed by us. The amount of the payments will depend only on the
form and duration of payments chosen, the age of the Annuitant or
Beneficiary (and sex, where appropriate), the total Accumulation Value
applied to purchase the fixed option, and the applicable payment rate.
Our approval is needed for any option where:
(1)The person named to receive payment is other than the Owner or
Beneficiary;
(2)The person named is not a natural person, such as a corporation; or
(3)Any income payment would be less than the minimum annuity income
payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the Annuity Commencement Date. You may select any date
following the fifth Contract Anniversary but before the Contract
Processing Date in the month following the Annuitant's 90th birthday,
or 10 years from the contract date, if later. 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, or 10 years from the
contract date, if later. If the Annuity Commencement Date occurs when
the Annuitant is at an advanced age, such as over age 85, it is
possible that the Contract will not be considered an annuity for
Federal tax purposes. See Federal Tax Considerations. For a Contract
purchased in connection with a qualified plan other than a Roth IRA,
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,
quarterly, semi-annually or annually. If we do not receive written
notice from you, the payments will be made monthly. There may be
certain restrictions on minimum payments that we will allow.
THE ANNUITIZATION OPTIONS
There are four options to choose from as shown below. Options 1 through
3 are fixed and option 4 may be fixed or variable. For a fixed option,
the Accumulation Value in the Divisions is transferred to the general
account.
OPTION 1. INCOME FOR A FIXED PERIOD. Payment is made in equal
installments for a fixed number of years based on the Accumulation
Value as of the Annuity Commencement Date. We guarantee that each
monthly payment will be at least the amount set forth in the Contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If
the Cash Surrender Value or Accumulation Value is applied under this
option, a 10% penalty tax may apply to the taxable portion of each
income payment until the Owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE. Payment is made in equal monthly
installments and guaranteed for at least a period certain. The period
certain can be 10 or 20 years. Other periods certain may be available
on request. A refund certain may be chosen instead. Under this
arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period,
payments continue until his or her death. We guarantee that each
payment will be at least the amount set forth in the Contract
corresponding to the person's age on his or her last birthday before
the option's effective date. Amounts for ages not shown in the Contract
are available upon request.
OPTION 3. JOINT LIFE INCOME. This option is available if there are two
persons named to receive payments. At least one of the persons named
must be either the Owner or Beneficiary of the Contract. Monthly
payments are guaranteed and are made as long as at least one of the
named persons is living. There is no minimum number of payments.
Monthly payment amounts are available upon request.
OPTION 4. ANNUITY PLAN. An amount can be used to buy any single premium
annuity we choose to offer as an annuitization option on the option's
effective date.
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PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts
still due as provided by the option agreement. The amounts still due
are determined as follows:
(1)For option 1, or any remaining guaranteed payments under option 2,
payments will be continued. Under options 1 and 2, the discounted
values of the remaining guaranteed payments may be paid in a single
sum. This means we deduct the amount of the interest each remaining
guaranteed payment would have earned had it not been paid out
early. The discount interest rate is never less than 3% for option
1 and option 2 per year. We will, however, base the discount
interest rate on the interest rate used to calculate the payments
for options 1 and 2 if such payments were not based on the tables
in the Contract.
(2)For option 3, no amounts are payable after both named persons have
died.
(3)For option 4, the annuity agreement will state the amount due, if
any.
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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
Assignments, Pledges and Gratuitous Transfers. An assignment may have
Federal 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 validity of any assignment.
NON-PARTICIPATING. The Contract does not participate in the divisible
surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS. All agreements made by us must be signed
by our president or a vice president and by our secretary or an
assistant secretary. No other person, including an insurance agent or
broker, can change any of the Contract's terms, make any change to any
of the Contract's terms, make any agreements binding on us or extend
the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the Contract to the extent we
deem it necessary to continue to qualify the Contract as an annuity.
Any such changes will apply uniformly to all Contracts that are
affected. You will be given advance written notice of such changes.
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT. You may cancel your Contract within your Free
Look Period, which is ten days after you receive your Contract. For
purposes of administering our allocation and administrative rules, we
deem this period to expire 15 days after the Contract is mailed to you.
Some states may require a longer Free Look Period. If you decide to
cancel, you may mail or deliver the Contract to our Customer Service
Center. We will refund the Accumulation Value adjusted for any Market
Value Adjustment less any Credit plus any charges we deducted, and the
Contract will be voided as of the date we receive the Contract and your
request. Any gains or losses attributable to a Credit will not be
considered part of any credit deducted from any refund amount or death
benefit. 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 during the Free Look Period. Premiums designated for the Fixed
Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen; however, we reserve the right to require such
premiums to allocate to the Specially Designated Division during the
Free Look Period. If you do not choose to exercise your right to
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cancel
during the Free Look Period, then at the end of the Free Look Period
your money will be invested in the Divisions chosen by you, based on
the index of investment experience next computed for each Division. See
Facts About the Contract, Measurement of Investment Experience, Index
of Experience and Unit Value.
EXCHANGING YOUR CONTRACT. For information regarding exchanges under
Section 1035 of the Internal Revenue 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, administration, and mortality and expense risk charges. We
may also change the minimum initial and additional premium
requirements, or offer a reduced death benefit. Group arrangements
include those in which a trustee or an employer, for example, purchases
Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell
Contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with
the size and stability of the group among other factors. We take all
these factors into account when reducing charges. To qualify for
reduced charges, a group or sponsored arrangement must meet certain
requirements, including our requirements for size and number of years
in existence. Group or sponsored arrangements that have been set up
solely to buy Contracts or that have been in existence less than six
months will not qualify for reduced charges.
We may credit additional amounts to Contracts owned by persons who meet
certain criteria established by us, which may include employees of U.S.
ING affiliates, their spouses and their immediate family members,
registered representatives appointed with Golden American and their
spouses, and Trustees of The GCG Trust and their spouses. We will
credit additional amounts to these Contracts if such Contracts are
purchased directly through Directed Services, Inc., and the contract
owner will not be afforded the benefit of services of any other
broker-dealer nor will commissions be payable to any broker-dealer in
connection with such purchases. The additional amount credited to these
Contracts will equal the reduction in our costs that we experience by
not incurring brokerage commissions in selling the Contracts.
We will make these and any similar reductions and arrangements
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 representatives who are licensed to sell securities and
variable insurance products including variable annuities. These
agreements provide that applications for Contracts may be solicited by
registered representatives of the broker-dealers appointed by Golden
American to sell its variable life insurance and variable annuities.
These broker-dealers are registered with the SEC and are members of the
National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state
regulations to sell variable life insurance and variable annuities. The
writing agent normally will receive commissions the equivalent of up to
5.50% of any initial or additional premium payments made. Certain sales
agreements may provide for a combination of a certain percentage of
commission at the time of sale and an annual trail commission (which
when combined could exceed 5.50% of total premium payments).
Additionally, we intend to reimburse register representatives for any
covered actual expenses they incur with regard to the distribution of
the Contract as provided for under the non-cash compensation regulation
recently adopted by the NASD and approved by the SEC.
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REGULATORY INFORMATION
VOTING RIGHTS
ACCoUNT B. We will vote the shares of a Trust owned by Account B
according to your instructions. However, if the Investment Company Act
of 1940 or any related regulations should change, or if interpretations
of it or related regulations should change, and we decide that we are
permitted to vote the shares of 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 instructions by mail at least 10
days before the meeting.
If we do not get your instructions in time, we will vote the shares in
the same proportion as the instructions received from all Contracts in
that Division. We will also vote shares we hold in Account B which are
not attributable to Owners in the same proportion.
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
The Company and its subsidiaries, like other insurance companies, may
be involved in lawsuits, including class action lawsuits. In some class
action and other lawsuits involving insurers, substantial damages have
been sought and/or material settlement payments have been made.
Although the outcome of any litigation cannot be predicted with
certainty, the Company believes that at the present time, there are no
pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on Separate Account B or the Company.
LEGAL MATTERS
The legal validity of the Contract described in this prospectus has
been passed on by Myles R. Tashman, Esquire, Executive Vice President,
General Counsel and Secretary of Golden American. Sutherland Asbill &
Brennan LLP 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 and Separate Account B appearing or incorporated by reference
in the Statement of Additional Information and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing or incorporated by reference
in the Statement of Additional Information and in the Registration
Statement and are included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
38
<PAGE>
<PAGE>
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 October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable of Iowa"), pursuant to a merger agreement among Equitable of Iowa,
PFHI and ING Groep N.V. On August 13, 1996, Equitable of Iowa acquired all of
the outstanding capital stock of BT Variable, Inc., the parent of Golden
American. For GAAP financial statement purposes, the merger was accounted for
as a purchase effective October 25, 1997 and the change in control of Golden
American through the acquisition of BT Variable, Inc. was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in
new bases of accounting reflecting estimated fair values of assets and
liabilities at their respective dates. As a result, the GAAP financial data
presented below for the period subsequent to October 24, 1997, are presented
as the Post-Merger new basis of accounting, for the period August 14, 1996
through October 24, 1997, are presented as the Post-Acquisition basis of
accounting, and for August 13, 1997 and prior periods are presented as the
Pre-Acquisition basis of accounting.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER POST-ACQUISITION
------------------------------- | -----------------------------
|
(UNAUDITED) FOR THE PERIOD| FOR THE PERIOD FOR THE PERIOD
FOR THE NINE OCTOBER 25, | JANUARY 1, AUGUST 14,
MONTHS ENDED 1997 THROUGH | 1997 THROUGH 1996 THROUGH
SEPTEMBER 30, DECEMBER 31, | OCTOBER 24, DECEMBER 31,
1998 1997 | 1997 1996
-------------- -------------- |------------ ---------------
|
<S> <C> <C> <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges ............. $ 26,984 $ 3,834 | $18,288 $ 8,768
Net Income before |
Federal Income Tax .......... $ 9,171 $ (279) | $ (608) $ 570
Net Income (Loss) ............ $ 4,877 $ (425) | $ 729 $ 350
Total Assets ................. $3,776,542 $ 2,445,835 | N/A $1,677,899
Total Liabilities ............ $3,471,107 $ 2,218,522 | N/A $1,537,415
Total Stockholder's Equity ... $ 305,435 $ 227,313 | N/A $ 140,484
</TABLE>
PRE-ACQUISITION
-------------------------------------------------------
FOR THE PERIOD
JANUARY 1, 1996
THROUGH FOR THE FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------
AUGUST 13, 1996 1995 1994 1993 1992(a)
--------------- ------ ------ ------ --------
Annuity and
Interest
Sensitive Life
Product Charges ...... $12,259 $ 18,388 $ 17,519 $ 10,192 $ 694
Net Income before
Federal Income Tax ... $ 1,736 $ 3,364 $ 2,222 $ (1,793) $ (508)
Net Income (Loss) ...... $ 3,199 $ 3,364 $ 2,222 $ (1,793) $ (508)
Total Assets ........... N/A $1,203,057 $1,044,760 $886,155 $320,539
Total Liabilities ...... N/A $1,104,932 $ 955,254 $857,558 $306,197
Total Stockholder's
Equity ............... N/A $ 98,125 $ 89,506 $ 28,597 $ 14,342
(a) Results for 1992 are for the period September 30, 1992 (date of
acquisition) to December 31, 1992.
39
<PAGE>
<PAGE>
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
condensed consolidated results of operations. In addition, some analysis and
information regarding financial condition as well as liquidity and capital
resources has also been provided. This analysis should be read in conjunction
with the condensed consolidated financial statements, the related notes and the
Cautionary Statement Regarding Forward-Looking Statements which appear
elsewhere in this report. The Company reports financial results on a
consolidated basis. The condensed consolidated financial statements include
the accounts of Golden American Life Insurance Company ("Golden American") and
its wholly owned subsidiary, First Golden American Life Insurance Company of
New York ("First Golden," and collectively with Golden American, the
"Company").
BUSINESS ENVIRONMENT. The current business and regulatory environment
remains challenging for the insurance industry. The variable annuity
industry is dominated by a number of large variable product companies with
strong distribution, name recognition and wholesaling capabilities. Increasing
competition from traditional insurance carriers as well as banks and mutual
fund companies offer consumers many choices. However, overall demand for
variable products remains strong for several reasons including: strong stock
market performance over the last four years; relatively low interest rates; an
aging U.S. population that is increasingly concerned 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"
deferred variable annuity product became less competitive. Third, market share
was lost because no fixed interest rate options were available in 1994 during
the time of rising interest rates and flat or declining equity markets.
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 investment options. In October of 1995, the Company
introduced the Combination Deferred Variable and Fixed Annuity (GoldenSelect
DVA Plus) and the GoldenSelect Genesis I and Genesis Flex life insurance
products, and sales increased substantially. In October of 1997,
Golden American introduced three new variable annuity products
(GoldenSelect Access, GoldenSelect ES II and GoldenSelect Premium Plus),
which have contributed significantly to sales.
RESULTS OF OPERATIONS
MERGER. On October 23, 1997, Equitable of Iowa shareholders approved the
Agreement and Plan of Merger ("Merger Agreement") dated as of July 7, 1997,
among Equitable of Iowa, PFHI Holdings, Inc. ("PFHI"), and ING Groep N.V.
("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired all of
the outstanding capital stock of Equitable of Iowa pursuant to the Merger
Agreement. PFHI is a wholly owned subsidiary of ING, a global financial
services holding company based in The Netherlands. Equitable of Iowa, an Iowa
corporation, in turn owned all the outstanding capital stock of Equitable Life
Insurance Company of Iowa ("Equitable Life") and Golden American and their
wholly owned subsidiaries. Equitable of Iowa also owned all the outstanding
capital stock of Locust Street Securities, Inc., Equitable Investment Services,
Inc., Directed Services, Inc. ("DSI"), Equitable of Iowa Companies Capital
Trust, Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. In exchange for the outstanding capital stock of
Equitable of Iowa, ING paid total consideration of approximately $2.1 billion
in cash and stock plus the assumption of approximately $400 million in debt
according to the Merger Agreement. As a result of the merger, Equitable of Iowa
was merged into PFHI which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent").
For financial statement purposes, the change in control of the Company through
the ING acquisition of EIC, was accounted for as a purchase effective October
25, 1997. This merger resulted in a new basis of accounting reflecting
estimated fair values of assets and liabilities at that date. As a result, the
Company's financial statements for the period subsequent to October 24, 1997,
are presented on the Post-Merger new basis of accounting.
The purchase price was allocated to the companies mentioned previously. Goodwill
of $1.4 billion was established for the excess of the merger cost over the fair
value of the assets and liabilities of EIC with $151.1 million
40
<PAGE>
<PAGE>
pushed down to
the Company. The allocation of the purchase price to the Company was $227.6
million. The cost of the acquisition is preliminary as it relates to estimated
expenses, and as a result, the allocation of the purchase price to the Company
may change. Goodwill resulting from the merger is being amortized over 40 years
on a straight-line basis. The carrying value will be reviewed periodically for
any indication of impairment in value.
CHANGE IN CONTROL - ACQUISITION. On August 13, 1996, Equitable of Iowa acquired
all of the outstanding capital stock of BT Variable, Inc. ("BT Variable") and
its wholly owned subsidiaries Golden American and DSI. Subsequent to the
acquisition, the BT Variable, Inc. name was changed to EIC Variable, Inc. On
April 30, 1997, EIC Variable, Inc. was liquidated and its investments in Golden
American and DSI were transferred to Equitable of Iowa while the remainder of
its net assets were contributed to Golden American. On December 30, 1997, EIC
Variable, Inc. was dissolved.
For financial statement purposes, the change in control of Golden American
through the acquisition of BT Variable was accounted for as a purchase
effective August 14, 1996. This acquisition resulted in a new basis of
accounting reflecting estimated fair value of assets and liabilities at that
date. As a result, the Company's financial statements for the period August 14,
1996 through October 24, 1997, are presented on the Post-Acquisition basis of
accounting and for August 13, 1996 and prior periods are presented on the
Pre-Acquisition basis of accounting.
The purchase price was allocated to the three companies purchased - BT Variable,
DSI, and Golden American. Goodwill of $41.1 million was established for the
excess of the acquisition cost over the fair value of the assets and liabilities
and pushed down to Golden American. At June 30, 1997, goodwill was increased by
$1.8 million to adjust the value of a receivable existing at that date. The
allocation of the purchase price to Golden American was approximately $139.9
million. Goodwill resulting from the acquisition was being amortized over 25
years on a straight-line basis.
THE FIRST NINE MONTHS OF 1998 COMPARED TO THE SAME PERIOD OF 1997
PREMIUMS
(DOLLARS IN MILLIONS)
|POST-
POST-MERGER |ACQUISITION
_____________ |_____________
NINE MONTHS ENDED PERCENTAGE DOLLAR |
SEPTEMBER 30 1998 CHANGE CHANGE | 1997
__________________________________________________________________|_____________
| | |
Variable annuity | | |
premiums: | | |
Separate account $1,125.3 | 651.6%| $975.5 | $149.8
Fixed account 346.6 | 51.7 | 118.1 | 228.5
________ | _____ | ______ | ______
Total variable | | |
annuity premiums 1,471.9 | 289.1 | 1,093.6 | 378.3
Variable life | | |
premiums 11.4 | (16.2)| (2.2)| 13.6
________ | _____ | ________ | ______
Total premiums $1,483.3 | 278.5%| $1,091.4 | $391.9
======== ===== ======== ======
Variable annuity separate account premiums increased 651.6% during the first
nine months of 1998 and increased 2.5% in the third quarter compared to second
quarter 1998 premiums. These increases resulted from increased sales of the
new Premium Plus product introduced in October of 1997 and the increased sales
levels of the Company's other products. The fixed account portion of the
Company's variable annuity premiums increased 51.7% during the first nine months
of 1998 and increased 39.1% in the third quarter of 1998 compared to the second
quarter of 1998. Although variable life premiums decreased 16.2% during the
first nine months of 1998, third quarter 1998 variable life premiums increased
11.1% over second quarter 1998 premiums.
Premiums, net of reinsurance, for variable products from four significant
broker/dealers totaled $546.9 million, or 37% of total premiums, for the first
nine months of 1998.
41
<PAGE>
<PAGE>
REVENUES
(DOLLARS IN MILLIONS)
POST-
POST-MERGER |ACQUISITION
_____________ |_____________
NINE MONTHS ENDED PERCENTAGE DOLLAR |
SEPTEMBER 30 1998 CHANGE CHANGE | 1997
__________________________________________________________________|_____________
Annuity and interest | | |
sensitive life | | |
product charges $27.0 | 69.3%| $11.1 | $15.9
Management fee revenue 3.3 | 61.7 | 1.3 | 2.0
Net investment income 29.3 | 54.6 | 10.3 | 19.0
Realized gains | | |
on investments 0.4 | 658.7 | 0.3 | 0.1
Other income 4.8 | 1,026.6 | 4.4 | 0.4
_____ | _______ | _____ | _____
$64.8 | 73.2%| $27.4 | $37.4
===== ======= ===== =====
Total revenues increased 73.2% in the first nine months of 1998 from the same
period in 1997. Annuity and interest sensitive life product charges increased
69.3% in the first nine months of 1998 due to additional fees earned from the
increasing block of business under management in the separate accounts and an
increase in surrender charges. This increase was partially offset by the
elimination of the unearned revenue reserve related to in force acquired at the
merger date which resulted in lower annuity and interest sensitive life product
charges compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to DSI.
The fee paid to Golden American for these services, which is calculated as a
percentage of average assets in the variable separate accounts, was $3.3 million
and $2.0 million for the first nine months of 1998 and 1997, respectively.
Net investment income increased 54.6% in the first nine months of 1998 due to
the increase in invested assets. The Company had $436,000 of realized gains on
the sale of investments in the first nine months of 1998, compared to gains of
$58,000 in the same period of 1997.
Other income increased $4.4 million to $4.8 million in the first nine months of
1998 due primarily to income received from a modified coinsurance agreement with
an unaffiliated reinsurer as a result of increased sales.
EXPENSES
Total insurance benefits and expenses increased $17.4 million, or 49.3%, to
$52.6 million in the first nine months of 1998. Interest credited to account
balances increased $47.3 million, or 280.7%, to $64.1 million in the first nine
months of 1998. The extra credit bonus on the new Premium Plus product
introduced in October of 1997 generated a $35.8 million increase in interest
credited during the first nine months of 1998. The remaining increase in
interest credited relates to higher account balances associated with the
Company's fixed account option within its variable products.
Commissions increased $61.8 million, or 267.6%, to $85.0 million in the first
nine months of 1998. Insurance taxes increased $1.0 million, or 58.3%, to
$2.7 million in the first nine months of 1998. Increases and decreases in
commissions and insurance taxes are generally related to changes in the level
of variable product sales. Insurance taxes are impacted by several other
factors which include an increase in FICA taxes primarily due to bonuses.
Most costs incurred as the result of new sales have been deferred, thus having
very little impact on current earnings.
General expenses increased $11.7 million, or 99.6%, to $23.5 million in the
first nine months of 1998. Management expects general expenses to continue
to increase in 1998 as a result of the emphasis on expanding the salaried
wholesaler distribution network. 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
varies with sales production levels is deferred, thus having little impact on
current earnings. The increase in general expenses was partially offset by
reimbursements received from Equitable Life, an affiliate, for certain advisory,
computer and other resources and services provided by Golden American.
42
<PAGE>
<PAGE>
At the merger date, the Company's deferred policy acquisition costs ("DPAC"),
previous balance of present value of in force acquired ("PVIF") and unearned
revenue reserve were eliminated and an asset of $44.3 million representing
PVIF was established for all policies in force at the merger date. During
the third quarter of 1998, PVIF was unlocked by $0.8 million to reflect changes
in the assumptions related to the timing of future gross profits. PVIF decreased
$2.7 million in the second quarter of 1998 to adjust the value of other
receivables and increased $0.2 million in the first quarter of 1998 as a result
of an adjustment to the merger costs. The amortization of PVIF and DPAC
increased $1.4 million, or 23.2%, in the first nine months of 1998. During the
second quarter of 1997, PVIF was unlocked by $2.3 million to reflect narrower
current spreads than the gross profit model assumed. Based on current
conditions and assumptions as to the impact of future events on acquired
policies in force, the expected approximate net amortization is $1.0 million for
the remainder of 1998, $4.1 million in 1999, $4.1 million in 2000, $4.0 million
in 2001, $3.8 million in 2002 and $3.5 million in 2003. Certain expense
estimates inherent in the cost of the merger may change resulting in changes of
the allocation of the purchase price. If changes occur, the impact could result
in changes to PVIF and the related amortization and deferred taxes. Actual
amortization may vary based upon changes in assumptions and experience.
Amortization of goodwill during the first nine months of 1998 totaled $2.8
million. Goodwill resulting from the merger is being amortized on a straight-
line basis over 40 years and is expected to approximate $3.8 million annually.
Interest expense on the $25 million surplus note issued in December 1996 was
$1.5 million in the first nine months of 1998 and the same period of 1997.
In addition, Golden American paid interest of $0.2 million on the line of
credit during the first nine months of 1998. Golden American also paid $1.3
million in the first nine months of 1998 to ING America Insurance Holdings, Inc.
("ING AIH")for interest on the reciprocal loan agreement.
NET INCOME. Net income for the first nine months of 1998 was $4.9 million, an
increase of $4.6 million over net income of $0.3 million in the same period
of 1997.
1997 COMPARED TO 1996
The following analysis combines Post-Merger and Post-Acquisition activity for
1997 and Post-Acquisition and Pre-Acquisition activity for 1996 for comparison
purposes. Such a comparison does not recognize the impact of the purchase
accounting and goodwill amortization except for the periods after August 13,
1996.
PREMIUMS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-ACQUISITION
__________________________________________________________
FOR THE PERIOD | FOR THE YEAR | FOR THE PERIOD
OCTOBER 25, 1997 | ENDED | JANUARY 1, 1997
THROUGH | DECEMBER 31, 1997 | THROUGH
DECEMBER 31, 1997 | COMBINED | OCTOBER 24, 1997
_________________________________________| __________________| _________________
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account $111.0 | $291.2 | $180.2
Fixed account 60.9 | 318.0 | 257.1
______ | ______ | ______
171.9 | 609.2 | 437.3
Variable life premiums 1.2 | 15.6 | 14.4
______ | ______ | ______
Total premiums $173.1 | $624.8 | $451.7
====== ====== ======
</TABLE>
43
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
POST-ACQUISITION COMBINED PRE-ACQUISITION
__________________________________________________________
FOR THE PERIOD | FOR THE YEAR | FOR THE PERIOD
AUGUST 14, 1996 | ENDED | JANUARY 1, 1996
THROUGH | DECEMBER 31, 1996 | THROUGH
DECEMBER 31, 1996 | COMBINED | AUGUST 13, 1996
_________________________________________| __________________| _________________
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account $ 51.0 | $182.4 | $131.4
Fixed account 118.3 | 245.3 | 127.0
______ | ______ | ______
169.3 | 427.7 | 258.4
Variable life premiums 3.6 | 14.1 | 10.5
______ | ______ | ______
Total premiums $172.9 | $441.8 | $268.9
====== ====== =======
</TABLE>
Variable annuity separate account and variable life premiums increased 59.6%
and 10.1%, respectively in 1997. During 1997, 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. The fixed account
portion of the Company's variable annuity premiums increased 29.7% in 1997 due
to the Company's marketing emphasis on fixed rates during the second and third
quarters. Premiums, net of reinsurance, for variable products from six
significant broker/dealers for the year ended December 31, 1997, totaled $445.3
million, or 71% of premiums ($298.0 million or 67% from two significant
broker/dealers for the year ended December 31, 1996).
REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-ACQUISITION
__________________________________________________________
FOR THE PERIOD | FOR THE YEAR| FOR THE PERIOD
OCTOBER 25, 1997 | ENDED| JANUARY 1, 1997
THROUGH | DECEMBER 31, 1997| THROUGH
DECEMBER 31, 1997 | COMBINED| OCTOBER 24, 1997
_________________________________________| _________________| __________________
<S> <C> | <C> | <C>
Annuity and interest | |
sensitive life | |
product charges $3.8 | $22.1 | $18.3
Management fee revenue 0.5 | 2.8 | 2.3
Net investment income 5.1 | 26.8 | 21.7
Realized gains (losses) | |
on investments -- | 0.1 | 0.1
Other income 0.3 | 0.7 | 0.4
____ | _____ | _____
$9.7 | $52.5 | $42.8
==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION COMBINED PRE-ACQUISITION
__________________________________________________________
FOR THE PERIOD | FOR THE YEAR| FOR THE PERIOD
AUGUST 14, 1996 | ENDED| JANUARY 1, 1996
THROUGH | DECEMBER 31, 1996| THROUGH
DECEMBER 31, 1996 | COMBINED| AUGUST 13, 1996
_________________________________________| _________________| __________________
<S> <C> | <C> | <C>
Annuity and interest | |
sensitive life | |
product charges $ 8.8 | $21.0 | $12.2
Management fee revenue 0.9 | 2.3 | 1.4
Net investment income 5.8 | 10.8 | 5.0
Realized gains (losses) | |
on investments -- | (0.4)| (0.4)
Other income 0.5 | 0.6 | 0.1
_____ | _____ | _____
$16.0 | $34.3 | $18.3
===== ===== =====
</TABLE>
44
<PAGE>
<PAGE>
Total revenues increased 53.3%, or $18.2 million, to $52.5 million in 1997.
Annuity and interest sensitive life product charges increased 5.2%, or $1.1
million in 1997 due to additional fees earned from the increasing block of
business under management in the Separate Accounts and an increase in the
surrender charge revenues.
Golden American provides certain managerial and supervisory services to DSI.
The fee paid to Golden American for these services, which is calculated as
a percentage of average assets in the variable separate accounts, was $2.8
million for 1997 and $2.3 million for 1996.
Net investment income increased 148.3%, or $16.0 million, to $26.8 million in
1997 from $10.8 million in 1996 due to growth in invested assets. During 1997,
the Company had net realized gains on the disposal of investments, resulting
from voluntary sales, of $0.1 million compared to net realized losses of $0.4
million in 1996.
EXPENSES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-ACQUISITION
_______________________________________________________
FOR THE PERIOD| FOR THE YEAR| FOR THE PERIOD
OCTOBER 25, 1997| ENDED| JANUARY 1, 1997
THROUGH| DECEMBER 31, 1997| THROUGH
DECEMBER 31, 1997| COMBINED| OCTOBER 24, 1997
_________________________________________| _________________| _________________
<S> <C> | <C> | <C>
Insurance benefits | |
and expenses: | |
Annuity and interest | |
sensitive life benefits: | |
Interest credited to | |
account balances $7.4 | $26.7 | $19.3
Benefit claims incurred | |
in excess of account | |
balances -- | 0.1 | 0.1
Underwriting, acquisition | |
and insurance expenses: | |
Commissions 9.4 | 36.3 | 26.9
General expenses 3.4 | 17.3 | 13.9
Insurance taxes 0.5 | 2.3 | 1.8
Policy acquisition costs | |
deferred (13.7)| (42.7)| (29.0)
Amortization: | |
Deferred policy | |
acquisition costs 0.9 | 2.6 | 1.7
Present value of in | |
force acquired 0.9 | 6.1 | 5.2
Goodwill 0.6 | 2.0 | 1.4
____ | _____ | _____
$9.4 | $50.7 | $41.3
==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION COMBINED PRE-ACQUISITION
______________________________________________________
FOR THE PERIOD| FOR THE YEAR| FOR THE PERIOD
AUGUST 14, 1996| ENDED| JANUARY 1, 1996
THROUGH| DECEMBER 31, 1996| THROUGH
DECEMBER 31, 1996| COMBINED| AUGUST 13, 1996
_________________________________________| _________________| _________________
<S> <C> | <C> | <C>
Insurance benefits | |
and expenses: | |
Annuity and interest | |
sensitive life benefits: | |
Interest credited to | |
account balances $ 5.7 | $10.1 | $ 4.4
Benefit claims incurred | |
in excess of account | |
balances 1.3 | 2.2 | 0.9
Underwriting, acquisition | |
and insurance expenses: | |
Commissions 9.9 | 26.5 | 16.6
General expenses 5.9 | 15.3 | 9.4
Insurance taxes 0.7 | 1.9 | 1.2
Policy acquisition costs | |
deferred (11.7)| (31.0)| (19.3)
Amortization: | |
Deferred policy | |
acquisition costs 0.2 | 2.6 | 2.4
Present value of in | |
force acquired 2.7 | 3.7 | 1.0
Goodwill 0.6 | 0.6 | --
_____ | _____ | _____
$15.3 | $31.9 | $16.6
===== ===== =====
</TABLE>
45
<PAGE>
<PAGE>
Total insurance benefits and expenses increased 59.3%, or $18.8 million, in
1997 from $31.9 million in 1996. Interest credited to account balances
increased 164.4%, or $16.6 million, in 1997 as a result of higher account
balances associated with the Company's fixed account option within its variable
products.
Commissions increased 37.3%, or $9.8 million, in 1997 from $26.5 million in
1996. Insurance taxes increased 23.3%, or $0.4 million, in 1997 from $1.9
million in 1996.
General expenses increased 12.6%, or $2.0 million, in 1997 from $15.3 million
in 1996 due in part to certain expenses associated with the merger occurring on
October 24, 1997. This increase in general expenses was partially offset by
reimbursements received from Equitable Life, an affiliate, for certain advisory,
computer and other resources and services provided by Golden American.
Management expects general expenses to continue to increase in 1998 as a result
of the emphasis on expanding the salaried wholesaler distribution network.
During the second quarter of 1997, present value of in force acquired ("PVIF")
was unlocked by $2.3 million to reflect narrower current spreads than the gross
profit model assumed. The Company's deferred policy acquisition costs ("DPAC"),
previous balance of PVIF and unearned revenue reserve, as of the merger date,
were eliminated and an asset of $44.3 million representing PVIF was established
for all policies in force at the merger date. The amortization of PVIF and DPAC
increased $2.4 million, or 37.1%, in 1997.
Amortization of goodwill for the year ended December 31, 1997 totaled $2.0
million compared to $0.6 million for the year ended December 31, 1996.
Interest expense on the $25 million surplus note issued December 1996 was $2.0
million for the year ended December 31, 1997. Interest on any line of credit
borrowings was charged at the rate of Equitable of Iowa's monthly average
aggregate cost of short-term funds plus 1.00%. During 1997, the Company paid
$0.6 million to Equitable of Iowa for interest on the line of credit.
NET INCOME. Net income on a combined basis for 1997 was $0.3 million, a
decrease of $3.2 million, or 91.4%, from 1996.
1996 COMPARED TO 1995
The following analysis combines the Post-Acquisition and Pre-Acquisition
activity for 1996 in order to compare the results to 1995. Such a comparison
does not recognize the impact of the purchase accounting and goodwill
amortization except for the period after August 13, 1996.
PREMIUMS
(DOLLARS IN MILLIONS)
<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
--------------- | ------------ | --------------- ------------
<S> <C> | <C> | <C> <C>
Variable annuity premiums.. $169.3 | $427.7 | $258.4 $110.6
Variable life premiums..... 3.6 | 14.1 | 10.5 5.1
------ | ------ | ------ ------
Total premiums............. $172.9 | $441.8 | $268.9 $115.7
====== | ====== | ====== ======
</TABLE>
46
<PAGE>
<PAGE>
Variable annuity premiums increased 286.4%, or $317.1 million, in 1996, and
variable life premiums increased 176.2%, or $9.0 million, in 1996. 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
(DOLLARS IN MILLIONS)
<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
--------------- | ------------ | --------------- ------------
<S> <C> <C> <C> <C>
Annuity and interest | |
sensitive life product | |
charges................ $ 8.8 | $21.0 | $12.2 $18.4
Management fee revenue.. 0.9 | 2.3 | 1.4 1.0
Net investment income... 5.8 | 10.8 | 5.0 2.8
Realized gains (losses) | |
on investments......... -- | (0.4) | (0.4) 0.3
Other income............ 0.5 | 0.6 | 0.1 0.1
----- | ----- | ---- ----
$16.0 | $34.3 | $18.3 $22.6
===== | ===== | ==== =====
</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
increasing block of business under management in the Separate Accounts and an
increase in surrender charge revenues partially offset by a decrease
in the revenue recognition of net distribution fees.
Golden American provides certain managerial and supervisory services to DSI.
The fee for these services, which is calculated as a percentage of average
assets in the variable separate accounts, was $2.3 million for 1996
and $1.0 million for 1995.
Net investment income increased 282.7%, or $8.0 million, to $10.8 million in
1996 from $2.8 million in 1995. This increase resulted from growth in invested
assets. During 1996, the Company had realized losses on the disposal of
investments, resulting from voluntary sales, of $0.4 million compared
to realized gains of $0.3 million in 1995.
47
<PAGE>
<PAGE>
EXPENSES
(DOLLARS IN MILLIONS)
<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,
1996 | COMBINED | 1996 1995
--------------- | ------------ | --------------- -------------
<S> <C> <C> <C> <C>
Insurance benefits and expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account balances.... $ 5.7 | $10.1 | $ 4.4 $ 1.3
Benefit claims incurred in excess of | |
account balances....................... 1.3 | 2.2 | 0.9 1.8
Underwriting, acquisition, and insurance | |
expenses: | |
Commissions.............................. 9.9 | 26.5 | 16.6 8.0
General expenses......................... 5.9 | 15.3 | 9.4 12.7
Insurance taxes.......................... 0.7 | 1.9 | 1.2 0.9
Policy acquisition costs deferred........ (11.7) | (31.0) | (19.3) (9.8)
Amortization: | |
Deferred policy acquisition costs....... 0.2 | 2.6 | 2.4 2.7
Present value of in force acquired...... 2.7 | 3.7 | 1.0 1.6
Goodwill................................ 0.6 | 0.6 | -- --
------ | ------ | ------ -----
$15.3 | $31.9 | $16.6 $19.2
====== ====== ====== =====
</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
increased 663.6%, or $8.8 million, in 1996 as a result of higher account
balances 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 $18.5 million, in 1996 from $8.0 million in
1995. Insurance taxes increased 99.3%, or $1.0 million, in 1996 from $1.0
million in 1995.
General expenses increased 21.2%, or $2.6 million, in 1996 from $12.7 million
in 1995.
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
representing the PVIF was established for all policies in force at the
acquisition date.
Amortization of goodwill during the period from the acquisition date to December
31, 1996 totaled $0.6 million. Goodwill resulting from the acquisition was being
amortized on a straight-line basis over 25 years.
Net income on a combined basis for 1996 was $3.5 million, an increase of $0.2
million, or 5.5%, from 1995.
FINANCIAL CONDITION
RATINGS. During 1997, the Company's ratings were upgraded by A.M. Best
from A to A+ and by Duff & Phelps from AA to AA+.
48
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<PAGE>
INVESTMENTS. The financial statement carrying value of the Company's total
investment portfolio grew 39.6% in the first nine months of 1998. The amortized
cost basis of the Company's total investment portfolio grew 39.0% during the
same period. The financial statement carrying value and amortized cost basis
of the Company's total investments each increased 65.1% in 1997. All of the
Company's investments, 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 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
products, cash flow was invested primarily in fixed maturity and equity
securities and mortgage loans. At September 30, 1998, the Company's
investment portfolio at amortized cost was $722.4 million with a yield of 7.1%
and carrying value of $726.4 million. At December 31, 1997, the Company's
investment portfolio at amortized cost was $519.6 million with a yield of 6.7%
and carrying value of $520.2 million.
Fixed Maturity Securities: At September 30, 1998 the Company had fixed
maturities with an amortized cost of $610.3 million and an estimated fair
value of $618.7 million. At December 31, 1997, the Company had fixed
maturities with an amortized cost of $413.3 million and an estimated fair
value of $414.4 million. The individual securities in the Company's fixed
maturities portfolio (at amortized cost) include investment grade securities
($471.5 million or 77.3% at September 30, 1998, and $368.0 million or 89.1% at
December 31, 1997), which include securities issued by the U.S. Government, its
agencies and corporations that are rated at least BBB- by Standard & Poor's
Rating Services, a Division of the McGraw Hill Cos., Inc. ("Standard & Poor's"),
and below investment grade securities ($47.2 million or 7.7% at September 30,
1998, and $41.4 million or 10.0% at December 31, 1997), which are securities
issued by corporations that are rated BB+ to B- by Standard & Poor's.
Securities not rated by Standard & Poor's had a National Association of
Insurance Commissioners ("NAIC") rating of 1, 2 or 3 ($90.5 million or 14.8%)
or a rating of 4 ($1.1 million or 0.2%) at September 30, 1998, and 1, 3 or 4
(3.9 million or 0.9%) at December 31, 1997.
The Company classifies 100% of its securities as available for sale. On
September 30, 1998, fixed income securities with an amortized cost of $610.3
million and an estimated fair value of $618.7 million were designated as
available for sale, and on December 31, 1997, fixed income securities with
an amortized cost of $413.3 million and an estimated fair value of $414.4
million were designated as available for sale. At September 30, 1998, and
December 31, 1997, net unrealized appreciation of fixed maturity securities
of $8.4 million and $1.1 million, respectively, was comprised of gross
appreciation of $11.3 million and $1.4 million, respectively, and gross
depreciation of $2.9 million and $0.3 million, respectively. Net unrealized
holding gains on these securities, net of adjustments to DPAC, PVIF and deferred
income taxes, increased stockholder's equity by $3.7 million at September 30,
1998, and $0.6 million at December 31, 1997.
The Company began investing in below investment grade securities during 1996.
At September 30, 1998, and December 31, 1997 the amortized cost value of the
Company's total investment in below investment grade securities was $55.1
million and $41.4 million, or 7.6% and 8.0%, respectively, 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 such securities to exceed 10% of its investment
portfolio. At September 30, 1998, and December 31, 1997, the yield at
amortized cost on the Company's below investment grade portfolio was 8.0%
compared to 6.4%, respectively, and 7.9% compared to 6.3%, respectively,
for the Company's investment grade corporate bond portfolio. The Company
estimates the fair value of its below investment grade portfolio was
$53.8 million, or 97.5% of amortized cost value, at September 30, 1998,
and $41.3 million, or 99.9% of amortized cost value, at December 31, 1997.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other creditors
of the issuer. Also, issuers of below investment grade securities usually
49
<PAGE>
<PAGE>
have
higher levels of debt and are more sensitive to adverse economic conditions,
such as recession or increasing interest rates, than are issuers of investment
grade securities. The Company attempts to reduce the overall risk in its below
investment grade portfolio, as in all of its investments, through careful credit
analysis, strict investment policy guidelines, and diversification by company
and by industry.
The Company analyzes its investment portfolio, including below investment grade
securities, at least quarterly in order to determine if its ability to realize
its carrying value on any investment has been impaired. For debt and equity
securities, if impairment in value is determined to be other than temporary
(i.e. if it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the security), the cost basis of the
impaired security is written down to fair value, which becomes the security's
new cost basis. The amount of the write-down is included in earnings as a
realized loss. Future events may occur, or additional or updated information
may be received, which may necessitate future write-downs of securities in the
Company's portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Company's net income in future
periods.
During the first nine months of 1998, and during 1997, fixed maturity securities
designated as available for sale with a combined amortized cost of $91.2 and
$49.3 million, respectively, were called or repaid by their issuers. In total,
net pre-tax gains from sales, calls and repayments of fixed maturity investments
amounted to $0.5 million for the first nine months of 1998, and $0.2 million for
the year ended December 31, 1997.
At September 30, 1998, and December 31, 1997 no fixed maturity securities were
deemed to have impairments in value that are other than temporary. The Company's
fixed maturity investment portfolio had a combined yield at amortized cost of
6.7% at September 30, 1998, and 6.7% at December 31, 1997.
Equity Securities: At September 30, 1998, and December 31, 1997, the
Company owned equity securities with a cost of $14.4 million and $4.4
million, respectively, and an estimated fair value of $10.1 million and
$3.9 million, respectively. At September 30, 1998, net unrealized
depreciation of equity securities of $4.3 million was comprised
entirely of gross depreciation. At December 31, 1997 gross unrealized
depreciation of equity securities totaled $0.5 million. Equity
securities are comprised primarily of the Company's investment in
shares of the mutual funds underlying the Company's registered separate
accounts.
Mortgage Loans: Mortgage loans represented 13.5% at September 30, 1998,
and 16.4% at December 31, 1997, of the Company's investment portfolio
at amoritized cost. Mortgages outstanding were $98.0 million and $85.1 million
at September 30, 1998, and December 31, 1997, respectively, with an estimated
fair value of $101.9 million and $86.3 million, respectively. At September 30,
1998, the Company's mortgage loan portfolio included 57 loans with an average
size of $1.7 million and average seasoning of 0.9 years if weighted by the
number of loans. At December 31, 1997, the Company's mortgage loan portfolio
included 50 loans with an average size of $1.7 million and average seasoning of
1.1 years if weighted by the number of loans, and 1.2 years if weighted by
mortgage loan carrying value. The Company's mortgage loans are typically
secured by occupied buildings in major metropolitan locations and not
speculative developments, and are diversified by type of property and
geographic location. At September 30, 1998, and December 31, 1997, the yield on
the Company's mortgage loan portfolio was 7.3% and 7.4%, respectively.
At September 30, 1998, and December 31, 1997 no mortgage loans were
delinquent by 90 days or more. The Company's loan investment strategy
is consistent with other life insurance subsidiaries of EIC. EIC's
insurance subsidiaries have experienced an historically low default
rate in their mortgage loan portfolio and have been able to recover 95.9% of the
principal amount of problem mortgages resolved in the last three years ended
December 31, 1997.
At September 30, 1998, and December 31, 1997, the Company had no investments
in default. The Company estimates its total investment portfolio, excluding
policy loans, had a fair value approximately equal to 101.1% and 100.4% of
its amortized cost value for accounting purposes at September 30, 1998, and
December 31, 1997, respectively.
50
<PAGE>
<PAGE>
OTHER ASSETS. Accrued investment income increased $3.0 million during the
first nine months of 1998, and $2.3 million during 1997, due to an increase
in the overall size of the portfolio resulting from the investment of
premiums allocated to the fixed account option of the Company's variable
products.
DPAC represents certain deferred costs of acquiring new insurance
business, principally commissions and other expenses related to the
production of new business subsequent to the merger. The Company's
DPAC and previous balance of PVIF, were eliminated as of the merger and
acquisition dates, and an asset representing PVIF was established for
all policies in force at the merger and acquisition dates. 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 September 30, 1998, the Company had DPAC and
PVIF balances of $140.8 million and $36.5 million, respectively. At December
31, 1997, the Company had DPAC and PVIF balances of $12.8 million and $43.2
million, respectively. During the third quarter of 1998, PVIF was unlocked by
$0.8 million to reflect changes in the assumptions related to the timing of
future gross profits. PVIF decreased $2.7 million in the second
quarter of 1998 for an adjustment to the value of other receivables and
increased $0.2 million in the first quarter of 1998 for an adjustment
made to the merger costs. During the second quarter of 1997, PVIF was unlocked
by $2.3 million to reflect narrower current spreads than the gross profit model
assumed.
Goodwill totaling $151.1 million and $41.1 million as adjusted, representing
the excess of the acquisition cost over the fair value of net assets acquired,
was established at the merger and acquisition dates, respectively. At June 30,
1997, goodwill was increased by $1.8 million to adjust the value of a receivable
existing at the acquisition date. Amortization of goodwill through September
30, 1998 was $2.8 million.
At September 30, 1998 the Company had $2.6 billion of separate account assets
compared to $1.6 billion at December 31, 1997, and 1.2 billion at December 31,
1996. The increase in separate account assets during the first nine months of
1998 is due to growth in sales of the Company's variable annuity products, net
of redemptions and market depreciation.
At September 30, 1998 the Company had total assets of $3.8 billion, a 54.4%
increase from the December 31, 1997 total asset amount of $2.4 billion. The
1997 total asset amount was a 45.8% increase over total assets at December 31,
1996.
LIABILITIES. In conjunction with the volume of variable insurance sales, the
Company's total liabilities increased $1.3 billion, or 56.4%, during the first
nine months of 1998 and totaled $3.5 billion at September 30, 1998. For 1997
liabilities increased $681.1 million, or 44.3%, and totaled $2.2 billion at
December 31, 1997. Future policy benefits for annuity and interest sensitive
life products increased $200.4 million, or 39.7%, to $705.7 million during the
first nine months of 1998 and $220.0 million, or 77.1%, to $505.3 million at
December 31, 1997, reflecting premium growth in the Company's fixed account
option of its variable products. Premium growth net of redemptions, and market
depreciation accounted for the $983.2 million, or 59.7%, increase in separate
account liabilities to $2.6 billion at September 30, 1998. At December 31, 1997,
separate account liabilities increased $438.9 million, or 36.4%, to $1.6 billion
from December 31, 1996. As of the merger and acquisition dates, the Company's
existing unearned revenue reserves were eliminated. This treatment corresponds
with the treatment of PVIF.
Golden American maintains a reciprocal loan agreement with ING AIH, a Delaware
corporation and an affiliate of EIC, to facilitate the handling of unusual
and/or unanticipated short-term cash requirements. Under this agreement, which
became effective January 1, 1998, and expires on December 31, 2007, Golden
American and ING AIH can borrow up to $65 million from one another. Prior to
lending funds to ING AIH, Golden American must obtain approval from the State
of Delaware Department of Insurance. At September 30, 1998, $40.0 million was
payable to ING AIH under this agreement.
Golden American maintained a line of credit agreement with Equitable of
Iowa to facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under the agreement, which became effective December 1, 1996 and
expired on December 31, 1997, Golden American could borrow up to $25 million.
At December 31, 1997, $24.1 million was outstanding under this agreement. The
outstanding balance was repaid by a capital contribution.
51
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On December 17, 1996, Golden American issued a $25 million, 8.25% surplus note
to Equitable of Iowa which matures on December 17, 2026. As a result of the
merger, the surplus note is now payable to EIC.
To enhance short-term liquidity, the Company has established a revolving note
payable effective July 27, 1998, and expiring July 31, 1999, with SunTrust
Bank, Atlanta (the "Bank"). The note was approved by Golden American's and
First Golden's boards of directors on August 5, 1998 and September 29, 1998,
respectively. The total amount the Company may have outstanding is $85 million,
of which Golden American and First Golden have individual credit sublimits of
$75 million and $10 million, respectively. The terms of the agreement require
the Company to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable law or regulation. At September 30, 1998,
$20.1 million was payable to the Bank under this note by Golden American.
Other liabilities increased $29.1 million from $17.3 million at December 31,
1997, due primarily to a payable on investments at September 30, 1998.
Equity. Additional paid-in capital increased $87.6 million, or 63.8%, from
December 31, 1996 to $225.0 million at December 31, 1997 primarily due to the
revaluation of net assets as a result of the merger.
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
investments, mortgage loans and short term investments. The Company
primarily uses funds for the payment of insurance benefits, commissions,
operating expenses and the purchase of new investments.
The Company's home office operations are currently housed in leased locations
in Wilmington, Delaware, various locations in Pennsylvania, and New York,
New York. The office space in Pennsylvania is being leased on a short term
basis for use in the transition to a new office building. The Company has
entered into agreements with a developer to develop and lease a 65,000 square
foot office building to house the Company's operations, except for New York.
The Company expects to spend approximately $2.9 million on capital needs during
the remainder of 1998.
The Company intends to continue expanding its operations. Future growth in the
Company's operations will require additional capital. The Company believes it
will be able to fund the capital required for projected new business primarily
with future capital contributions from its Parent. It is ING's policy to ensure
adequate capital and surplus is provided for the Company and, if necessary,
additional funds will be contributed in 1998. During the first nine months of
1998, Golden American received capital contributions from EIC of $72.5 million.
On November 12, 1998, Golden American received an additional $50 million capital
contribution from EIC.
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 the remainder of 1998, Golden American cannot pay dividends to its Parent
without prior approval of statutory authorities. The Company has maintained
adequate statutory capital and surplus and has not used surplus relief or
financial reinsurance.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder unless a notice of
its intention to declare a dividend and amount of the dividend has been filed
not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
First Golden within thirty days after the filing should the superintendent find
that the financial condition of First Golden does not warrant the distribution.
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
52
<PAGE>
<PAGE>
inadequately
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. At December 31,
1997, the Company had complied with the NAIC's risk-based capital reporting
requirements. Amounts reported indicate that the Company has total adjusted
capital well above all required capital levels.
Reinsurance: At September 30, 1998, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts.
Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements.
Year 2000 Project: Based on a 1997 study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Some of the Company's computer programs were originally
written using two digits rather than four to define a particular year. As a
result, these computer programs contain "time sensitive" software that may
recognize "00" as the year 1900 rather than the year 2000, which could cause
system failure or miscalculations resulting in disruptions to operations.
These disruptions could include, but are not limited to, a temporary inability
to record transactions.
The Company has identified one system and some desktop software that will have
date problems. All systems will be upgraded in the fourth quarter of 1998. To a
lesser extent, the Company depends on various non-information technology
systems, such as telephone switches, which could also fail or misfunction as a
result of the Year 2000.
The Company has developed a plan to address the Year 2000 issue in a timely
manner. The following schedule details the plan's phases, progress towards
completion and actual or estimated completion dates:
% COMPLETE AS OF ACTUAL/ESTIMATED
PHASES SEPTEMBER 30, 1998 COMPLETION DATES
_______________________________________ __________________ ________________
ASSESSMENT AND DEVELOPMENT of the steps
to be taken to address Year 2000
systems issues 100% 12/31/97
IMPLEMENTATION of steps to address Year
2000 systems issues 76-99% 12/31/98
IMPLEMENTATION of steps to address
Year 2000 desktop software issues 76-99% 12/31/98
TESTING of systems 26-50% 12/31/98
POINT-TO-POINT TESTING of external
interfaces with third party computer
systems that communicate with Company
systems 1-25% 12/31/98
IMPLEMENTATION of tested software
addressing Year 2000 systems issues 51-75% 12/31/98
CONTINGENCY PLAN 1-25% 03/31/99
In addition, the Company's operations could be adversely affected if
significant customers, suppliers and other third parties would be unable to
transact business in the Year 2000 and thereafter. To mitigate the effect of
outside influences and other dependencies relative to the Year 2000, the
Company has identified and contacted these third parties who have assured the
Company that necessary steps are being taken to prepare for the Year 2000.
Management believes the Company's systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$140,000 in the first nine months of 1998 related to the Year
53
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<PAGE>
2000 project.
The Company anticipates charging to expense an additional $180,000 to
$195,000 in 1998 which includes upgrade and internal resources costs.
Management expects some internal resources will be utilized in early 1999 to
finalize the contingency plan.
Despite the Company's efforts to modify or replace "time sensitive" computer
and information systems, the Company could experience a disruption to its
operations as a result of the Year 2000. The Company is currently developing
a contingency plan to address any systems that may malfunction despite the
testing being performed. The contingency plan, which is expected to be
completed by March 31, 1999, will provide for the availability of staff,
prioritize tasks and outline procedures to fix any malfunctioning systems.
The costs and completion date of the Year 2000 project are based on
management's best estimates. These estimates were derived using numerous
assumptions of future events, including the continued availability of
resources, third party Year 2000 compliance and other factors. There is no
guarantee these estimates will be achieved and actual results could
materially differ from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all relevant
computer codes and other uncertainties.
Surplus Note: On December 17, 1996, Golden American issued a surplus note in
the amount of $25 million to Equitable of Iowa. The note matures on December
17, 2026, and accrues 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.
As a result of the merger, the surplus note is now payable to EIC.
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan
agreement with ING AIH to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Under this agreement, which became
effective January 1, 1998, and expires on December 31, 2007, Golden American and
ING AIH can borrow up to $65 million from one another. Prior to lending funds to
ING AIH, Golden American must obtain approval from the State of Delaware
Department of Insurance. At September 30, 1998, $40.0 million was payable to ING
AIH under this agreement.
Revolving Note Payable: To enhance short-term liquidity, the Company has
established a revolving note payable effective July 27, 1998, and expiring
July 31, 1999, with SunTrust Bank, Atlanta (the "Bank"). The note was approved
by Golden American's and First Golden's boards of directors on August 5, 1998
and September 29, 1998, respectively. The total amount the Company may have
outstanding is $85 million, of which Golden American and First Golden have
individual credit sublimits of $75 million and $10 million, respectively. The
note accrues interest at an annual rate equal to: (1) the cost of funds for
the Bank for the period applicable for the advance plus 0.25% or (2) a rate
quoted by the Bank to the Company for the advance. The terms of the agreement
require the Company to maintain the minimum level of Company Action Level Based
Capital as established by applicable state law or regulation. At September 30,
1998, $20.1 million was payable to the Bank under this note by Golden American.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING SATEMENTS
Any forward-looking statement contained herein or in any other oral or written
statement by the Company or any of its officers, directors or employees is
qualified by the fact that actual results of the Company may differ materially
from such statement, among other risks and uncertainties inherent in the
Company's business due to the following important factors:
(1) Prevailing interest rate levels and stock market performance
which may affect the ability of the Company to sell its products,
the market value and liquidity of the Company's investments and the
lapse rate of the Company's policies, notwithstanding product design
features intended to enhance persistency of the Company's products.
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(2) Changes in the federal income tax laws and regulations which may
affect the relative tax advantages of the Company's products.
(3) Changes in the regulation of financial services, including bank
sales and underwriting of insurance products, which may affect
the competitive environment for the Company's products.
(4) Increasing competition in the sale of the Company's products.
(5) Other factors affecting the performance of the Company, including,
but not limited to, market conduct claims, litigation, insurance
industry insolvencies, investment performance of the underlying
portfolios of the variable products, variable product design and
sales volume by significant sellers of the Company's variable products.
(6) To the extent third parties are unable to transact business in the
Year 2000 and thereafter, the Company's operations could be adversely
affected.
OTHER INFORMATION
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 DSI are party to in excess of
140 sales agreements with broker-dealers, three of whom, Locust Street
Securities, Inc., Vestax Securities Corporation, and Multi-Financial Securities
Corporation, are affiliates of Golden American. Four broker-dealers, including
Locust Street Securities, Inc., are currently responsible for more than
two-thirds of Golden American's product sales revenues.
REINSURANCE. Golden American reinsures a significant portion of its mortality
risk associated with the Contract's guaranteed death benefit with one or more
appropriately licensed insurance companies. Golden American also, effective
September 1, 1994, entered into a reinsurance agreement on a modified
coinsurance basis with an affiliate of a broker-dealer which distributes
Golden American's products with respect to 25% of the Golden American business
produced by that broker-dealer.
RESERVES. In accordance with the life insurance laws and regulations under
which Golden American operates, it is obligated to carry on its books, as
liabilities, actuarially determined reserves to meet its obligations on
outstanding Contracts. Reserves, based on valuation mortality tables in general
use in the United States, where applicable, are computed to equal amounts which,
together with interest on such reserves computed annually at certain assumed
rates, make adequate provision according to presently accepted actuarial
standards of practice, for the anticipated cash flows required by the
contractual obligations and related expenses of Golden American.
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.
SERVICE AGREEMENTS. Beginning in 1994 and continuing until August 13,
1996, Bankers Trust (Delaware), a subsidiary of Bankers Trust New York
Corporation ("BT New York Corporation"), and Golden American became
parties to a service agreement pursuant 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 basis. Charges billed to Golden American by Bankers Trust
(Delaware) pursuant to the service agreement for 1996 through its
termination as of August 13, 1996 and 1995 were $0.5 million and $0.8
million, respectively.
Pursuant to a service agreement between Golden American and Equitable
Life, Equitable Life provides certain administrative, financial and
other services to Golden American.
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Golden American provides to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charges DSI for such expenses and all other
general and administrative costs, first on the basis of direct charges
when identifiable, and the remainder allocated based on the estimated
amount of time spent by Golden American's employees on behalf of DSI.
In the opinion of management, this method of cost allocation is
reasonable. 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 $2.8 million, $2.3 million and $1.0
million for the years of 1997, 1996 and 1995, respectively.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as
the principal underwriter (as defined in the Securities Act of 1933 and
the Investment Company Act of 1940, as amended) of the variable insurance
products issued by Golden American. For the years 1997, 1996 and 1995,
commissions paid by Golden American to DSI aggregated $36.4 million, $27.1
million and $8.4 million, respectively.
EMPLOYEES. Golden American, as a result of its Service Agreement with
Bankers Trust (Delaware) and EIC Variable, Inc., had very few direct employees.
Instead, various management services were provided by Bankers Trust (Delaware),
EIC Variable, Inc., and Bankers Trust New York Corporation, as described above
under "Service Agreement." The 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 DSI, and their salaries
are allocated among both companies. Certain officers of Golden American are also
officers of other Equitable of Iowa subsidiaries. See "Directors 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 leased.
STATE REGULATION. Golden American is subject to the laws of the State
of Delaware governing insurance companies and to the regulations of the
Delaware Insurance Department (the "Insurance Department"). A detailed
financial statement in the prescribed form (the "Annual Statement") is
filed with the Insurance Department each year covering Golden American's
operations for the preceding year and its financial condition as of the
end of that year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so that the
Insurance Department may certify that these items are correct. Golden
American's books and accounts are subject to review by the Insurance
Department at all times. A full examination of Golden American's operations
is conducted periodically by the Insurance Department and under the auspices
of the NAIC.
In addition, Golden American is subject to regulation under the
insurance laws of all jurisdictions in which it operates. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to various matters, including
licensing to transact business, overseeing trade practices, licensing
agents, approving contract forms, establishing reserve requirements,
fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the
form and content of required financial statements and regulating the
type and amounts of investments permitted. Golden American is required
to file the Annual Statement with supervisory agencies in each of the
jurisdictions in which it does business, and its operations and
accounts are subject to examination by these agencies at regular
intervals.
The NAIC has adopted several regulatory initiatives designed to
improve the surveillance and financial analysis regarding the solvency
of insurance companies in general. These initiatives include the
development and implementation of a risk-based capital formula for
determining adequate levels of capital and surplus. Insurance
companies are required to calculate their risk-based capital in
accordance with this formula and to include the results in their Annual
Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information
about the Risk-Based Capital adequacy monitoring system and Golden
American, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
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In addition, many states regulate affiliated groups of insurers, such
as Golden American, and its affiliates, under insurance holding company
legislation. Under such laws, inter-company transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior
notice or approval, depending on the size of the transfers and payments
in relation to the financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for contract
owner losses incurred by other insurance companies which have become
insolvent. Most of these laws provide that an assessment may be
excused or deferred if it would threaten an insurer's own financial
strength. For information regarding Golden American's estimated
liability for future guaranty fund assessments, see Note 10 of Notes to
Financial Statements.
Although the federal government generally does not directly regulate
the business of insurance, federal initiatives often have an impact on
the business in a variety of ways. Certain insurance products of
Golden American are subject to various federal securities laws and
regulations. In addition, current and proposed federal measures which
may significantly affect the insurance business include regulation of
insurance company solvency, employee benefit regulation, removal of
barriers preventing banks from engaging in the insurance business, tax
law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
DIRECTORS AND EXECUTIVE OFFICERS
Name (Age) Position(s) with the Company
- ------------------------- -------------------------------------------
Barnett Chernow (48) President and Director
Myles R. Tashman (56) Director, Executive Vice President, General
Counsel and Secretary
Frederick S. Hubbell (47) Director and Chairman
Paul E. Larson (45) Director
Keith T. Glover (48) Executive Vice President
James R. McInnis (50) Executive Vice President
Stephen J. Preston (41) Executive Vice President and Chief Actuary
E. Robert Koster (40) Senior Vice President and Chief Financial Officer
Dennis D. Hargens (56) Treasurer
David L. Jacobson (49) Senior Vice President and Assistant Secretary
William B. Lowe (34) Senior Vice President
Edward M. Syring, Jr. (60) Senior Vice President
Ronald R. Blasdell (45) Senior Vice President
Steven G. Mandel (39) Senior Vice President
Each director is elected to serve for one year or until the next annual
meeting of shareholders or until his or her successor is elected. Some
directors are directors of insurance company subsidiaries of Golden
American's parent, Equitable of Iowa. The principal positions of
Golden American's directors and senior executive officers for the past
five years are listed below:
Mr. Barnett Chernow became President and Director of Golden American
Life Insurance Company ("Golden American") and President of First
Golden American Life Insurance Company of New York ("First Golden") in
April, 1998. From 1993 to 1998, Mr. Chernow served as Executive Vice
President of Golden American. He was elected to serve as Executive
Vice President and Director of First Golden in September, 1996. From 1977
through 1993, he held various positions with Reliance Insurance
Companies and was Senior Vice President and Chief Financial Officer of
United Pacific Life Insurance Company from 1984 through 1993.
Mr. Myles R. Tashman joined Golden American in August, 1994 as Senior
Vice President and was named Executive Vice President, General Counsel
and Secretary effective January 1, 1996. He was elected to serve as a
director of Golden American in January, 1998. From 1986 through 1993,
he was Senior Vice President and General Counsel of United Pacific Life
Insurance Company.
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Mr. Frederick S. Hubbell is a Director of Golden American since August,
1996 and Chairman since September, 1996. He also serves as a Director
and Chairman of First Golden, having been first appointed as a Director
in December, 1997 and as Chairman in April, 1998. He was appointed
General Manager of ING Financial Services International, North America,
in October, 1997 and General Manager, President and Chief Executive
Officer of ING US life and annuities companies in April 1998. Mr.
Hubbell served as Chairman, President and Chief Executive Officer of
Equitable of Iowa from 1991 until October, 1997. He also has served as
Chairman and President of Equitable Life Insurance Company of Iowa from
1987 until October, 1997.
Mr. Paul E. Larson joined Equitable of Iowa in 1977 and is currently
President of Equitable Life. He was elected to serve as a director of
Golden American in August, 1996. He also served as Executive Vice
President, CFO, and Assistant Secretary of Golden American from
December, 1996 through December, 1997.
Mr. Keith T. Glover became Executive Vice President of Golden American
and First Golden in February, 1998. From 1991 to 1998, Mr. Glover
served as Executive Vice President of several Golden American
affiliates; from 1996 to 1998, Southland Life Insurance Company; from
1995 to 1996, ING FSI North America; and from 1991 to 1994, Security
Life of Denver. From 1994 to 1995, Mr. Glover served as President of
ING Insurance Services - ING American Life, another Golden American
affiliate.
Mr. James R. McInnis joined Golden American in December, 1997 as
Executive Vice President. From 1982 through November, 1997, he was with
the Endeavor Group and was President upon leaving.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American in September, 1998. From August,
1984 to September, 1998 he has held various positions with ING
companies in The Netherlands.
Mr. Dennis D. Hargens was elected Treasurer of Golden American in
December, 1996. He joined Equitable Life in 1961 and is currently
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 Executive 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 Pacific Life
Insurance Company and was Vice President and Actuary upon leaving.
Mr. William B. Lowe joined Equitable Life as Vice President, Sales &
Marketing in January, 1994. He became a Senior Vice President, Sales &
Marketing, of Golden American in August, 1997. He was also President of
Equitable of Iowa Securities Network, Inc. until October, 1998. Prior
to joining Equitable Life, he was an Associate Vice President of
Lincoln Benefit Life from July, 1990 through December, 1993.
Mr. Edward Syring, Jr. joined Golden American in February, 1998 as a
Senior Vice President, Sales & Marketing. Prior to joining Golden
American, he was with Putnam Mutual Funds from April, 1991 through
February, 1995.
Mr. Steven G. Mandel joined Golden American in October, 1988 and was
elected Senior Vice President in June, 1998. Prior to joining
Golden American, he was with Monarch Resources Inc. from June, 1982 to
October, 1988.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and was
elected Senior Vice President in June, 1998. Prior to joining
Golden American, he was with United Pacific Life Insurance Company, from
November, 1988 to November, 1993. From July, 1975 through November,
1988, he was with Colonial Penn Group, Inc.
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COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief
Executive Officer of Golden American as well as the annual salary and
bonus for the five other most highly compensated executive officers for the
fiscal year ended December 31, 1997. Certain 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, Terry L. Kendall served as a Managing Director at
Bankers Trust New York Corporation. Compensation amounts for Terry L.
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.
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
five other most highly compensated executive officers for the fiscal
year ended December 31, 1997.
<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,...... 1997 $362,833 $ 80,365 $ 644,844 16,000 $ 10,000(/4/)
President and Chief 1996 $288,298 $400,000 $ 11,535(/5/)
Executive Officer(/3/) 1995 $250,000 $400,000 8,000 $ 6,706(/5/)
Paul R. Schlaack,..... 1997 $351,000 $249,185 $1,274,518 19,000 $ 15,000
Chairman, Director 1996 $327,875 $249,185 $ 245,875 19,000 $ 15,000
and Vice President 1995 $311,750 $165,890 $ 19,594 23,000 $ 9,000(/4/)
Paul E. Larson,....... 1997 $327,667 $128,540 $ 971,036 16,000 $ 15,000
Executive Vice 1996 $267,791 $128,540 $ 319,935 26,000 $ 15,000
President, Chief 1995 $242,833 $ 70,760 $ 73,396 20,000 $ 12,000(/4/)
Financial Officer
and Assistant Secretary
Barnett Chernow,....... 1997 $234,167 $ 31,859 $ 277,576 4,000 $ 5,000(/4/)
Executive Vice 1996 $207,526 $150,000 $ 7,755(/5/)
President 1995 $190,000 $165,000 $ 15,444(/5/)(/6/)
Edward C. Wilson,...... 1997 $ 80,383 $137,700 5,000
Executive Vice 1996 $190,582 $327,473
President
Myles R. Tashman,...... 1997 $181,417 $ 25,000 $ 165,512 5,000 $ 5,000(/4/)
Executive Vice 1996 $176,138 $ 90,000 $ 5,127(/5/)
President, General 1995 $160,000 $ 25,000
Counsel and Secretary
</TABLE>
________________
(1) The amount shown relates to bonuses paid in 1997, 1996 and 1995.
$50,000 of Mr. Wilson's bonus paid in 1996 represents a signing bonus.
(2) Restricted stock awards granted to executive officers vested on October
24, 1997 with the change in control of Equitable of Iowa.
(3) Awards comprised of qualified and non-qualified stock options. All
options were granted with an exercise price equal to the then fair
market value of the underlying stock. All options vested with the
change in control of Equitable of Iowa and were cashed out for the
difference between $68.00 and the exercise price.
(4) For 1997, this compensation includes payment to each named executive
as perquisite payments which are classified as taxable income and are
required to be applied to specific business expenses of the named
executive.
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(5) 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
could be in the form of deferred 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 compensation and $1,127 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. Wilson
and Mr. Tashman were not eligible for contributions to the
PartnerShare Plan in 1995.
(6) Amount shown for 1995 represents relocation expenses paid on behalf
of the employee.
Option Grants in Last Fiscal Year (1997)
On October 24, 1997, in conjunction with the acquisition of Equitable of
Iowa, all outstanding options vested and were cashed out for the
difference between $68.00 and the exercise price. The table below
represents the options granted in 1997.
<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........ 16,000 5.26 $47.875 2/12/2007 $481,733 $1,220,807
Pual R. Schlaack........ 8,000 6.25 $47.875 2/12/2007 $572,058 $1,449,708
Paul E. Larsen.......... 8,000 6.25 $47.875 2/12/2007 $782,817 $1,983,811
Barnett Chernow......... 4,000 1.32 $47.875 2/12/2007 $120,433 $ 305,202
Edward C. Wilson........ 5,000 1.64 $47.875 2/12/2007 $150,542 $ 381,502
Myles Tashman........... 5,000 1.64 $47.875 2/12/2007 $150,542 $ 381,502
</TABLE>
________________
(1) Stock options granted on February 12, 1997 by Equitable of Iowa
to the officers of Golden American had a five-year vesting period
with 20% exercisable after 3rd year, an additional 30% after 4th year,
and the final 50% after 5th year. The options vested with the change
of 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 had a term of ten years. They were subject
to earlier 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.
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- ----------------------------------------------------------------------
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following discussion of the federal income tax treatment of the
Contract is not exhaustive, does not purport to cover all situations,
and is not intended as tax advice. The federal income tax treatment of
the Contract is unclear in certain circumstances, and a qualified tax
adviser should always be consulted with regard to the application of
the tax law to individual circumstances. This discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Department regulations, and interpretations existing on the date of
this prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of the contract. In addition, GOLDEN
AMERICAN MAKES NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL,
STATE OR LOCAL -- OF ANY CONTRACT OR OF ANY TRANSACTION INVOLVING A
CONTRACT.
TAX STATUS OF GOLDEN AMERICAN
Golden American is taxed as a life insurance company under the Code.
Since the operations of Account B 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 under a
contract. Golden American does not anticipate that it will incur any
federal income tax liability in Account B attributable to contract
obligations, and therefore Golden American does not intend to make
provision for any such taxes. If Golden American is taxed on investment
income or capital gains of Account B, then Golden American may impose a
charge against Account B, as appropriate, in order to make provision
for such taxes.
TAXATION OF NON-QUALIFIED ANNUITIES
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of
the Code, except as described below, any increase in an owner's
Accumulation Value is generally not taxable to the owner until amounts
are received from the Contract, either in the form of annuity payments
as contemplated by the Contract, or in some other form of distribution.
However, this rule allowing deferral applies only if (1) the
investments of Account B are "adequately diversified" in accordance
with Treasury Department regulations, (2) Golden American, rather than
the owner, is considered the owner of the assets of Account B for
federal income tax purposes, and (3) the Contract is owned by an
individual (or is treated as owned by an individual). In addition to
the foregoing, if the Contract's Annuity Commencement Date occurs at a
time when the annuitant is at an advanced age, such as over age 85, it
is possible that the owner will be taxable currently on the annual
increase in the Accumulation Value.
Diversification Requirements. The Code and Treasury Department
regulations prescribe the manner in which the investments of a
segregated asset account, such as the Divisions of Account B, are to be
"adequately diversified." If a Division of Account B failed to comply
with these diversification standards, contracts based on that
segregated asset account would not be treated as an annuity contract
for federal income tax purposes and the Owner would generally be
taxable currently on the income on the contract (as defined in the tax
law) beginning with the period of non-diversification. Golden American
expects that the Divisions of Account B 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 investment control
over the assets. In addition, the Treasury Department announced, in
connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor,
rather than the insurance company, to be treated as the owner of the
assets in the account."
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This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts (of a segregated asset
account) without being treated as owners of the underlying assets." As
of the date of this prospectus, no such guidance has been issued.
The ownership rights under the Contract are similar to, but different
in certain respects from, those described by the IRS in rulings in
which it was determined that contract owners were not owners of the
assets of a segregated asset account. For example, the Owner of this
Contract has the choice of more investment options to which to allocate
purchase payments and the Accumulation Value, and may be able to
transfer among investment options more frequently, than in such
rulings. These differences could result in the Owner being treated as
the owner of all or a portion of the assets of Account B. In addition,
Golden American does not know what standards will be set forth in the
regulations or rulings which the Treasury Department has stated it
expects to issue. Golden American therefore reserves the right to
modify the Contract as necessary to attempt to prevent Contract Owners
from being considered the owners of the assets of Account B. However,
there is no assurance that such efforts would be successful.
Frequently, if the IRS or the Treasury Department sets forth a new
position which is adverse to taxpayers, the position is applied on a
prospective basis only. Thus, if the IRS or the Treasury Department
were to issue regulations or a ruling which treated an Owner of this
Contract as the owner of Account B, 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
persons" such as a corporation, trust or other similar entity, as
opposed to a natural person, are not treated as annuity contracts for
federal tax purposes. The income on such contracts (as defined in the
tax law) is taxed as ordinary income that is received or accrued by the
Owner of the Contract during the taxable year. There are several
exceptions to this general rule for non-natural Owners. First,
contracts will generally be treated as held by a natural person if the
nominal Owner is a trust or other entity which holds the Contract as an
agent for a natural person. However, this special exception will not
apply in the case of any employer who is the nominal Owner of a
contract under a non-qualified deferred compensation arrangement for
its employees.
In addition, exceptions to the general rule for non-natural Owners will
apply with respect to (1) Contracts acquired by an estate of a decedent
by reason of the death of the decedent, (2) certain Contracts issued in
connection with qualified retirement plans, including certain Roth IRA
Contracts, (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
purchase of the Contract and substantially equal periodic payments are
made, not less frequently than annually, during the annuity period.
The remainder of this discussion assumes that the Contract will be
treated as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL WITHDRAWALS AND SURRENDERS. In the case of a
partial withdrawal prior to the Annuity Commencement Date, amounts
received generally are includible in income to the extent the Owner's
Accumulation Value (determined without regard to any surrender charge,
within the meaning of the tax law) before the surrender exceeds his or
her "investment in the contract." In the case of a surrender of the
Contract for the Cash Surrender Value, amounts received are includible
in income to the extent they exceed the "investment in the contract."
For these purposes, the investment in the Contract at any time equals
the total of the premium payments made under the Contract to that time
(to the extent such payments were neither deductible when made nor
excludable from income as, for example, in the case of certain
contributions to IRAs and other qualified retirement plans) less any
amounts previously received from the Contract which were not includible
in income.
In the case of systematic partial withdrawals, the amount of each
withdrawal will generally be taxed in the same manner as a partial
withdrawal made prior to the Annuity Commencement Date, as described
above. However,
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there is some uncertainty regarding the tax treatment
of systematic partial withdrawals, and it is possible that additional
amounts may be includible in income.
The Contract provides a death benefit that in certain circumstances may
exceed the greater of the premium payments and the Accumulation Value.
As described elsewhere in this prospectus, Golden American imposes
certain charges with respect to the death benefit. It is possible that
some portion of those charges could be treated for federal tax purposes
as a partial withdrawal from the Contract.
In certain circumstances, surrender charges may be waived because of
the Owner's need for extended medical care or because of the Owner's
terminal illness. Distributions made in respect of which surrender
charges are waived are treated as partial withdrawals or surrenders, as
the case may be, for income tax purposes.
TAXATION OF ANNUITY PAYMENTS. Normally, the portion of each annuity
payment taxable as ordinary income is equal to the excess of the
payment over the exclusion amount. In the case of fixed annuity
payments, the exclusion amount is the amount determined by multiplying
(1) the fixed annuity payment by (2) the ratio of the "investment in
the contract" (defined above), adjusted for any period certain or
refund feature, allocated to the fixed annuity option to the total
expected amount of fixed annuity payments for the period of the
Contract (determined under Treasury Department regulations). In the
case of variable annuity payments, the exclusion amount for each
variable annuity payment is a specified dollar amount equal to the
investment in the Contract allocated to the variable annuity option
when payments begin divided by the number of variable payments expected
to be made (determined by Treasury Department regulations).
Once the total amount of the investment in the Contract is excluded
using these formulas, annuity payments will be fully taxable. If
annuity payments cease because of the death of the Annuitant and before
the total amount of the investment in the Contract is recovered, the
unrecovered amount generally will be allowed as a deduction to the
annuitant or beneficiary (depending upon the circumstances).
TAXATION OF DEATH BENEFIT PROCEEDS. Prior to the Annuity Commencement
Date, amounts may be distributed from a Contract because of the death
of an Owner or, in certain circumstances, the death of the Annuitant.
Such death benefit proceeds are includible in income as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a
surrender, as described above, or (2) if distributed under an annuity
option, they are taxed in the same manner as annuity payments, as
described above. After the Annuity Commencement Date, where a
guaranteed period exists under an annuity option and the Annuitant dies
before the end of that period, payments made to the Beneficiary for the
remainder of that period are includible in income as follows: (1) if
received in a lump sum, they are includible in income to the extent
that they exceed the unrecovered investment in the contract at that
time, or (2) if distributed in accordance with the existing annuity
option selected, they are fully excludable from income until the
remaining investment in the contract is deemed to be recovered, and all
annuity payments thereafter are fully includible in income.
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 constructively 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 annuity option within 60 days after the date on
which it becomes payable. (Any annuity option elected must comply with
applicable minimum distribution requirements imposed by the Code.)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS. Other than in the case
of Contracts issued as IRAs or in connection with certain other
qualified retirement plans (which generally cannot be assigned or
pledged), any assignment or pledge (or agreement to assign or pledge)
of any portion of the value of the Contract is treated for federal
income tax purposes as a partial withdrawal of such amount or portion.
The investment in the Contract is increased by the amount includible as
income with respect to such assignment or pledge, though it is not
affected by any other aspect of the assignment or pledge (including its
release). If an Owner transfers a Contract without adequate
consideration to a person other than the Owner's spouse (or to a former
spouse incident to divorce), the Owner will be taxed on the difference
between the cash surrender value (within the meaning of the tax law)
and the investment in the contract at the time of transfer. In such
case, the transferee's investment in the contract will be increased to
reflect the increase in the transferor's income.
SECTION 1035 EXCHANGES. Code section 1035 provides that no gain or loss
is recognized when an annuity contract is received in exchange for a
life, endowment, or annuity contract, provided that no cash or other
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property is received in the exchange transaction. Special rules and
procedures apply in order for an exchange to meet the requirements of
section 1035. Also, there are additional tax considerations involved
when the contracts are issued in connection with qualified retirement
plans. Prospective Owners of this Contract should consult a tax advisor
before entering into a section 1035 exchange (with respect to
non-qualified annuity contracts) or a trustee-to-trustee transfer or
rollover (with respect to qualified annuity contracts).
PENALTY TAX ON PREMATURE DISTRIBUTIONS. Where a contract has not been
issued as an IRA or in connection with another qualified retirement
plan, there generally is a 10% penalty tax on the taxable amount of any
payment from the Contract unless the payment is: (a) received on or
after the Owner reaches age 59 1/2; (b) attributable to the Owner's
becoming disabled (as defined in the tax law); (c) made on or after the
death of the Owner or, if the Owner is not an individual, on or after
the death of the primary annuitant (as defined in the tax law); (d)
made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner and
a designated beneficiary (as defined in the tax law), or (e) made under
a Contract purchased with a single purchase payment when the annuity
starting date (as defined in the tax law) is no later than a year from
purchase of the Contract and substantially equal periodic payments are
made, not less frequently than annually, during the annuity period.
In the case of systematic partial withdrawals, it is unclear whether
such withdrawals will qualify for exception (d) above. (For reporting
purposes, we currently treat such withdrawals as if they do not qualify
for this exception). In addition, if withdrawals are of interest
amounts only, as is the case with systematic partial withdrawals from a
Fixed Allocation, exception (d) will not apply.
AGGREGATION OF CONTRACTS. In certain circumstances, the amount of an
annuity payment, withdrawal or surrender from a Contract that is
includible in income is determined by combining some or all of the
annuity contracts owned by an individual not issued in connection with
qualified retirement plans. For example, if a person purchases two or
more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be
treated as one contract for purposes of determining whether any payment
not received as an annuity (including withdrawals and surrenders prior
to the Annuity Commencement Date) is includible in income. In addition,
if a person purchases a Contract offered by this prospectus and also
purchases at approximately the same time an immediate annuity, the IRS
may treat the two contracts as one contract. The effects of such
aggregation are not clear, however, it could affect the time when
income is taxable and the amount which might be subject to the 10%
penalty tax described above.
IRA CONTRACTS AND OTHER QUALIFIED RETIREMENT PLANS
IN GENERAL. In addition to issuing the Contracts as non-qualified
annuities, Golden American also currently issues the Contracts as IRAs.
(As indicated above in this prospectus, IRAs are referred to as
"qualified plans.") Golden American may also issue the Contracts in
connection with certain other types of qualified retirement plans which
receive favorable treatment under the Code. Numerous special tax rules
apply to the owners under IRAs and other qualified retirement plans and
to the contracts used in connection with such plans. These tax rules
vary according to the type of plan and the terms and conditions of the
plan itself. For example, for both surrenders and annuity payments
under certain contracts issued in connection with qualified retirement
plans, there may be no "investment in the contract" and the total
amount received may be taxable. Also, special rules apply to the time
at which distributions must commence and the form in which the
distributions must be paid. Therefore, no attempt is made to provide
more than general information about the use of Contracts with the
various types of qualified retirement plans. A qualified tax advisor
should be consulted before purchase of a Contract in connection with a
qualified retirement plan.
When issued in connection with a qualified retirement plan, a Contract
will be amended as necessary to conform to the requirements of the
plan. However, Owners, Annuitants, and Beneficiaries are cautioned that
the rights of any person to any benefits under qualified retirement
plans may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the Contract. In
addition, Golden American is not bound by terms and conditions of
qualified retirement plans to the extent such terms and conditions
contradict the Contract, unless Golden American consents.
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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 an individual 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 individual'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 (2) the 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 income 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
taxable year (including a contract for a noncompensated spouse) is
limited to the amount of premium payments that may be paid for the
contract for that year, or a lesser amount where the individual or his
or her spouse is an active participant in certain qualified retirement
plans. For a single person who is an active participant in a qualified
retirement plan (including a qualified pension, profit-sharing, or
annuity plan, a simplified employee pension plan, or a "section 403(b)"
annuity plan, as discussed below) and who has adjusted gross income in
excess of $40,000 may not deduct premium payments, and such a person
with adjusted gross income between $30,000 and $40,000 may deduct only
a portion of such payments. Also, married persons who file a joint
return, one of whom is an active participant in a qualified retirement
plan, and who have adjusted gross income in excess of $60,000 may not
deduct premium payments, and those with adjusted gross income between
$50,000 and $60,000 may deduct only a portion of such payments.
In applying these and other rules applicable to an IRA, all individual
retirement accounts and IRAs owned by an individual are treated as one
contract, and all amounts distributed during any taxable year are
treated as one distribution.
Tax Deferral During Accumulation Period. Until distributions are made
from an IRA, increases in the Accumulation Value of the Contract are
not taxed.
IRAs and individual retirement accounts (that may invest in this
contract) generally may not invest in life insurance contracts, but an
annuity contract that is issued as an IRA (or that is purchased by an
individual retirement account) may provide a death benefit that equals
the greater of the premiums paid and the contract's cash value. The
Contract provides a death benefit that in certain circumstances may
exceed the greater of the premium payments and the Accumulation Value.
It is possible that an enhanced death benefit could be viewed as
violating the prohibition on investment 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 premium payments were made to an IRA (within the limits
allowed by the tax laws), a portion of each distribution from the
Contract typically is includible in income when it is distributed. In
such a case, any amount distributed as an annuity payment or in a lump
sum upon death or surrender is taxed as described above in connection
with such a distribution from a non-qualified contract, treating as the
investment in the contract the sum of the nondeductible premium
payments at the end of the taxable year in which the distribution
commences or is made (less any amounts previously distributed that were
excluded from income). Also, in such a case, any amount distributed
upon a partial withdrawal is partially includible in income. The
includible amount is the excess of the distribution over the exclusion
amount, which in turn 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
requirements (discussed below), amounts may be "rolled over" from
certain qualified retirement plans to an IRA (or from one IRA or
individual retirement account to an IRA) without incurring current
income tax if certain conditions are met. Only certain types of
distributions to eligible individuals from qualified retirement plans,
individual retirement accounts, and IRAs may be rolled over.
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Penalty Taxes. Subject to certain exceptions, a penalty tax is imposed
on distributions from an IRA equal to 10% of the amount of the
distribution includible in income. (Amounts rolled over from an IRA
generally are excludable from income.) The exceptions provide,
however, that this penalty tax does not apply to distributions made to
the Owner (1) on or after age 59, (2) on or after death or because of
disability (as defined in the tax law), or (3) as part of a series of
substantially equal periodic payments over the life (or life
expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and his or her beneficiary (as defined in
the tax law). In addition to the foregoing, failure to comply with a
minimum distribution requirement will result in the imposition of a
penalty tax of 50% of the amount by which a minimum required
distribution exceeds the actual distribution from an IRA. Under this
requirement, distributions of minimum amounts from an IRA as specified
in the tax law must generally commence by April 1 of the calendar year
following the calendar year in which the Owner attains age 70.
OTHER TYPES OF QUALIFIED RETIREMENT PLANS. The following sections
describe tax considerations of Contracts used in connection with
various types of qualified retirement plans other than IRAs. Golden
American does not currently offer all of the types of qualified
retirement plans described and may not offer them in the future.
Prospective purchasers of Contracts for use in connection with such
qualified retirement plans should therefore contact Golden American's
Customer Service Center to ascertain the availability of the Contract
for qualified retirement plans at any given time.
Simplified Employee Pensions (Sep-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for
their employees, using the employees' IRAs for such purposes, if
certain criteria are met. Under these plans the employer may, within
specified limits, make deductible contributions on behalf of the
employees to IRAs. As discussed above (see Individual Retirement
Annuities), there is some uncertainty regarding the treatment of the
Contract's enhanced death benefit for purposes of certain tax rules
governing IRAs (which would include SEP-IRAs). Employers 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 requirements, including limits on the amounts that may be
contributed, the persons who may be eligible, and the time when
distributions may commence. As discussed above (see Individual
Retirement Annuities), there is some uncertainty 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.
Roth Individual Retirement Annuity (Roth IRA). Golden American
currently issues the Contract as a Roth IRA. If the contract is used
for this purpose, the Owner must be the Annuitant.
Premium Payments. All premium payments to a Roth IRA are limited and
are non-deductible. In general, premium payments to a Roth IRA in a
taxable year are limited to the lesser of $2,000 or 100% of an
individual's earned income less any contributions made to other IRAs,
including both Roth and non-Roth IRAs, but excluding any rollover
contributions to IRAs. Subject to coordinated IRA contribution limits,
contributions to a Roth IRA for an individual and a spouse cannot
exceed $4,000 or 100% of the individual's and spouse's earned income,
if less. The maximum contribution can be made if either of the
following applies: (a) for joint tax filers, their adjusted gross
income is $150,000 or less, or (b) for individual tax filers, their
adjusted gross income is $95,000 or less. For amounts over these
adjusted gross incomes, the contribution limit is reduced as follows:
(a) for a joint tax filer, the maximum is reduced by 20% of the excess
adjusted gross income over $150,000 (no contributions over $160,000);
(b) for an individual tax filer, the maximum is reduced by 13.3% of the
excess adjusted gross income over $95,000 (no contributions over
$110,000).
Conversions of Non-Roth IRA to a Roth IRA. A Roth IRA may be purchased
with amounts received as a qualified rollover ("Rollover Roth IRA") if
the following conditions are met: (a) when a rollover is from a
non-Roth IRA, the taxpayer must not be a married individual filing
separately and the taxpayer's adjusted gross income must not exceed
$100,000; (b) rollovers must be made within 60 days of receipt of the
taxpayer; (c) minimum distributions from a non-Roth IRA cannot be
contributed to a Rollover Roth IRA; (d) an asset received in a
distribution may be sold and the proceeds put in a Rollover Roth IRA;
(e) all or part of a non-Roth IRA may be contributed to a
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Rollover Roth
IRA except an inherited IRA or a SIMPLE IRA; (f) a rollover
contribution must be designated in writing as such by the Owner at the
time the rollover is made. Any distribution from a non-Roth IRA made
within 60 days to a Roth IRA is taxable in the year of the
distribution. For rollovers or conversions completed in 1998, taxable
income due to the distribution may be included evenly over 1998-2001
tax years.
Rollovers from a Roth IRA to a Roth IRA. A rollover from a Roth IRA to
a Roth IRA may be accomplished if the following conditions are met: (a)
the rollover must be a direct rollover for the five year holding period
of the original Roth IRA to be preserved; (b) the rollover may be made
for all or a portion of the Roth IRA; (c) a rollover contribution must
be designated as such in writing at the time the rollover is made.
Taxation of Roth IRA Distributions. A distribution from a Roth IRA is
not subject to income tax or to the additional 10% penalty tax on
premature distributions if it is a "qualified distribution." A
qualified distribution is any payment or distribution from a Roth IRA
which is made: (a) following the end of the fifth taxable period (year)
after a contribution or rollover is made to a Roth IRA, and (b) on or
after the Owner attains age 59 1/2, or made to a beneficiary on or
after the Owner's death, or as a result of the Owner becoming disabled,
or qualified first-time home buyer distribution (subject to a $10,000
lifetime limit). Distributions not meeting these definitions are
"non-qualified distributions." Non-qualified distributions are treated
as being made from contributions to a Roth IRA to the extent the
distribution, when added to all previous distributions from a Roth IRA,
does not exceed the sum of contributions to a Roth IRA. A non-qualified
distribution in excess of the sum of contributions is subject to
ordinary income tax in the year a distribution is made. Such taxable
distribution is also subject to a 10% penalty tax unless the
distribution is made under certain limited circumstances.
Roth IRAs are not subject to required distributions at age 70 1/2.
Corporate and Self-Employed ("H.R. 10" or "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit
corporate employers to establish various types of tax-favored
retirement plans for employees. The Self-Employed Individuals' Tax
Retirement Act of 1962, as amended, commonly referred to as "H.R. 10"
or "Keogh," permits self-employed individuals also to establish such
tax-favored retirement plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contract in order to
provide benefits under the plans. The Contract provides a death benefit
that in certain circumstances may exceed the greater of the premium
payments and the Accumulation Value. It is possible that such death
benefit could be characterized as an incidental death benefit. There
are limitations on the amount of incidental benefits that may be
provided under pension and profit sharing plans. In addition, the
provision of such benefits may result in currently taxable income to
participants. Employers intending to use the Contract in connection
with such plans should seek competent advice.
Section 403(b) Annuity Contracts. Section 403(b) of the Code permits
public school employees, employees of certain types of charitable,
educational and scientific organizations exempt from tax under section
501(c)(3) of the Code, and employees of certain types of State
educational organizations specified in section 170(b)(l)(A)(ii), to
have their employers purchase annuity contracts for them and, subject
to certain limitations, to exclude the amount of premium payments from
gross income for federal income tax purposes. Purchasers of the
contracts for use as a "Section 403(b) Annuity Contract" should seek
competent advice as to eligibility, limitations on permissible amounts
of premium payments and other tax consequences associated with such
contracts. In particular, purchasers and their advisors should consider
that this Contract provides a death benefit that in certain
circumstances may exceed the greater of the premium payments and the
Accumulation Value. It is possible that such death benefit could be
characterized as an incidental death benefit. If the death benefit were
so characterized, this could result in currently taxable income to
employees. In addition, there are limitations on the amount of
incidental death benefits that may be provided under a Section 403(b)
Annuity Contract. Even if the death benefit under the contract were
characterized as an incidental death benefit, it is unlikely to violate
those limits unless the purchaser also purchases a life insurance
contract as part of his or her Section 403(b) Annuity Contract.
Section 403(b) Annuity Contracts contain restrictions on withdrawals of
(i) contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988, (ii) earnings on those
contributions, and (iii) earnings after 1988 on amounts attributable to
salary reduction contributions (and earnings on those contributions)
held as of the last year beginning before January 1, 1989. These
amounts can be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled (within the meaning of
the tax
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law), or in the case of hardship. Amounts permitted to be
distributed in the event of hardship are limited to actual
contributions; earnings thereon cannot be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent
Golden American is directed to transfer some or all of the Accumulation
Value as a tax-free direct transfer to the issue of another Section
403(b) Annuity Contract or into a section 403(b)(7) custodial account
subject to withdrawal restrictions which are at least as stringent.)
Eligible Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations. Section 457 of the Code permits employees of
state and local governments and tax-exempt organizations to defer a
portion of their compensation without paying current federal income
taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, a Contract purchased by a state or local
government or a tax-exempt 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 mandatory withholding
requirements. An eligible rollover distribution generally is the
taxable portion of any distribution from a qualified pension plan under
section 401(a) of the Code, qualified annuity plan under Section 403(a)
of the Code, or Section 403(b) Annuity or custodial account, excluding
certain amounts (such as minimum distributions required under section
401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made not less frequently than
annually for the life (or life expectancy) of the employee, or for the
joint lives (or joint life expectancies) of the employee and the
employee's designated beneficiary (within the meaning of the tax law),
or for a specified period of 10 years or more).
Under these new requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed
from the Contract, discussed below, the taxpayer cannot elect out of
withholding with respect to an eligible rollover distribution. However,
this 20% withholding will not apply to that portion of the eligible
rollover distribution which, instead of receiving, the taxpayer elects
to have directly transferred to certain eligible retirement plans (such
as to this Contract when issued as an IRA).
If this Contract is issued in connection with a pension,
profit-sharing, or annuity plan qualified under sections 401(a) or
403(a) of the Code, or is a Section 403(b) Annuity Contract, then,
prior to receiving an eligible rollover distribution, the owner will
receive a notice (from the plan administrator or Golden American)
explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20% withholding by electing a direct
transfer.
FEDERAL INCOME TAX WITHHOLDING
Golden American will withhold and remit to the federal government a
part of the taxable portion of each distribution made under the
Contract unless the distributee notifies Golden American at or before
the time of the distribution that he or she elects not to have any
amounts withheld. In certain circumstances, Golden American may be
required to withhold tax, as explained above. The withholding rates
applicable to the taxable portion of periodic annuity payments (other
than eligible rollover distributions) are the same as the withholding
rates generally applicable to payments of wages. In addition, the
withholding rate applicable to the taxable portion of non-periodic
payments (including surrenders prior to the Annuity Commencement Date)
is 10%. Regardless of whether you elect to have federal income tax
withheld, you are still liable for payment of federal income tax on the
taxable portion of the payment. As discussed above, the withholding
rate applicable to eligible rollover distributions is 20%.
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UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the Nine Months Ended September 30, 1998 and 1997
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Golden American Life Insurance Company
Condensed Consolidated Statements of Income (Unaudited):
POST-MERGER POST-ACQUISITION
_____________________________________
For the Nine | For the Nine
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
|
Revenues: |
Annuity and interest sensitive life |
product charges $26,984 | $15,937
Management fee revenue 3,257 | 2,014
Net investment income 29,296 | 18,955
Realized gains on investments 436 | 58
Other income 4,805 | 427
__________________|__________________
64,778 | 37,391
|
Insurance benefits and expenses: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 64,110 | 16,840
Benefit claims incurred in excess of |
account balances 862 | 118
Underwriting, acquisition and |
insurance expenses: |
Commissions 84,958 | 23,113
General expenses 23,480 | 11,762
Insurance taxes 2,680 | 1,693
Policy acquisition costs deferred (133,616)| (25,464)
Amortization: |
Deferred policy acquisition costs 4,014 | 1,433
Present value of in force acquired 3,252 | 4,465
Goodwill 2,834 | 1,261
__________________|__________________
52,574 | 35,221
Interest expense 3,033 | 1,827
__________________|__________________
55,607 | 37,048
__________________|__________________
9,171 | 343
|
Income taxes 4,294 | 1
__________________|__________________
Net income $4,877 | $342
=====================================
See accompanying notes.
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Condensed Consolidated Balance Sheets (Unaudited):
POST-MERGER
_____________________________________
September 30, 1998|December 31, 1997
__________________|__________________
(Dollars in thousands,
except per share data)
|
ASSETS |
Investments: |
Fixed maturities, available for sale, |
at fair value (cost: 1998 - $610,316; |
1997 - $413,288) $618,650 | $414,401
Equity securities, at fair value |
(cost: 1998 - $14,437; 1997 - $4,437) 10,092 | 3,904
Mortgage loans 98,045 | 85,093
Policy loans 10,217 | 8,832
Short-term investments 11,886 | 14,460
__________________|__________________
Total investments 748,890 | 526,690
|
Cash and cash equivalents 18,951 | 21,039
Due from affiliates 1,114 | 827
Accrued investment income 9,395 | 6,423
Deferred policy acquisition costs 140,845 | 12,752
Present value of in force acquired 36,502 | 43,174
Current income taxes recoverable 502 | 272
Deferred income tax asset 31,633 | 36,230
Property and equipment, less allowances for |
depreciation of $583 in 1998 and $97 |
in 1997 4,550 | 1,567
Goodwill, less accumulated amortization of |
$3,463 in 1998 and $630 in 1997 147,664 | 150,497
Other assets 7,153 | 755
Separate account assets 2,629,343 | 1,646,169
__________________|__________________
Total assets $3,776,542 | $2,446,395
==================|==================
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life |
products $705,673 | $505,304
Unearned revenue reserve 2,968 | 1,189
Other policy claims and benefits 89 | 10
__________________|__________________
708,730 | 506,503
Reciprocal loan with affiliate 40,000 | --
Line of credit with affiliate -- | 24,059
Surplus note 25,000 | 25,000
Revolving note payable 20,082 | --
Due to affiliates 1,552 | 80
Other liabilities 46,400 | 17,271
Separate account liabilities 2,629,343 | 1,646,169
__________________|__________________
3,471,107 | 2,219,082
|
Commitments and contingencies |
|
Stockholder's equity: |
Common stock, par value $10 per share, |
authorized, issued and outstanding |
250,000 shares 2,500 | 2,500
Additional paid-in capital 297,640 | 224,997
Accumulated comprehensive income 842 | 241
Retained earnings (deficit) 4,453 | (425)
__________________|__________________
Total stockholder's equity 305,435 | 227,313
__________________|__________________
Total liabilities and stockholder's |
equity $3,776,542 | $2,446,395
=====================================
See accompanying notes.
71
<PAGE>
<PAGE>
Condensed Consolidated Statements of Cash Flows (Unaudited):
POST-MERGER POST-ACQUISITION
_____________________________________
For the Nine | For the Nine
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
|
NET CASH USED IN OPERATING ACTIVITIES ($22,666)| ($1,659)
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 92,707 | 35,590
Mortgage loans on real estate 3,145 | 5,017
Short-term investments - net 2,575 | 11,153
__________________|__________________
98,427 | 51,760
|
Acquisition of investments: |
Fixed maturities - available for sale (291,687)| (146,376)
Equity securities (10,000)| (4,864)
Mortgage loans on real estate (16,390)| (38,058)
Policy loans - net (1,385)| (3,682)
__________________|__________________
(319,462)| (192,980)
Purchase of property and equipment (3,470)| (659)
__________________|__________________
Net cash used in investing activities (224,505)| (141,879)
|
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings 242,847 | --
Repayment of reciprocal loan agreement |
borrowings (202,847)| --
Proceeds from revolving note payable 20,082 | --
Proceeds from line of credit borrowings -- | 86,522
Repayment of line of credit borrowings (24,059)| (69,562)
Receipts from annuity and interest |
sensitive life policies credited to |
policyholder account balances 350,385 | 232,635
Return of policyholder account balances |
on annuity and interest sensitive life |
policies (50,370)| (12,674)
Net reallocations to Separate Accounts (163,455)| (81,561)
Contribution from parent 72,500 | 1,011
__________________|__________________
Net cash provided by financing activities 245,083 | 156,371
__________________|__________________
|
Increase (decrease) in cash and cash |
equivalents ($2,088)| $12,833
|
Cash and cash equivalents at beginning |
of period 21,039 | 5,839
__________________|__________________
Cash and cash equivalents at end of period $18,951 | $18,672
==================|==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW |
INFORMATION |
|
Cash paid during the period for: |
Interest $3,493 | --
Income taxes 80 | $283
|
Non-cash financing activities: |
Non-cash adjustment to paid in capital |
for adjusted merger costs 143 | --
Contribution of property, plant and |
equipment from EIC Variable, Inc. net |
of $353 of accumulated depreciation -- | 110
|
See accompanying notes.
72
<PAGE>
<PAGE>
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. This form is being filed with the reduced disclosure
format specified in General Instruction H (1)(a) and (b) of Form 10-Q.
Accordingly, the financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All
adjustments were of a normal recurring nature, unless otherwise noted in
Management's Discussion and Analysis and the Notes to Financial Statements.
Operating results for the nine months ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Golden American Life
Insurance Company Annual Report on Form 10-K for the year ended December 31,
1997.
CONSOLIDATION
The condensed 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," and
collectively with Golden American, the "Company"). All significant
intercompany accounts and transactions have been eliminated.
ORGANIZATION
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") pursuant to the terms of an Agreement and Plan of Merger dated
as of July 7, 1997, among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI
is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of the merger, Equitable was
merged into PFHI which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation.
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of EIC Variable, Inc. (formerly known as BT Variable, Inc.) and its wholly
owned subsidiaries, Golden American and Directed Services, Inc. ("DSI"), from
Whitewood Properties Corporation.
For financial statement purposes, the ING merger was accounted for as a
purchase effective October 25, 1997, and the change in control of Golden
American through the acquisition of BT Variable, Inc. was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in
new bases of accounting reflecting estimated fair values of assets and
liabilities at their respective dates. As a result, the Company's financial
statements for the period subsequent to October 24, 1997, are presented on
the Post-Merger new basis of accounting, for the period August 14, 1996
through October 24, 1997, are presented on the Post-Acquisition basis of
accounting, and for August 13, 1996 and prior periods are presented on the
Pre-Acquisition basis of accounting.
FAIR VALUES
Estimated fair values of investment grade public bonds are estimated using a
third party pricing system. This pricing system uses a matrix calculation
assuming a spread over U.S. Treasury bonds based upon the expected average
lives of the securities.
STATUTORY
Net income (loss) for Golden American as determined in accordance with
statutory accounting practices was $(32,198,000) and $510,000 for the nine
months ended September 30, 1998 and 1997, respectively. Total statutory
capital and surplus was $112,356,000 at September 30, 1998 and $76,914,000 at
December 31, 1997.
73
<PAGE>
<PAGE>
RECLASSIFICATION
Certain amounts in the September 30, 1997 and December 31, 1997 financial
statements have been reclassified to conform to the September 30, 1998
financial statement presentation.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net income or stockholder's equity. SFAS No. 130
requires unrealized gains or losses on the Company's available for sale
securities (net of deferred income taxes, deferred policy acquisition costs
and present value of in force acquired), which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
During the third quarter and first nine months of 1998, total comprehensive
income for the Company amounted to $2,426,000 and $5,478,000, respectively
($2,385,000 and $2,016,000, respectively, for the same periods of 1997).
Included in these amounts are total comprehensive income for First Golden of
$601,000 and $1,174,000 for the third quarter and first nine months of 1998,
respectively ($551,000 and $879,000, respectively, for the same periods of
1997).
NOTE 3 -- RELATED PARTY TRANSACTIONS
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by the Company. DSI is authorized to enter into
agreements with broker/dealers to distribute the Company's variable insurance
products and appoint the broker/dealers as agents. As of September 30, 1998,
the Company's variable insurance products are sold primarily through four
broker/dealer institutions. The Company paid commissions and expenses to DSI
totaling $32,104,000 in the third quarter and $82,548,000 for the first nine
months of 1998 ($8,849,000 and $23,113,000, respectively, for the same
periods of 1997).
Golden American provides certain managerial and supervisory services to DSI.
The fee paid by DSI for these services was calculated as a percentage of
average assets in the variable separate accounts. For the quarter and nine
months ended September 30, 1998, the fee was $1,234,000 and $3,257,000
($736,000 and $2,014,000, respectively, for the same periods of 1997).
Golden American provides certain advisory, computer and other resources and
services to Equitable Life Insurance Company of Iowa ("Equitable Life").
Revenues for these services, which reduce general expenses incurred by Golden
American, totaled $1,524,000 in the third quarter and $5,091,000 for the
first nine months of 1998 ($954,000 and $2,694,000, respectively, for the
same periods of 1997).
The Company has a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. The Company
incurred expenses of $261,000 in the third quarter and $575,000 for the first
nine months of 1998 under this agreement.
First Golden provides resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Company, totaled
$19,000 in the third quarter and $57,000 for the first nine months of 1998.
74
<PAGE>
<PAGE>
Golden American maintains a reciprocal loan agreement with ING America
Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate of
EIC, to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Under this agreement which became effective January 1,
1998, and expires December 31, 2007, Golden American and ING AIH can borrow
up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the State of Delaware Department
of Insurance. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest
on any ING AIH borrowings is charged at a rate based on the prevailing
interest rate of U.S. commercial paper available for purchase with a similar
duration. Under this agreement, Golden American incurred interest expense of
$505,000 in the third quarter and $1,269,000 for the first nine months of
1998. At September 30, 1998, $40,000,000 was payable to ING AIH under this
agreement.
Effective January 1, 1998, the Company has an asset management agreement with
ING Investment Management LLC ("ING-IM"), an affiliated company, in which ING-
IM provides asset management services. Under the agreement, the Company
records a fee based on the value of the assets under management. The fee is
payable quarterly. For the third quarter and first nine months of 1998, the
Company incurred fees of $341,000 and $1,013,000, respectively, under this
agreement.
Golden American maintained a line of credit agreement with Equitable to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement which became effective December 1, 1996,
and expired December 31, 1997, Golden American could borrow up to
$25,000,000. Interest on any borrowings was charged at the rate of
Equitable's monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of $211,000
for the first nine months of 1998 ($165,000 and $279,000 in the third quarter
and first nine months of 1997, respectively). The outstanding balance was
paid by a capital contribution.
For the nine months ended September 30, 1998, the Company had premiums, net
of reinsurance, for variable products from four affiliates, Locust Street
Securities, Inc., Vestax Securities Corporation, DSI and Multi-Financial
Securities Corporation of $92,900,000, $30,100,000, $10,700,000 and
$10,100,000, respectively.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At September 30, 1998, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts.
Golden American remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements. At September 30, 1998, the
Company has a net receivable of $6,539,000 for reserve credits, reinsurance
claims or other receivables from these reinsurers comprised of $257,000 for
claims recoverable from reinsurers, $451,000 for a payable for reinsurance
premiums, and $6,733,000 for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $1,293,000 in the third quarter and $3,259,000 for the first
nine months of 1998 compared to $467,000 and $1,318,000, respectively, for
the same periods in 1997. Also included in the accompanying financial
statements are net policy benefits of $1,272,000 and $2,096,000 in the third
quarter and first nine months of 1998, respectively ($142,000 and $571,000,
respectively, for the same periods of 1997).
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial
statements are presented net of the effects of the treaty.
INVESTMENT COMMITMENTS: At September 30, 1998, outstanding commitments to
fund mortgage loans on real estate totaled $25,290,000.
75
<PAGE>
<PAGE>
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. 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 as well as its potential for premium tax offset. The Company has
established an undiscounted reserve to cover such assessments and regularly
reviews information regarding known failures and revises its estimates of
future guaranty fund assessments. Accordingly, the Company accrued and
charged to expense an additional $208,000 in the third quarter and $598,000
for the first nine months of 1998. At September 30, 1998, the Company has an
undiscounted reserve of $1,910,000 to cover estimated future assessments (net
of related anticipated premium tax credits) and has established an asset
totaling $261,000 for assessments paid which may be recoverable through
future premium tax offsets. The Company believes this reserve is sufficient
to cover expected future guaranty fund assessments based upon previous
premium levels and known insolvencies at this time.
LITIGATION: The Company, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits. In some
class action and other lawsuits involving insurers, substantial damages have
been sought and/or material settlement payments have been made. The Company
currently believes no pending or threatened lawsuits exist that are
reasonably likely to have a material adverse impact on the Company.
VULNERABILITY FROM CONCENTRATIONS: 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 separate account
liabilities. Substantial changes in tax laws that would make these products
less attractive to consumers and extreme fluctuations in interest rates or
stock market returns which may result in higher lapse experience than assumed
could have a severe impact on the Company's financial condition. A
significant portion of the Company's sales is generated by four
broker/dealers.
The Company has various concentrations in its investment portfolio. The
composition of the Company's fixed maturity securities has changed
significantly from December 31, 1997. The following percentages relate to
holdings at September 30, 1998, and December 31, 1997. Fixed maturity
investments included investments in basic industrials (25% in 1998, 30% in
1997), conventional mortgage-backed securities (24% in 1998, 13% in 1997),
financial companies (20% in 1998, 24% in 1997), asset-backed securities (11%
in 1998, 0% in 1997), various government bonds or agency mortgage-backed
securities (7% in 1998, 17% in 1997) and public utilities (6% in 1998, 7% in
1997).
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Company has
established a revolving note payable effective July 27, 1998, and expiring
July 31, 1999, with SunTrust Bank, Atlanta (the "Bank"). The note was
approved by Golden American's and First Golden's boards of directors on
August 5, 1998 and September 29, 1998, respectively. The total amount the
Company may have outstanding is $85,000,000, of which Golden American and
First Golden have individual credit sublimits of $75,000,000 and $10,000,000,
respectively. The note accrues interest at an annual rate equal to: (1) the
cost of funds for the Bank for the period applicable for the advance plus
0.25% or (2) a rate quoted by the Bank to the Company for the advance. The
terms of the agreement require the Company to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the quarter and nine months ended September 30,
1998, the Company paid interest expense of $6,000. At September 30, 1998,
$20,082,000 was payable to the Bank under this note by Golden American.
76
<PAGE>
<PAGE>
YEAR 2000 PROJECT: Based on a 1997 study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Some of the Company's computer programs were
originally written using two digits rather than four to define a particular
year. As a result, these computer programs contain "time sensitive"
software that may recognize "00" as the year 1900 rather than the year 2000,
which could cause system failure or miscalculations resulting in disruptions
to operations. These disruptions could include, but are not limited to, a
temporary inability to record transactions.
The Company has identified one system and some desktop software that will
have date problems. All systems will be upgraded in the fourth quarter of
1998. To a lesser extent, the Company depends on various non-information
technology systems, such as telephone switches, which could also fail or
misfunction as a result of the Year 2000.
The Company has developed a plan to address the Year 2000 issue in a timely
manner. The following schedule details the plan's phases, progress towards
completion and actual or estimated completion dates:
% Complete as of Actual/Estimated
Phases September 30, 1998 Completion Dates
______________________________________________________________________________
ASSESSMENT AND DEVELOPMENT of the steps
to be taken to address Year 2000
systems issues 100% 12/31/97
IMPLEMENTATION of steps to address Year
2000 systems issues 76-99% 12/31/98
IMPLEMENTATION of steps to address
Year 2000 desktop software issues 76-99% 12/31/98
TESTING of systems 26-50% 12/31/98
POINT-TO-POINT TESTING of external
interfaces with third party computer
systems that communicate with Company
systems 1-25% 12/31/98
IMPLEMENTATION of tested software
addressing Year 2000 systems issues 51-75% 12/31/98
CONTINGENCY PLAN 1-25% 03/31/99
In addition, the Company's operations could be adversely affected if
significant customers, suppliers and other third parties would be unable to
transact business in the Year 2000 and thereafter. To mitigate the effect of
outside influences and other dependencies relative to the Year 2000, the
Company has identified and contacted these third parties who have assured the
Company that necessary steps are being taken to prepare for the Year 2000.
Management believes the Company's systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$140,000 in the first nine months of 1998 related to the Year 2000 project.
The Company anticipates charging to expense an additional $180,000 to
$195,000 in 1998 which includes upgrade and internal resources costs.
Management expects some internal resources will be utilized in early 1999 to
finalize the contingency plan.
Despite the Company's efforts to modify or replace "time sensitive" computer
and information systems, the Company could experience a disruption to its
operations as a result of the Year 2000. The Company is currently developing
a contingency plan to address any systems that may malfunction despite the
testing being performed. The contingency plan, which is expected to be
completed by March 31, 1999, will provide for the availability of staff,
prioritize tasks and outline procedures to fix any malfunctioning systems.
77
<PAGE>
<PAGE>
The costs and completion date of the Year 2000 project are based on
management's best estimates. These estimates were derived using numerous
assumptions of future events, including the continued availability of
resources, third party Year 2000 compliance and other factors. There is no
guarantee these estimates will be achieved and actual results could
materially differ from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all relevant
computer codes and other uncertainties.
78
<PAGE>
<PAGE>
______________________________________________________________________________
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the years ended December 31, 1997, 1996 and 1995
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
American Life Insurance Company as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholder's equity,
and cash flows for the periods from October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996, and January 1, 1996 through August 13, 1996, and the year
ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Golden American Life Insurance Company at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for the
periods from October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997, August 14, 1996 through December 31, 1996, and
January 1, 1996 through August 13, 1996, and the year ended December 31,
1995, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1998
79
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
December 31, 1997 | December 31, 1996
___________________| _________________
<S> <C> | <C>
ASSETS |
|
Investments: |
Fixed maturities, available for sale, |
at fair value (cost: 1997 - $413,288; |
1996 - $275,153) $414,401 | $275,563
Equity securities, at fair value |
(cost: 1997 - $4,437; 1996 - $36) 3,904 | 33
Mortgage loans on real estate 85,093 | 31,459
Policy loans 8,832 | 4,634
Short-term investments 14,460 | 12,631
___________________| _________________
Total investments 526,690 | 324,320
|
Cash and cash equivalents 21,039 | 5,839
|
Due from affiliates 827 | --
|
Accrued investment income 6,423 | 4,139
|
Deferred policy acquisition costs 12,752 | 11,468
|
Present value of in force acquired 43,174 | 83,051
|
Current income taxes recoverable 272 | --
|
Deferred income tax asset 36,230 | --
|
Property and equipment, less allowances |
for depreciation of $97 in 1997 and |
$63 in 1996 1,567 | 699
|
Goodwill, less accumulated amortization |
of $630 in 1997 and $589 in 1996 150,497 | 38,665
|
Other assets 195 | 2,471
|
Separate account assets 1,646,169 | 1,207,247
___________________| _________________
Total assets $2,445,835 | $1,677,899
===================| =================
</TABLE>
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
December 31, 1997 | December 31, 1996
___________________| _________________
<S> <C> | <C>
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life |
products $505,304 | $285,287
Unearned revenue reserve 1,189 | 2,063
Other policy claims and benefits 10 | --
___________________| _________________
506,503 | 287,350
|
Deferred income tax liability -- | 365
Line of credit with affiliate 24,059 | --
Surplus note 25,000 | 25,000
Due to affiliates 80 | 1,504
Other liabilities 16,711 | 15,949
Separate account liabilities 1,646,169 | 1,207,247
___________________| _________________
2,218,522 | 1,537,415
|
Commitments and contingencies |
|
Stockholder's equity: |
Common stock, par value $10 per share, |
authorized, issued and outstanding |
250,000 shares 2,500 | 2,500
Additional paid-in capital 224,997 | 137,372
Unrealized appreciation (depreciation) |
of securities at fair value 241 | 262
Retained earnings (deficit) (425)| 350
___________________| _________________
Total stockholder's equity 227,313 | 140,484
___________________| _________________
Total liabilities and stockholder's |
equity $2,445,835 | $1,677,899
===================| =================
</TABLE>
See accompanying notes.
80
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
___________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 |October 24, 1997
__________________|________________
|
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $3,834 | $18,288
Management fee revenue 508 | 2,262
Net investment income 5,127 | 21,656
Realized gains (losses) on investments 15 | 151
Other income 236 | 426
__________________|________________
9,720 | 42,783
|
|
Insurance benefits and expenses: |
Annuity and interest sensitive life benefits: |
Interest credited to account balances 7,413 | 19,276
Benefit claims incurred in excess of |
account balances -- | 125
Underwriting, acquisition and insurance |
expenses: |
Commissions 9,437 | 26,818
General expenses 3,350 | 13,907
Insurance taxes 450 | 1,889
Policy acquisition costs deferred (13,678)| (29,003)
Amortization: |
Deferred policy acquisition costs 892 | 1,674
Present value of in force acquired 948 | 5,225
Goodwill 630 | 1,398
__________________|________________
9,442 | 41,309
|
Interest expense 557 | 2,082
__________________|________________
9,999 | 43,391
__________________|________________
Income (loss) before income taxes (279)| (608)
|
Income taxes 146 | (1,337)
__________________|________________
|
Net income (loss) ($425)| $729
==================|================
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
____________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
__________________| ________________
|
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $8,768 | $12,259
Management fee revenue 877 | 1,390
Net investment income 5,795 | 4,990
Realized gains (losses) on investments 42 | (420)
Other income 486 | 70
__________________| ________________
15,968 | 18,289
|
|
Insurance benefits and expenses: |
Annuity and interest sensitive life benefits: |
Interest credited to account balances 5,741 | 4,355
Benefit claims incurred in excess of |
account balances 1,262 | 915
Underwriting, acquisition and insurance |
expenses: |
Commissions 9,866 | 16,549
General expenses 5,906 | 9,422
Insurance taxes 672 | 1,225
Policy acquisition costs deferred (11,712)| (19,300)
Amortization: |
Deferred policy acquisition costs 244 | 2,436
Present value of in force acquired 2,745 | 951
Goodwill 589 | --
__________________| ________________
15,313 | 16,553
|
Interest expense 85 | --
__________________| ________________
15,398 | 16,553
__________________| ________________
Income (loss) before income taxes 570 | 1,736
|
Income taxes 220 | (1,463)
__________________| ________________
|
Net income (loss) $350 | $3,199
==================| ================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
__________________
For the year ended
December 31, 1995
__________________
<S> <C>
Revenues:
Annuity and interest sensitive life
product charges $18,388
Management fee revenue 987
Net investment income 2,818
Realized gains (losses) on investments 297
Other income 63
__________________
22,553
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 1,322
Benefit claims incurred in excess of
account balances 1,824
Underwriting, acquisition and insurance
expenses:
Commissions 7,983
General expenses 12,650
Insurance taxes 952
Policy acquisition costs deferred (9,804)
Amortization:
Deferred policy acquisition costs 2,710
Present value of in force acquired 1,552
Goodwill --
__________________
19,189
Interest expense --
__________________
19,189
__________________
Income (loss) before income taxes 3,364
Income taxes --
__________________
Net income (loss) $3,364
==================
</TABLE>
See accompanying notes.
81
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
PRE-ACQUISITION
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital Fair Value (Deficit) Equity
__________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 $2,500 $50,000 $37,086 ($1) ($79) $89,506
Contribution of
capital -- -- 7,944 -- -- 7,944
Net income -- -- -- -- 3,364 3,364
Preferred stock
dividends -- -- -- -- (3,348) (3,348)
Unrealized apprecia-
tion of securities
at fair value -- -- -- 659 -- 659
__________________________________________________________
Balance at
December 31, 1995 2,500 50,000 45,030 658 (63) 98,125
Net income -- -- -- -- 3,199 3,199
Preferred stock
dividends -- -- -- -- (719) (719)
Unrealized deprecia-
tion 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
==========================================================
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital 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 -- -- -- -- $350 350
Unrealized apprecia-
tion of securities
at fair value -- -- -- $262 -- 262
__________________________________________________________
Balance at
December 31, 1996 2,500 -- 137,372 262 350 140,484
Contribution of
capital -- -- 1,121 -- -- 1,121
Net income -- -- -- -- 729 729
Unrealized apprecia-
tion of securities
at fair value -- -- -- 1,543 -- 1,543
__________________________________________________________
Balance at
October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
==========================================================
POST-MERGER
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital Fair Value (Deficit) Equity
__________________________________________________________
Balance at
October 25, 1997 $2,500 -- $224,997 -- -- $227,497
Net loss -- -- -- -- ($425) (425)
Unrealized apprecia-
tion of securities
at fair value -- -- -- $241 -- 241
__________________________________________________________
Balance at
December 31, 1997 $2,500 -- $224,997 $241 ($425) $227,313
==========================================================
</TABLE>
See accompanying notes.
82
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
___________________| ___________________
<S> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) ($425)| $729
Adjustments to reconcile net income (loss) |
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 7,361 | 19,177
Change in unearned revenues 1,189 | 3,292
Decrease (increase) in accrued |
investment income 1,205 | (3,489)
Policy acquisition costs deferred (13,678)| (29,003)
Amortization of deferred policy |
acquisition costs 892 | 1,674
Amortization of present value of in |
force acquired 948 | 5,225
Change in other assets, other |
liabilities and accrued income taxes 4,205 | (8,944)
Provision for depreciation and |
amortization 1,299 | 3,203
Provision for deferred income taxes 146 | 316
Realized (gains) losses on investments (15)| (151)
___________________| ___________________
Net cash provided by (used in) |
operating activities 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 9,871 | 39,622
Mortgage loans on real estate 1,644 | 5,828
Short-term investments - net -- | 11,415
___________________| ___________________
11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale (29,596)| (155,173)
Equity securities (1)| (4,865)
Mortgage loans on real estate (14,209)| (44,481)
Policy loans - net (328)| (3,870)
Short-term investments - net (13,244)| --
___________________| ___________________
(57,378)| (208,389)
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
________________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
___________________| ___________________
<S> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $350 | $3,199
Adjustments to reconcile net income (loss) |
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
Change in unearned revenues 2,063 | 2,084
Decrease (increase) in accrued |
investment income (877)| (2,494)
Policy acquisition costs deferred (11,712)| (19,300)
Amortization of deferred policy |
acquisition costs 244 | 2,436
Amortization of present value of in |
force acquired 2,745 | 951
Change in other assets, other |
liabilities and accrued income taxes (96)| 4,672
Provision for depreciation and |
amortization 1,242 | 703
Provision for deferred income taxes 220 | (1,463)
Realized (gains) losses on investments (42)| 420
___________________| ___________________
Net cash provided by (used in) |
operating activities (757)| (4,320)
|
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 47,453 | 55,091
Mortgage loans on real estate 40 | --
Short-term investments - net 2,629 | 354
___________________| ___________________
50,122 | 55,445
Acquisition of investments: |
Fixed maturities - available for sale (147,170)| (184,589)
Equity securities (5)| --
Mortgage loans on real estate (31,499)| --
Policy loans - net (637)| (1,977)
Short-term investments - net -- | --
___________________| ___________________
(179,311)| (186,566)
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
PRE-ACQUISITION
_________________
For the year
ended
December 31, 1995
_________________
<S> <C>
OPERATING ACTIVITIES
Net income (loss) $3,364
Adjustments to reconcile net income (loss)
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 4,664
Change in unearned revenues 4,949
Decrease (increase) in accrued
investment income (676)
Policy acquisition costs deferred (9,804)
Amortization of deferred policy
acquisition costs 2,710
Amortization of present value of in
force acquired 1,552
Change in other assets, other
liabilities and accrued income taxes 4,686
Provision for depreciation and
amortization (142)
Provision for deferred income taxes --
Realized (gains) losses on investments (297)
_________________
Net cash provided by (used in)
operating activities 11,006
INVESTING ACTIVITIES
Sale, maturity or repayment of
investments:
Fixed maturities - available for sale 24,026
Mortgage loans on real estate --
Short-term investments - net --
_________________
24,026
Acquisition of investments:
Fixed maturities - available for sale (61,723)
Equity securities (10)
Mortgage loans on real estate --
Policy loans - net (1,508)
Short-term investments - net (1,681)
_________________
(64,922)
</TABLE>
See accompanying notes.
83
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS -(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
___________________| ___________________
<S> <C> | <C>
Funds held in escrow pursuant to |
an Exchange Agreement -- | --
Purchase of property and equipment ($252)| ($875)
___________________| ___________________
Net cash used in investing activities (46,115)| (152,399)
|
FINANCING ACTIVITIES |
Proceeds from issuance of surplus note -- | --
Proceeds from line of credit borrowings 10,119 | 97,124
Repayment of line of credit borrowings (2,207)| (80,977)
Receipts from annuity and interest |
sensitive life policies credited |
to policyholder account balances 62,306 | 261,549
Return of policyholder account balances |
on annuity and interest sensitive |
life policies (6,350)| (13,931)
Net reallocations to Separate |
Accounts (17,017)| (93,069)
Contributions of capital by Parent -- | 1,011
Dividends paid on preferred stock -- | --
___________________| ___________________
Net cash provided by financing |
activities 46,851 | 171,707
___________________| ___________________
Increase (decrease) in cash and |
cash equivalents 3,863 | 11,337
|
Cash and cash equivalents at |
beginning of period 17,176 | 5,839
___________________| ___________________
Cash and cash equivalents at end |
of period $21,039 | $17,176
===================| ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $295 $1,912
Income taxes -- 283
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation -- 110
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
_____________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
__________________| _________________
<S> <C> | <C>
INVESTING ACTIVITIES - CONTINUED |
Funds held in escrow pursuant to |
an Exchange Agreement -- | --
Purchase of property and equipment ($137)| --
__________________| _________________
Net cash used in investing activities (129,326)| ($131,121)
|
FINANCING ACTIVITIES |
Proceeds from issuance of surplus note 25,000 | --
Proceeds from line of credit borrowings -- | --
Repayment of line of credit borrowings -- | --
Receipts from annuity and interest |
sensitive life policies credited |
to policyholder account balances 116,819 | 149,750
Return of policyholder account balances |
on annuity and interest sensitive |
life policies (3,315)| (2,695)
Net reallocations to Separate |
Accounts (10,237)| (8,286)
Contributions of capital by Parent -- | --
Dividends paid on preferred stock -- | (719)
__________________| _________________
Net cash provided by financing |
activities 128,267 | 138,050
__________________| _________________
Increase (decrease) in cash and |
cash equivalents (1,816)| 2,609
|
Cash and cash equivalents at |
beginning of period 7,655 | 5,046
__________________| _________________
Cash and cash equivalents at end |
of period $5,839 | $7,655
==================| =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest -- --
Income taxes -- --
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation -- --
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
PRE-ACQUISITION
_________________
For the year
ended
December 31, 1995
_________________
<S> <C>
INVESTING ACTIVITIES - CONTINUED
Funds held in escrow pursuant to
an Exchange Agreement ($1,242)
Purchase of property and equipment --
_________________
Net cash used in investing activities (42,138)
FINANCING ACTIVITIES
Proceeds from issuance of surplus note --
Proceeds from line of credit borrowings --
Repayment of line of credit borrowings --
Receipts from annuity and interest
sensitive life policies credited
to policyholder account balances 29,501
Return of policyholder account balances
on annuity and interest sensitive
life policies (1,543)
Net reallocations to Separate
Accounts --
Contributions of capital by Parent 7,944
Dividends paid on preferred stock (3,348)
_________________
Net cash provided by financing
activities 32,554
_________________
Increase (decrease) in cash and
cash equivalents 1,422
Cash and cash equivalents at
beginning of period 3,624
_________________
Cash and cash equivalents at end
of period $5,046
=================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest --
Income taxes --
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation --
</TABLE>
See accompanying notes.
84
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
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," and with Golden
American collectively, the "Company"). All significant intercompany accounts
and transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa Companies,
Inc., 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 and December 23, 1997, First Golden became licensed to sell insurance
products in New York and Delaware, respectively. The Company's products are
marketed by broker/dealers, financial institutions and insurance agents. The
Company's primary customers are individuals and families.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable"), pursuant to the terms of the Agreement and Plan of Merger
("Merger Agreement") among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI
is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of the merger, Equitable was
merged into PFHI which was simultaneously renamed Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 5 for
additional information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding capital stock of
EIC Variable, Inc. (formerly known as BT Variable, Inc.) 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
Agreement"). On April 30, 1997, EIC Variable, Inc. was liquidated and its
investments in Golden American and DSI were transferred to Equitable, while
the remainder of its net assets were contributed to Golden American. On
December 30, 1997, EIC Variable, Inc. was dissolved. See Note 6 for additional
information regarding the acquisition.
For financial statement purposes, the merger was accounted for as a purchase
effective October 25, 1997 and the change in control of Golden American through
the acquisition of BT Variable was accounted for as a purchase effective August
14, 1996. The merger and acquisition resulted in new bases of accounting
reflecting estimated fair values of assets and liabilities at their respective
dates. As a result, the Company's financial statements for the period
subsequent to October 24, 1997, are presented on the Post-Merger new basis of
accounting, for the period August 14, 1996 through October 24, 1997, are
presented on the Post-Acquisition basis of accounting, and for August 13, 1996
and prior periods are presented on the Pre-Acquisition basis of accounting.
INVESTMENTS
FIXED MATURITIES: Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
requires fixed maturity securities to be designated as either "available for
sale," "held for investment" or "trading." Sales of fixed maturities
designated 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 adjustment for related changes in deferred policy acquisition
costs ("DPAC"), present value of in force acquired ("PVIF"), policy reserves
and deferred income
85
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
taxes. At December 31, 1997 and 1996, 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 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.
Premiums 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. The change in unrealized appreciation and depreciation of
marketable equity securities (net of related deferred income taxes, if any) is
included directly in stockholder's equity. Equity securities 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 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
reduced to the present value of expected future cash flows from the loan,
discounted 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
allowance 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
accrual 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 private 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
underlying the separate accounts. Realized gains and losses are determined on
the basis of specific identification and average cost methods for manager
initiated and issuer initiated disposals, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company considers
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.
86
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
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 deferred.
Acquisition costs for variable annuity and variable life products are being
amortized generally in proportion to the present value (using the assumed
crediting rate) of expected future gross profits. This amortization is
"unlocked" when the Company revises its estimate of current or future gross
profits to be realized from a group of products. DPAC is adjusted to reflect
the pro forma impact of unrealized gains and losses on fixed maturity
securities the Company has designated as "available for sale" under SFAS No.
115.
PRESENT VALUE OF IN FORCE ACQUIRED
As a result of the merger and the acquisition, a portion of the acquisition
cost related to each transaction was allocated to the right to receive
future cash flows from existing insurance contracts. This allocated cost
represents the PVIF which reflects the value of those purchased policies
calculated by discounting actuarially determined expected future cash flows
at the discount rate determined by the purchaser. Amortization of PVIF is
charged to expense in proportion to expected gross profits. This
amortization is "unlocked" when the Company revises its estimate of current
or future gross profits to be realized from the insurance contracts acquired.
PVIF is adjusted to reflect the pro forma impact of unrealized gains (losses)
on available for sale fixed maturities. See Notes 5 and 6 for additional
information on PVIF resulting from the merger and acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, 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 allowances for depreciation.
Depreciation expense is computed primarily on the basis of the straight-line
method over the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger discussed previously and is
being amortized over 40 years on a straight-line basis. Goodwill established
as a result of the acquisition discussed above was being amortized over 25
years on a straight-line basis. See Notes 5 and 6 for additional information
on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for fixed interest divisions of the variable products
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 3.30% to 8.25% during 1997. 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
mutual 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.
87
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Variable separate account assets carried at fair value of the underlying
investments 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
accompanying Statements 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
between 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 equity securities and fixed maturity securities the Company has
designated as available for sale under SFAS No. 115. Changes in deferred tax
assets or liabilities resulting from this SFAS No. 115 adjustment are charged
or credited directly to stockholder's equity. Deferred income tax expenses
or credits reflected 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).
DIVIDEND RESTRICTIONS
The Company's ability 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 1998,
Golden American cannot pay dividends to its parent without prior approval of
statutory authorities. The Company has maintained adequate statutory capital
and surplus and has not used surplus relief or financial reinsurance, which
have come under scrutiny by many state insurance departments.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholders unless a notice of
its intention to declare a dividend and amount of the dividend has been filed
not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
First Golden within thirty days after the filing should the superintendent
find that the financial condition of First Golden does not warrant the
distribution.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. 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 material
reported amounts and disclosures. Included among the material (or potentially
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
policyholder liabilities, (2) policyholder liabilities, (3) deferred policy
acquisition costs and present value of in force acquired, (4) fair values of
assets and liabilities recorded as a result of merger and acquisition
transactions, (5) asset valuation
88
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
allowances, (6) guaranty fund assessment
accruals, (7) deferred tax benefits (liabilities) and (8) estimates for
commitments and contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and assumptions
regarding all of the preceding are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could
materially impact the financial statements.
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
acquiring 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 established as a result of the merger/acquisition and
is amortized and charged to expense; (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 methodologies utilizing statutory interest rates;
(4) reserves are reported before reduction 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 applicable), present value of
in force acquired 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 realized losses in the Statement 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 anticipated guaranty fund assessments, net of related
anticipated premium tax credits, rather than capitalized when assessed and
amortized in accordance with procedures permitted by insurance regulatory
authorities; (10) revenues for variable annuity and variable life products
consist of policy charges for the cost of insurance, policy administration
charges, amortization of policy initiation fees and surrender charges assessed
rather than premiums received; (11) the financial statements of Golden
American's wholly owned subsidiary are consolidated rather than recorded at the
equity in net assets; (12) surplus notes are reported as liabilities rather
than as surplus; and (13) 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 loss for Golden American as determined in accordance with statutory
accounting practices was $428,000 in 1997, $9,188,000 in 1996 and $4,117,000
in 1995. Total statutory capital and surplus was $76,914,000 at December 31,
1997 and $80,430,000 at December 31, 1996.
89
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period| For the period For the period
October 25, 1997| January 1, 1997 August 14, 1996
through| through through
December 31, 1997| October 24, 1997 December 31, 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities $4,443 | $18,488 $5,083
Equity securities 3 | -- 103
Mortgage loans on real |
estate 879 | 3,070 203
Policy loans 59 | 482 78
Short-term investments 129 | 443 441
Other, net (154)| 24 2
Funds held in escrow -- | -- --
__________________| ____________________________________
Gross investment income 5,359 | 22,507 5,910
Less investment expenses (232)| (851) (115)
__________________| ____________________________________
Net investment income $5,127 | $21,656 $5,795
==================| ====================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities $4,507 | $1,610
Equity securities -- | --
Mortgage loans on real |
estate -- | --
Policy loans 73 | 56
Short-term investments 341 | 899
Other, net 22 | 148
Funds held in escrow 145 | 166
__________________| _________________
Gross investment income 5,088 | 2,879
Less investment expenses (98)| (61)
__________________| _________________
Net investment income $4,990 | $2,818
==================| =================
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period| For the period For the period
October 25, 1997| January 1, 1997 August 14, 1996
through| through through
December 31, 1997| October 24, 1997 December 31, 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities, |
available for sale $25 | $151 $42
Mortgage loans (10)| -- --
__________________| ____________________________________
Realized gains (losses) |
on investments $15 | $151 $42
========================================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities, |
available for sale ($420)| $297
Mortgage loans -- | --
__________________| _________________
Realized gains (losses) |
on investments ($420)| $297
=====================================
</TABLE>
90
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
The change in unrealized appreciation (depreciation) on securities at
fair value is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period | For the period For the period
October 25, 1997 | January 1, 1997 August 14, 1996
through | through through
December 31, | October 24, December 31,
1997 | 1997 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities: |
Available for sale $1,113 | $4,607 $410
Held for investment -- | -- --
Equity securities (533)| (465) (3)
__________________| ____________________________________
Unrealized appreciation |
(depreciation) of |
securities $580 | $4,142 $407
========================================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities: |
Available for sale ($2,087)| $958
Held for investment -- | 90
Equity securities 1 | 3
__________________| _________________
Unrealized appreciation |
(depreciation) of |
securities ($2,086)| $1,051
=====================================
</TABLE>
At December 31, 1997 and December 31, 1996, 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>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_______________________________________________
(Dollars in thousands)
December 31, 1997 POST-MERGER
______________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $62,988 $155 ($10) $63,133
Other 5,705 5 (1) 5,709
Foreign governments 2,062 -- (9) 2,053
Public utilities 25,899 49 (4) 25,944
Investment grade corporate 219,526 926 (32) 220,420
Below investment grade
corporate 41,355 186 (210) 41,331
Mortgage-backed securities 55,753 78 (20) 55,811
_______________________________________________
Total $413,288 $1,399 ($286) $414,401
===============================================
December 31, 1996 POST-ACQUISITION
______________________________________________________________________________
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>
91
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
At December 31, 1997, net unrealized investment gains on fixed maturities
designated as available for sale totaled $1,113,000. This appreciation caused
an increase to stockholder's equity of $587,000 at December 31, 1997 (net of
deferred income taxes of $316,000, an adjustment of $35,000 to DPAC and PVIF
of $175,000). Short-term investments with maturities of 30 days or less have
been excluded from the above schedules. Amortized cost approximates fair value
for these securities.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1997, 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-MERGER
_____________________________
Estimated
Amortized Fair
December 31, 1997 Cost Value
_____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due within one year $26,261 $26,239
Due after one year through five years 198,249 198,781
Due after five years through ten years 70,037 70,437
_____________ _____________
294,547 295,457
Mortgage-backed securities 118,741 118,944
_____________ _____________
Total $413,288 $414,401
============= =============
</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 October 25,
1997 through
December 31, 1997:
Scheduled principal
repayments, calls and
tenders $6,708 $2 -- $6,710
Sales 3,138 23 -- 3,161
______________________________________________________
Total $9,846 $25 -- $9,871
======================================================
For the period January 1,
1997 through October 24,
1997:
Scheduled principal
repayments, calls and
tenders $25,419 -- -- $25,419
Sales 14,052 $153 ($2) 14,203
______________________________________________________
Total $39,471 $153 ($2) $39,622
======================================================
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
======================================================
</TABLE>
92
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
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
securities is written down to fair value by a charge to realized losses when
an impairment in value appears to be other than temporary. During 1997 and
1996, no investments were identified as having an impairment other than
temporary.
INVESTMENTS ON DEPOSIT: At December 31, 1997 and 1996, affidavits of deposits
covering bonds with a par value of $6,605,000 were on deposit with regulatory
authorities pursuant to certain statutory requirements.
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
regulatory authorities. The following percentages relate to holdings at
December 31, 1997 and December 31, 1996. Fixed maturity investments included
investments in basic industrials (30% in 1997 and 1996), financial companies
(24% in 1997, 18% in 1996), various government bonds and government or agency
mortgage-backed securities (17% in 1997 and 27% in 1996) and public utilities
(7% in 1997, 13% in 1996). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as Utah (13%
in 1997, 4% in 1996), California (12% in 1997, 7% in 1996), and Georgia (11%
in 1997, 17% in 1996). There are no other concentrations of mortgage loans in
any state exceeding ten percent at December 31, 1997 and 1996. Mortgage loans
on real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (43% in 1997, 36% in 1996),
industrial buildings (33% in 1997, 31% in 1996), retail facilities (15% in
1997, 6% in 1996) and multi-family residential buildings (9% in 1997, 27% in
1996). Equity securities and investments accounted for by the equity method
are not significant 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
stockholder's equity at December 31, 1997.
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of estimated fair value of all financial instruments,
including both assets and liabilities recognized and not recognized in a
Company's balance sheet, unless specifically exempted. SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," requires additional disclosures about derivative financial
instruments. Most of the Company's investments, investment contracts and debt
fall within the standards' definition of a financial instrument. Fair values
for the Company's insurance contracts other than investment contracts are not
required to be disclosed. 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. 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 assets,
the duration and interest credited on insurance liabilities and resulting
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
contracts. As discussed be-
93
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
low, the Company has used discount rates in its
determination 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.
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
<TABLE>
<CAPTION>
December 31 1997 1996
_______________________________________________________________________________
(Dollars in thousands) |
Estimated | Estimated
Carrying Fair | Carrying Fair
Value Value | Value Value
___________ ___________| ___________ ___________
<S> <C> <C> | <C> <C>
ASSETS |
Fixed maturities, available |
for sale $414,401 $414,401 | $275,563 $275,563
Equity securities 3,904 3,904 | 33 33
Mortgage loans on real estate 85,093 86,348 | 31,459 30,979
Policy loans 8,832 8,832 | 4,634 4,634
Short-term investments 14,460 14,460 | 12,631 12,631
Cash and cash equivalents 21,039 21,039 | 5,839 5,839
Separate account assets 1,646,169 1,646,169 | 1,207,247 1,207,247
|
LIABILITIES |
Annuity products 493,181 431,859 | 280,076 253,012
Surplus note 25,000 28,837 | 25,000 28,878
Separate account liabilities 1,646,169 1,443,458 | 1,207,247 1,119,158
|
</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
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.
EQUITY SECURITIES: Estimated fair values of equity securities, which consist
of the Company's investment in the portfolios underlying its separate accounts,
are based upon the quoted fair value of the individual securities comprising
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
expected cash flows, using interest rates currently offered for similar
loans.
POLICY LOANS: Carrying values approximate the estimated fair value for
policy loans.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: 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.
SEPARATE ACCOUNT ASSETS: Separate account assets are based upon the quoted
fair values of the individual securities in the separate accounts.
94
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
ANNUITY PRODUCTS: Estimated fair values of the Company's liabilities for
future policy benefits for the fixed interest division of the variable annuity
products and for supplemental contracts without life contingencies are based
upon discounted cash flow calculations. Cash flows of future policy benefits
are discounted using the market yield rate of the assets supporting these
liabilities.
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.
5. MERGER
TRANSACTION: On October 23, 1997, Equitable shareholders approved the Merger
Agreement dated as of July 7, 1997, among Equitable, PFHI and ING. On October
24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding
capital stock of Equitable pursuant to the Merger Agreement. PFHI is a wholly
owned subsidiary of ING, a global financial services holding company based in
The Netherlands. Equitable, an Iowa corporation, in turn, owned all the
outstanding capital stock of Equitable Life Insurance Company of Iowa
("Equitable Life") and Golden American and their wholly owned subsidiaries.
Equitable also owned all the outstanding capital stock of Locust Street
Securities, Inc. ("LSSI"), Equitable Investment Services, Inc., DSI, Equitable
of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II
and Equitable of Iowa Securities Network, Inc. In exchange for the outstanding
capital stock of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock plus the assumption of approximately $400 million
in debt according to the Merger Agreement. As a result of the merger,
Equitable was merged into PFHI which was simultaneously renamed Equitable of
Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All
costs of the merger, including expenses to terminate certain benefit plans,
were paid by the Parent.
ACCOUNTING TREATMENT: The merger was accounted for as a purchase resulting
in a new basis of accounting, reflecting estimated fair values for assets
and liabilities at October 24, 1997. The purchase price was allocated to EIC
and its subsidiaries. Goodwill was established for the excess of the merger
cost over the fair value of the net assets and pushed down to EIC and its
subsidiaries including Golden American and First Golden. The merger cost is
preliminary with respect to estimated expenses and, as a result, the PVIF and
related amortization and deferred taxes may change. The allocation of the
purchase price to the Company was approximately $227,497,000. The amount of
goodwill allocated to the Company relating to the merger was $151,127,000 at
the merger date and is being amortized over 40 years on a straight-line basis.
The carrying value of goodwill will be reviewed periodically for any
indication of impairment in value. The Company's DPAC, previous balance of
PVIF and unearned revenue reserve, as of the merger date, were eliminated
and an asset of $44,297,000 representing PVIF was established for all policies
in force at the merger date.
PRESENT VALUE OF IN FORCE ACQUIRED: As part of the merger, a portion of the
acquisition cost was allocated to the right to receive future cash flows from
insurance contracts existing with the Company at the date of merger. This
allocated cost represents the present value of in force acquired reflecting
the value of those purchased policies calculated by discounting the
actuarially determined expected future cash flow at the discount rate
determined by ING.
95
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
POST-MERGER
________________________
For the period
October 25, 1997
through
December 31, 1997
________________________
(Dollars in thousands)
<S> <C>
Beginning balance $44,297
Imputed interest 1,004
Amortization (1,952)
Adjustment for unrealized gains
on available for sale securities (175)
________________________
Ending balance $43,174
========================
</TABLE>
Interest is imputed on the unamortized balance of PVIF at a rate of 7.03% for
the period October 25, 1997 through December 31, 1997. The amortization of
PVIF net of imputed interest is charged to expense. PVIF is also adjusted for
the unrealized gains (losses) on available for sale securities; such changes
are included directly in stockholder's equity. Based on current conditions
and assumptions as to the impact of future events on acquired policies in
force, the expected approximate net amoritization for the next five years,
relating to the PVIF as of December 31, 1997, is $6,200,000 in 1998,
$6,000,000 in 1999, $5,600,000 in 2000, $5,000,000 in 2001 and $4,200,000 in
2002. Actual amortization may vary based upon final purchase price allocation
and changes in assumptions and experience.
6. 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 Company ("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 capital 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 arrangement. Subsequent to the acquisition,
the BT Variable, Inc. name was changed to EIC Variable, Inc. At April 30,
1997, EIC Variable, Inc. was liquidated and its investments in Golden American
and DSI were transferred to Equitable, while the remainder of its net assets
were contributed to Golden American. On December 30, 1997, EIC Variable, Inc.
was dissolved.
ACCOUNTING TREATMENT: The acquisition was accounted for as a purchase
resulting in a new basis of accounting, which reflected estimated fair
values for assets 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 allocation of the purchase price to the Company was
approximately $139,872,000. The amount of goodwill relating to the
acquisition was $41,113,000 and was amortized over 25 years on a straight-line
basis until the October 24, 1997 merger with ING. The Company's DPAC, previous
balance of PVIF and unearned revenue reserve, as of the merger date, were
eliminated and an asset of $85,796,000 representing PVIF was established for
all policies in force at the acquisition date.
96
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
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 the Company at the date of
acquisition. This allocated cost represents the present value of in force
acquired reflecting the value of those purchased policies calculated 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 For the | For the
period period | period
January August | January For the
1, 1997 14, 1996 | 1, 1996 year
through through | through ended
October December | August December
24, 1997 31, 1996 | 13, 1996 31, 1995
_______________________| ________________________
(Dollars in thousands)
<S> <C> <C> | <C> <C>
Beginning balance $83,051 $85,796 | $6,057 $7,620
Imputed interest 5,138 2,465 | 273 548
Amortization (10,363) (5,210)| (1,224) (2,100)
Adjustment for unrealized |
gains (losses) on available |
for sale securities (373) -- | 11 (11)
_______________________| ________________________
Ending balance $77,453 $83,051 | $5,117 $6,057
=================================================
</TABLE>
Pre-Acquisition PVIF represents the remaining value assigned to in force
contracts when Bankers Trust purchased Golden American from Mutual Benefit
Life Insurance Company in Rehabilitation ("Mutual Benefit") on September
30, 1992.
Interest was imputed on the unamortized balance of PVIF at rates of 7.70%
to 7.80% for the period August 14, 1996 through October 24, 1997. The
amortization of PVIF net of imputed interest was charged to expense. PVIF
was also adjusted for the unrealized gains (losses) on available for sale
securities; such changes were included directly in stockholder's equity.
7. INCOME TAXES
The Company will file a consolidated federal income tax return with its wholly
owned life insurance subsidiary. Under the Internal Revenue Code, a newly
acquired insurance company cannot file as part of its parent's consolidated
tax return for 5 years.
At December 31, 1997, Golden American has net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $8,697,000.
Approximately $5,094,000 and $3,603,000 of these NOL carryforwards are
available to offset future taxable income of the Company through the years 2011
and 2012, respectively.
97
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated financial statements
is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
_____________________________________________________________________
For the | For the For the | For the
period | period period | period
October 25, | January 1, August 14, | January 1,
1997 | 1997 1996 | 1996 For the
through | through through | through year ended
December 31, | October 24, December 31, | August 13, December 31,
1997 | 1997 1996 | 1996 1995
_____________| __________________________| __________________________
(Dollars in thousands)
<S> <C> | <C> <C> | <C> <C>
Current -- | $12 -- | -- --
Deferred $146 | (1,349) $220 | ($1,463) --
_____________| __________________________| __________________________
$146 | ($1,337) $220 | ($1,463) --
=====================================================================
</TABLE>
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
_______________________________________________________
For the | For the For the | For the
period | period period | period
October | January August | January
25, 1997 | 1, 1997 14, 1996 | 1, 1996 For the
through | through through | through year ended
December | October December | August December
31, 1997 | 24, 1997 31, 1996 | 13, 1996 31, 1995
___________| ____________________| ____________________
(Dollars in thousands)
<S> <C> | <C> <C> | <C> <C>
Income (loss) | |
before income taxes ($279)| ($608) $570 | $1,736 $3,364
===========| ====================| ====================
Income tax | |
(benefit) at federal | |
statutory rate ($98)| ($213) $200 | $607 $1,177
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards -- | -- -- | (1,214) --
Dividends received | |
deduction -- | -- -- | -- (350)
Goodwill amortization 220 | -- -- | -- --
Compensatory stock | |
option and restricted | |
stock expense -- | (1,011) -- | -- --
Other items 24 | (113) 20 | -- 17
Valuation allowance -- | -- -- | (856) (844)
___________| ____________________| ____________________
Income tax expense | |
(benefit) $146 | ($1,337) $220 | ($1,463) $--
=======================================================
</TABLE>
98
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
___________________________________
December 31 1997 | 1996
____________________________________________________________ | ________________
(Dollars in thousands)
<S> <C> | <C>
Deferred tax assets: |
Future policy benefits $27,399 | $19,102
Deferred policy acquisition costs 4,558 | 1,985
Goodwill 17,620 | 5,918
Net operating loss carryforwards 3,044 | 1,653
Other 1,548 | 235
________________ | ________________
54,169 | 28,893
Deferred tax liabilities: |
Unrealized appreciation (depreciation) |
of securities at fair value (130) | (145)
Fixed maturity securities (1,665) | --
Present value of in force acquired (15,172) | (29,068)
Other (972) | (45)
________________ | ________________
(17,939) | (29,258)
________________ | ________________
Deferred income tax asset (liability) $36,230 | ($365)
===================================
</TABLE>
The Company is required to establish a "valuation allowance" for any portion
of the deferred tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets, and, therefore, no such
valuation allowance has been established.
8. RETIREMENT PLANS
DEFINED BENEFIT PLANS
In 1997, the Company was allocated their share of the pension liability
associated with their employees. The Company's employees are covered by the
employee retirement plan of an affiliate, Equitable Life. The benefits are
based on years of service and the employee's average annual compensation
during the last five years of employment. Further, Equitable Life sponsors a
defined contribution plan that is qualified under Internal Revenue Code Section
401(k). The Company's funding and accounting policies are consistent with the
funding requirements of Federal law and regulations.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
POST-MERGER
_______________________
December 31, 1997
_______________________
(Dollars in thousands)
<S> <C>
Accumulated benefit obligation $579
=======================
Plan assets at fair value, primarily bonds, common
stocks, mortgage loans and short-term investments --
Projected benefit obligation for service rendered to date $956
_______________________
Pension liability $956
=======================
</TABLE>
99
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
__________________| __________________
(Dollars in thousands)
<S> <C> | <C>
Service cost-benefits earned |
during the period $114 | $568
Interest cost on projected |
benefit obligation 10 | 15
Net amortization and deferral -- | 1
__________________| __________________
Net periodic pension cost $124 | $584
======================================
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.25% and 5.00%, respectively, at December 31, 1997. The average
expected long term rate of return on plan assets was 9.00% in 1997.
9. RELATED PARTY TRANSACTIONS
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by the Company which as of December 31, 1997 are
sold primarily through six broker/dealer institutions. For the periods
October 25, 1997, through December 31, 1997 and January 1, 1997 through
October 24, 1997, the Company paid commissions to DSI totaling $9,931,000
and $26,419,000, respectively ($9,995,000 for the period August 14, 1996
through December 31, 1996 and $17,070,000 for the period January 1, 1996
through August 13, 1996). For the year ended December 31, 1995 commissions
paid by Golden American to DSI aggregated $8,440,000.
Golden American provides certain managerial and supervisory services to DSI.
Beginning in 1995, this fee was calculated as a percentage of average assets
in the variable separate accounts. For the periods October 25, 1997 through
December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was
$508,000 and $2,262,000, respectively. For the periods August 14, 1996
through December 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.
The Company has a service agreement with Equitable Investment Services, Inc.
("EISI"), an affiliate, in which EISI provides investment management services.
Payments for these services totaled $200,000, $768,000 and $72,000 for the
periods October 25, 1997 through December 31, 1997, January 1, 1997 through
October 24, 1997 and August 14, 1996 through December 31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life. In consideration
of an annual fee, payable June 30, Equitable Life guarantees to Golden American
that it will make funds available, if needed, to Golden American to pay the
contractual claims made under the provisions of Golden American's life
insurance and annuity contracts. The agreement is not, and nothing contained
therein or done pursuant thereto by Equitable Life shall be deemed to
constitute, a direct or indirect guaranty by Equitable Life of the payment of
any debt or other obligation, indebtedness or liability, of any kind or
character whatsoever, of Golden American. The agreement does not guarantee the
value of the underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been invested. The
calculation of the annual fee is based on risk based capital. As Golden
American's risk based capital level was above required amounts, no annual fee
was payable.
100
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Golden American provides certain advisory, computer and other resources and
services to Equitable Life. Revenues for these services which reduced general
expenses incurred by Golden American totaled $1,338,000 and $2,992,000 for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, respectively. No services were provided by Golden
American in 1996.
The Company has a service agreement with Equitable Life in which Equitable Life
provides administrative and financial related services. For the period October
25, 1997 through December 31, 1997 and January 1, 1997 through October 24,
1997, the Company incurred expenses of $13,000 and $16,000, respectively,
under this agreement.
The Company had premiums, net of reinsurance, for variable products from six
significant broker/dealers for the year ended December 31, 1997, that
totaled $445,300,000, or 71% of premiums ($298,000,000 or 67% from two
significant broker/dealers for the year ended December 31, 1996). Included in
these amounts are premiums for 1997 of $26.2 million from LSSI, an affiliate.
SURPLUS NOTE: On December 17, 1996, Golden American issued an 8.25% surplus
note in the amount of $25,000,000 to Equitable. The note matures on December
17, 2026. 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. Golden American incurred interest totaling $344,000 and
$1,720,000 for the period October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively. 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.
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING America"), a
Delaware corporation, and affiliate of EIC, to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Under this
agreement, which became effective January 1, 1998 and expires December 31,
2007, Golden American and ING America can borrow up to $65,000,000 from one
another. Interest on any Golden American borrowings is charged at the rate of
ING America's cost of funds for the interest period plus 0.15%. Interest
on any ING America borrowings is charged at a rate based on the prevailing
interest rate of U.S. commercial paper available for purchase with a similar
arrangement.
LINE OF CREDIT: Golden American maintained a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Under this agreement which became effective December 1, 1996
and expired December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's monthly
average aggregate cost of short-term funds plus 1.00%. Under this agreement,
the Company incurred interest expense of $213,000 for the period October 25,
1997 through December 31, 1997, $362,000 for the period January 1, 1997 through
October 24, 1997, and $85,000 for the period August 14, 1996 through December
31, 1996. At December 31, 1997, $24,059,000 was outstanding under this
agreement. The outstanding balance was repaid by a capital contribution.
STOCKHOLDER'S EQUITY: On September 23, 1996, EIC Variable, Inc. contributed
$50,000,000 of Preferred Stock to the Company's additional paid-in capital.
101
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
10. COMMITMENTS AND CONTINGENCIES
CONTINGENT LIABILITY: In a transaction that closed on September 30, 1992,
Bankers Trust acquired from Mutual Benefit, in accordance with the terms of an
Exchange Agreement, all of the issued and outstanding capital stock of Golden
American and 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
estimated that the contingent liability due from Golden American amounted to
$439,000 at August 13, 1996. At August 13, 1996 the balance of the escrow
account established to fund the contingent liability was $4,293,000.
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
contingent liability discussed above. In exchange, Golden American
irrevocably assigned to Bankers Trust all of Golden American's rights to
receive any amounts to be disbursed from the escrow account in accordance
with the terms of the Exchange 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, 1997, the Company had reinsurance treaties with
five unaffiliated reinsurers covering a significant portion of the mortality
risks under its variable contracts. The Company remains liable to the extent
its reinsurers do not meet their obligations under the reinsurance agreements.
Reinsurance in force for life mortality risks were $96,686,000 and $58,368,000
at December 31, 1997 and 1996. At December 31, 1997, the Company has a net
payable of $11,000 for reserve credits, reinsurance claims or other receivables
from these reinsurers comprised of $240,000 for claims recoverable from
reinsurers and a payable of $251,000 for reinsurance premiums. Included in the
accompanying financial statements are net considerations to reinsurers of
$326,000, $1,871,000, $875,000, $600,000 and $2,800,000 and net policy benefits
recoveries of $461,000, $1,021,000, $654,000, $1,267,000 and $3,500,000 for the
periods October 25, 1997 through December 31, 1997, January 1, 1997 through
October 24, 1997, August 14, 1996 through December 31, 1996, and January 1,
1996 through August 13, 1996 and the year ended 1995, respectively.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial
statements are presented net of the effects of the treaty which increased
income by $265,000, $335,000, $10,000 and $56,000 for the periods October
25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996 through
August 13, 1996, respectively. In 1995, net income was reduced by $109,000.
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 Insurance 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 sufficient. 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
102
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
state premium levels
as well as its potential for premium tax offset. Accordingly, the Company
accrued and charged to expense an additional $141,000 for the period October
25, 1997 through December 31, 1997, $446,000 for the period January 1, 1997
through October 24, 1997, $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 December 31, 1997, the Company has an undiscounted reserve of
$1,358,000 to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $238,000 for
assessments paid which may be recoverable through future premium tax offsets.
The Company believes this reserve is sufficient to cover expected future
insurance guaranty fund assessments, based upon previous premiums, 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
separate account liabilities. A significant portion of the Company's sales is
generated by six broker/dealers. Substantial changes in tax laws that would
make these products less attractive to consumers, extreme fluctuations in
interest rates or stock market returns which may result in higher lapse
experience than assumed, could cause a severe impact to the Company's
financial condition.
OTHER COMMITMENTS: At December 31, 1997, outstanding commitments to fund
mortgage loans on real estate totaled $1,825,000.
YEAR 2000 (UNAUDITED): Based on a study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Management believes the Company's systems are or
will be substantially compliant by Year 2000 and has engaged external
consultants to validate this assumption. Golden American has spent
approximately $2,000 in 1997 related to the external consultants' analysis.
The projected cost to the Company for the external consultants' analysis is
approximately $130,000 to $170,000. The only system known to be affected by
this issue is a system maintained by an affiliate who will incur the related
costs to make the system compliant. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000, the Company will
be contacting significant customers, suppliers and other third parties. To
the extent these third parties would be unable to transact business in the
Year 2000 and thereafter, the Company's operations could be adversely affected.
103
<PAGE>
<PAGE>
- ----------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
----
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 3
IRA Partial Withdrawal Option 9
Other Information 9
Financial Statements of Separate Account B 10
Appendix -- Description of Bond Ratings A-1
- ----------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER
THE PROSPECTUS. ADDRESS THE FORM TO OUR CUSTOMER SERVICE CENTER;
THE ADDRESS IS SHOWN ON THE COVER.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION
FOR SEPARATE ACCOUNT B
Please Print or Type:
__________________________________________________
NAME
__________________________________________________
SOCIAL SECURITY NUMBER
__________________________________________________
STREET ADDRESS
__________________________________________________
CITY, STATE, ZIP
G3760 PREMIUM PLUS (12/98)
104
<PAGE>
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
105
<PAGE>
<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 / 1.0850 ) ^ ( 2,555 / 365 ) - 1 ) = $11,535
Therefore, the amount paid to you on full surrender ignoring any
surrender charge is $112,695 ( $124,230 - $11,535 ).
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 ^ 3 )
2. N = 2,555 ( 365 x 7 )
3. Market Value Adjustment = $124,230 x
(( 1.07 / 1.0650 ) ^ ( 2,555 / 365 ) - 1 ) = $4,141
Therefore, the amount paid to you on full surrender ignoring any
surrender charge is $128,371 ( $124,230 + $4,141 ).
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
$112,695 is requested three years into the Guarantee period; that
the then Index Rate ("J") for a seven year Guarantee Period is 8.0%;
and that no prior transfers or partial withdrawals affecting this
Fixed Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed
Allocation to provide the amount requested.
1. The Accumulation Value of the Fixed Allocation on the date of
withdrawal is $248,459 ( $200,000 x 1.075 ^ 3 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
(( $112,695 / ( 1.07 / 1.0850 ) ^ ( 2,555 / 365 )) = $124,230
Then calculate the Market Value Adjustment on that amount.
4. Market Value Adjustment = $124,230 x
(( 1.07 / 1.0850 ) ^ ( 2,555 / 365 ) - 1 ) = $11,535
Therefore, the amount of the partial withdrawal paid to you is
$112,695, as requested. The Fixed Allocation will be reduced by the
amount of the partial withdrawal, $112,695, and also reduced by the
Market Value Adjustment of $11,535, for a total reduction in the
Fixed Allocation of $124,230.
A1
<PAGE>
<PAGE>
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 $128,371
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 ^ 3 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
(( $128,371 / ( 1.07 / 1.0650 ) ^ ( 2,555 / 365 )) = $124,230
Then calculate the Market Value Adjustment on that amount.
4. Market Value Adjustment = $124,230 x
(( 1.07 / 1.0650 ) ^ ( 2,555 / 365 ) - 1 ) = $4,141
Therefore, the amount of the partial withdrawal paid to you is
$128,371, 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 $4,141, for a total reduction in the
Fixed Allocation of $124,230.
A2
<PAGE>
<PAGE>
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Wilmington, Delaware
G3760 PREMIUM PLUS 12/98
<PAGE>
<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 indemnity. 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 Registrant's ultimate
parent, ING Groep, N.V., or directly by Equitable of
Iowa Companies, Inc. 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.
<PAGE>
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1 Underwriting Agreement Between Golden American Life
Insurance Company and Directed Services, Inc. (1)
3(a) Articles of Incorporation of Golden American Life
Insurance Company. (1)
3(b) (i) By-laws of Golden American Life Insurance
Company. (1)
(ii) By-laws of Golden American Life Insurance
Company, as amended. (1)
(iii) Certificate of Amendment of the By-laws of MB
Variable Life Insurance Company, as amended. (1)
(iv) By-laws of Golden American Life Insurance
Company, as amended
(12/21/93). (1)
4(a) Individual Deferred Variable and Fixed Annuity
Contract. (2)
4(b) Group Deferred Variable and Fixed Annuity Contract. (2)
4(c) Individual Deferred Variable Annuity Contract. (2)
4(d) Individual Retirement Annuity Rider Page. (1)
4(e) Individual Deferred Combination Variable and Fixed
Annuity Application. (3)
4(f) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form. (3)
4(g) Individual Deferred Variable Annuity Application. (3)
4(h) Roth Individual Retirement Annuity Rider. (2)
5 Opinion and Consent of Myles R. Tashman, Esq.
10(a) Administrative Services Agreement between Golden American
and Equitable Life Insurance Company of Iowa (3)
10(b) Service Agreement between Golden American Life Insurance
Company and Directed Services, Inc. (3)
10(c) Service Agreement between Golden American Life Insurance
Company and EISI (3)
23(a) Consent of Sutherland Asbill & Brennan LLP.
23(b) Consent of Ernst & Young LLP, independent auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
(1) Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on
September 24, 1997 (File No. 333-28743).
(2) Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on February
12, 1998 (File No. 333-28743).
(3) Incorporated herein by reference to Amendment No. 3 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on April 30,
1998 (File No. 333-28743).
<PAGE>
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULE.
(1) All financial statements will be included in the Prospectus
or Statement of Additional Information 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, 1997 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 $68,693 $68,842 $68,842
Foreign governments 2,062 2,053 2,053
Public utilities 25,899 25,944 25,944
Investment grade corporate 219,526 220,420 220,420
Below investment grade corporate 41,355 41,331 41,331
Mortgage-backed securities 55,753 55,811 55,811
___________ ___________ ___________
Total fixed maturities, available
for sale 413,288 414,401 414,401
Equity securities:
Common stocks: industrial, mis-
cellaneous and all other 4,437 3,904 3,904
Mortgage loans on real estate 85,093 85,093
Policy loans 8,832 8,832
Short-term investments 14,460 14,460
___________ ___________
Total investments $526,110 $526,690
=========== ===========
<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
________________________________________________________________________________
POST-MERGER
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Period October 25, 1997
through December 31, 1997:
Life insurance $12,752 $505,304 $1,189 $10 $3,834
POST-ACQUISITION
________________________________________________________________________________
Period January 1, 1997
through October 24, 1997:
Life insurance N/A N/A N/A N/A 18,288
Period August 14, 1996
through December 31, 1996:
Life insurance 11,468 285,287 2,063 -- 8,768
PRE-ACQUISITION
________________________________________________________________________________
Period January 1, 1996
through August 13, 1996:
Life insurance N/A N/A N/A N/A 12,259
Year ended December 31, 1995:
Life insurance 67,314 33,673 6,556 -- 18,388
</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- Operat-
ment ment sition ing Premiums
Segment Income Expenses Costs Expenses Written
________________________________________________________________________________
POST-MERGER
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Period October 25, 1997
through December 31, 1997:
Life insurance $5,127 $7,413 $892 $1,137 --
POST-ACQUISITION
________________________________________________________________________________
Period January 1, 1997
through October 24, 1997:
Life insurance 21,656 19,401 1,674 20,234 --
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 --
</TABLE>
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
_______________________________________________________________________________
Assumed Percentage
Ceded to from of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
At December 31, 1997:
Life insurance in
force $149,842,000 $96,686,000 -- $53,156,000 --
============= ============ ========= ============ ==========
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 --
============= ============ ========= ============ ==========
</TABLE>
<PAGE>
<PAGE>
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>
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has
duly caused this 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 30th day of
November, 1998.
GOLDEN AMERICAN LIFE
INSURANCE COMPANY
(Registrant)
By:
------------------------
Barnett Chernow*
President
Attest: /s/Marilyn Talman
----------------------
Marilyn Talman
Vice President, Associate General Counsel
and Assistant Secretary
As required by the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in
the capacities indicated on November 30, 1998.
Signature Title
President and Director
- --------------------
Barnett Chernow*
Senior Vice President and
- -------------------- Chief Financial Officer
E. Robert Koster*
DIRECTORS OF DEPOSITOR
- ---------------------- -----------------------
Paul E. Larson* Frederick S. Hubbell*
- ---------------------- -----------------------
Myles R. Tashman* Beth B. Neppl*
By: /s/ Marilyn Talman, Attorney-in-Fact
------------------------------------------
Marilyn Talman
_________________________
*Executed by Marilyn Talman on behalf of those indicated pursuant
to Power of Attorney.
<PAGE>
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
5 Opinion and Consent of Myles R. Tashman, Esq. EX-5
23(a) Consent of Sutherland Asbill & Brennan LLP EX-23.A
23(b) Consent of Ernst & Young LLP, independent auditors EX-23.B
24 Powers of Attorney EX-24
27 Financial Data Schedule EX-27
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 5
GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street, Suite 400, Wilmington, DE 19801
November 30, 1998
Board of Directors
Golden American Life Insurance Company
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Ms. Neppl 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 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>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 23(a)
SUTHERLAND ASBILL & BRENNAN LLP
November 25, 1998
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
Pre-Effective Amendment No. 1 to the registration statement on
Form S-1 for Golden American Life Insurance Company (File No.
333-65009). In giving this consent, we do not admit that we are
in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/Stephen E. Roth
------------------
Stephen E. Roth
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 23(b)
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 report dated
February 12, 1998, with respect to the financial statements
of Separate Account B, in the Statement of Additional
Information incorporated by reference from registration
statement (Form N-4 No. 333-28755) filed with the Securities
and Exchange Commission contemporaneously with this
registration statement. We also consent to the use of our
report dated February 12, 1998, 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 Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-65009) 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,
present fairly in all material respects the information set
forth therein.
/s/
Des Moines, Iowa
November 23, 1998
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 24
GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street, Suite 400, Wilmington, DE 198031
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/ Frederick S. Hubbell Chairman and Director April 27, 1998
- ----------------------- --------------
Frederick S. Hubbell
/s/ Barnett Chernow Director and President April 27, 1998
- ----------------------- --------------
Barnett Chernow
/s/ Myles R. Tashman Director, Executive Vice April 27, 1998
- ----------------------- President, General --------------
Myles R. Tashman Counsel and Secretary
/s/ Beth B. Neppl Director, Vice President November 6, 1998
- ----------------------- ---------------
Beth B. Neppl
/s/ E. Robert Koster Senior Vice President and November 20, 1998
- ----------------------- Chief Financial Officer -----------------
E. Robert Koster
/s/ Paul E. Larson Director April 27, 1998
- ----------------------- --------------
Paul E. Larson
<PAGE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 618,650
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 10,092
<MORTGAGE> 98,045
<REAL-ESTATE> 0
<TOTAL-INVEST> 748,890
<CASH> 18,951
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 140,845
<TOTAL-ASSETS> 3,776,542
<POLICY-LOSSES> 705,673
<UNEARNED-PREMIUMS> 2,968
<POLICY-OTHER> 89
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 45,082
0
0
<COMMON> 2,500
<OTHER-SE> 302,935
<TOTAL-LIABILITY-AND-EQUITY> 3,776,542
0
<INVESTMENT-INCOME> 29,296
<INVESTMENT-GAINS> 436
<OTHER-INCOME> 35,046
<BENEFITS> 64,972
<UNDERWRITING-AMORTIZATION> 4,014
<UNDERWRITING-OTHER> (16,412)
<INCOME-PRETAX> 9,171
<INCOME-TAX> 4,294
<INCOME-CONTINUING> 4,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,877
<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
<PAGE>
<PAGE>
</TABLE>
