As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. 333-66745
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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. 3
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
6355
(Primary Standard Industrial Classification Code Number)
41-0991508
(I.R.S. Employer Identification No.)
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, Pennsylvania 19380-1478
(610) 425-3400
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Marilyn Talman, Esq. COPY TO:
Golden American Life Insurance Company Stephen E. Roth, Esq.
1475 Dunwoody Drive Sutherland Asbill & Brennan LLP
West Chester, Pennsylvania 19380-1478 1275 Pennsylvania Avenue, N.W.
(610) 425-3400 Washington, D.C. 20004-2404
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
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 [ ]
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Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed maximum Proposed
Title of securities Amount to be offering price maximum aggregate Amount of
to be registered registered (1) per unit (1) offering price (2) registration fee(2)
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<S> <C> <C> <C> <C>
Annuity Contracts
(Interests in N/A N/A $240,000,000 $66,720
Fixed Account)
</TABLE>
(1) The maximum aggregate offering price is estimated solely for the
purpose of determining the registration fee. The amount to be registered
and the proposed maximum offering price per unit are not applicable since
these securities are not issued in predetermined amounts or units.
(2) Amount previously paid and registered.
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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 Amendment No. 3 on Form S-1 for
Golden American Life Insurance Company ("Golden American")
incorporates by reference the Statement of Additional
Information for the GoldenSelect VALUE Combination Variable
and Fixed Annuity,(There are two, versions of prospectus
and Statement of Additional Information included in this
Registration Statement ("Version 1" and "Version 2"). Version 2
offers the contract only with a standard death benefit and is a
subset of Version 1 which offers the contract with the standard
death benefit and four enhanced death benefit options), and
Part C (Other Information) contained in the Registration
Statement on Form N-4 (post-effective amendment No. 1, File
Nos. 333-66757, 811-5626, filed on or about the date hereof)
for Golden American Separate Account B. This information may
be obtained free of charge from Golden American Life Insurance
Company by calling Customer Service at 800-366-0066.
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<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
[begin shaded block]
PROFILE OF
GOLDENSELECT VALUE
FIXED AND VARIABLE ANNUITY CONTRACT
MAY 1, 1999
[inset within shaded block]
This Profile is a summary of some of the more important points
that you should know and consider before purchasing the Contract.
The Contract is more fully described in the full prospectus which
accompanies this Profile. Please read the prospectus carefully.
[end inset within shaded block]
[end shaded block]
1. THE ANNUITY CONTRACT
The Contract offered in this prospectus is a deferred combination
variable and fixed annuity contract between you and Golden American
Life Insurance Company. The Contract provides a means for you to
invest on a tax-deferred basis in (i) one or more of the 21 mutual
fund investment portfolios through our Separate Account B listed on
the next page and/or (ii) in a fixed account of Golden American with
guaranteed interest periods. We set the interest rates in the
fixed account (which will never be less than 3%) periodically.
We currently offer guaranteed interest periods of 6 months,
1, 3, 5, 7 and 10 years. We may credit a different interest rate
for each interest period. The interest you earn in the fixed account
as well as your principal is guaranteed by Golden American as long
as you do not take your money out before the applicable maturity
date for the interest period. We will apply a market value adjustment
if you withdraw your money from the fixed account more than 30 days
before the applicable maturity date. The investment portfolios are
designed to offer a better return than the fixed account. However,
this is NOT guaranteed. You can lose your money.
The Contract, like all deferred variable annuity contracts, has two
phases: the accumulation phase and the income phase. The accumulation
phase is the period between the contract date and the date on which you
start receiving the annuity payments under your Contract. The amounts you
accumulate during the accumulation phase will determine the amount of
annuity payments you will receive. The income phase begins when you
start receiving regular annuity payments from your Contract on the
annuity start date.
You determine (1) the amount and frequency of premium payments, (2) the
investments, (3) transfers between investments, (4) the type of annuity
to be paid after the accumulation phase, (5) the beneficiary who will
receive the death benefits, (6) the type of death benefit, and (7) the
amount and frequency of withdrawals.
2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving on
the annuity start date. You may choose one of the following annuity
payment options:
1
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<TABLE>
<CAPTIONS>
ANNUITY OPTIONS
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<S> <C> <C>
| Option 1 Income for a Payments are made for a specified |
| fixed period number of years to you |
| or your beneficiary. |
| |
|---------------------------------------------------------------------|
| |
| Option 2 Income for Payments are made for the rest of |
| life with a your life or longer for a specified |
| period certain period such as 10 or 20 years or |
| until the total amount used to buy |
| this option has been repaid. This |
| option comes with an added guarantee |
| that payments will continue to your |
| beneficiary for the remainder of |
| such period if you should die during |
| the period. |
| |
|---------------------------------------------------------------------|
| |
| Option 3 Joint life Payments are made for your life |
| income and the life of another person |
| (usually your spouse). |
| |
|---------------------------------------------------------------------|
| |
| Option 4 Annuity plan Any other annuitization plan that we |
| choose to offer on the annuity start |
| date. |
| |
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</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments
under Option 4 may be fixed or variable. Once you elect an annuity
option and begin to receive payments, it cannot be changed.
3. PURCHASE (BEGINNING OF THE ACCUMULATION PHASE)
You may purchase the Contract with an initial payment of $25,000 or
more up to and including age 85. You may make additional payments
of $1,000 or more ($250 for a qualified Contract) at any time
before you turn age 85 during the accumulation phase. Under certain
circumstances, we may waive the minimum initial and additional
premium payment requirement. Any initial or additional premium
payment that would cause the contract value of all annuities that you
maintain with us to exceed $1,000,000 requires our prior approval.
Who may purchase this Contract? The Contract may be purchased by
individuals as part of a personal retirement plan (a "non-qualified
Contract"), or as a Contract that qualifies for special tax treatment
when purchased as either an Individual Retirement Annuity (IRA) or
in connection with a qualified retirement plan (each a "qualified
Contract").
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term
purposes. The tax-deferred feature is more attractive to people in
high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot risk
getting back less money than you put in.
4. THE INVESTMENT PORTFOLIOS
You can direct your money into: (1) the fixed account with
guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10 years,
and/or (2) into any one or more of the following 21 mutual fund
investment portfolios through our Separate Account B. The investment
portfolios are described in the prospectuses for the GCG Trust,
the PIMCO Variable Insurance Trust and the Warburg Pincus Trust.
Keep in mind that any amount you direct into the fixed account earns
a fixed interest rate. But if you invest in any of the following
investment portfolios, depending on market conditions, you may make or
lose money:
<TABLE>
<CAPTION>
THE GCG TRUST
<S> <C> <C>
Liquid Asset Series Growth & Income Series Small Cap Series
Limited Maturity Bond Series Growth Series Real Estate Series
Global Fixed Income Series Value Equity Series Hard Assets Series
Total Return Series Research Series Developing World Series
Equity Income Series Strategic Equity Series
Fully Managed Series Capital Appreciation Series
Rising Dividends Series Mid-Cap Growth Series
</TABLE>
THE PIMCO TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
2
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<PAGE>
5. EXPENSES
The Contract has insurance features and investment features, and there
are costs related to each. The Company currently does not deduct an
annual contract administrative charge but may in the future charge
an annual contract administrative fee of $30 or 2% of the contract
value, whichever is less. We also collect a mortality and expense risk
charge and an asset-based administrative charge. These 2 charges are
deducted daily directly from the amounts in the investment portfolios.
The asset-based administrative charge is 0.15% annually. The annual
rate of the mortality and expense risk charge depends on the death
benefit you choose:
<TABLE>
<CAPTION>
Standard Enhanced Death Benefits
Death Benefit Annual Ratchet 3% Solution 5% Solution 7% Solution
------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mortality & Expense Risk Charge 0.75% 0.95% 0.90% 1.05% 1.20%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15% 0.15%
Total 0.90% 1.10% 1.05% 1.20% 1.35%
</TABLE>
Each investment portfolio has charges for investment management fees
and other expenses. These charges, which vary by investment portfolio,
currently range from 0.59% to 1.83% annually (see following table)
of the portfolio's average daily net asset balance.
If you withdraw money from your Contract, or if you begin receiving
annuity payments, the Company may deduct a premium tax of 0%-3.5% to
pay to your state.
We deduct a surrender charge if you surrender your Contract or withdraw
an amount exceeding the free withdrawal amount. The free withdrawal
amount in any contract year is the greater of (i) any earnings less
previous withdrawals; or (ii) 10% of premium payments paid within the
last 7 years and not previously withdrawn, less any previous withdrawals
taken in the same contract year. The following table shows the schedule
of the surrender charge that will apply. The surrender charge is a
percent of each premium payment.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Complete Years Elapsed 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
Since Premium Payment | | | | | | |
Surrender Charge 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
</TABLE>
The following table is designed to help you understand the Contract
charges. The "Total Annual Insurance Charges" column includes the
maximum mortality and expense risk charge, the asset-based
administrative charge, and reflects the annual contract administrative
charge as 0.04% (based on an average contract value of $75,000).
The "Total Annual Investment Portfolio Charges" column reflects the
portfolio charges for each portfolio and are based on actual
expenses as of December 31, 1998, except for portfolios that
had not commenced operations as of December 31, 1998
where the charges have been annualized. The column "Total Annual
Charges" reflects the sum of the previous two columns. The columns
under the heading "Examples" show you how much you would pay under the
Contract for a 1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples
assume that you invested $1,000 in a Contract that earns 5% annually
and that you withdraw your money at the end of Year 1 or at the end of
Year 10. For Years 1 and 10, the examples show the total annual
charges assessed during that time and assume that you have elected the
Percent Solution Enhanced Death Benefit with a 7% Solution. For these
examples, the premium tax is assumed to be 0%.
3
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<TABLE>
<CAPTION>
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| EXAMPLES: |
| TOTAL ANNUAL -------- |
| TOTAL ANNUAL INVESTMENT TOTAL TOTAL CHARGES AT THE END OF: |
| INSURANCE PORTFOLIO ANNUAL |
|INVESTMENT PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS |
| |
|--------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> |
|THE GCG TRUST |
|Liquid Asset 1.39% 0.59% 1.98% $ 80.10 $230.04 |
|Limited Maturity Bond 1.39% 0.60% 1.99% $ 80.20 $231.09 |
|Global Fixed Income 1.39% 1.60% 2.99% $ 90.20 $330.51 |
|Total Return 1.39% 0.97% 2.36% $ 83.91 $269.13 |
|Equity Income 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Fully Managed 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Rising Dividends 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Growth & Income 1.39% 1.08% 2.47% $ 85.01 $280.15 |
|Growth 1.39% 1.09% 2.48% $ 85.11 $281.15 |
|Value Equity 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Research 1.39% 0.94% 2.83% $ 83.61 $266.10 |
|Strategic Equity 1.39% 0.99% 2.38% $ 84.11 $271.15 |
|Capital Appreciation 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Mid-Cap Growth 1.39% 0.95% 2.34% $ 83.71 $267.11 |
|Small Cap 1.39% 0.99% 2.38% $ 84.11 $271.15 |
|Real Estate 1.39% 0.98% 2.37% $ 84.01 $270.14 |
|Hard Assets 1.39% 1.00% 2.39% $ 84.21 $272.15 |
|Developing World 1.39% 1.83% 3.22% $ 92.49 $351.89 |
| |
|THE PIMCO TRUST |
|PIMCO High Yield Bond 1.39% 0.75% 2.14% $ 81.70 $246.70 |
|PIMCO StocksPLUS |
| Growth and Income 1.39% 0.65% 2.04% $ 80.70 $236.32 |
| |
|THE WARBURG PINCUS TRUST |
|International Equity 1.39% 1.33% 2.72% $ 87.51 $304.72 |
----------------------------------------------------------------------------------------------
</TABLE>
The "Total Annual Investment Portfolio Charges" reflect current
expense reimbursements for the Total Return and Global Fixed Income
portfolios. The Year 1 examples above include a 6% surrender charge.
For more detailed information, see the fee table in the prospectus
for the Contract.
6. TAXES
Under a qualified Contract, your premiums are generally pre-tax contributions
and accumulate on a tax-deferred basis. Premiums and earnings are generally
taxed as income when you make a withdrawal or begin receiving annuity
payments, presumably when you are in a lower tax bracket.
Under a non-qualified Contract, premiums are paid with after-tax
dollars, and any earnings will accumulate tax-deferred. You will be
taxed on these earnings, but not on premiums, when you withdraw them
from the Contract.
For owners of most qualified Contracts, when you reach age 70 1/2
(or some cases, retire), you will be required by federal tax laws
to begin receiving payments from your annuity or risk paying a
penalty tax. In those cases, we will calculate and pay you the
minimum required distribution amounts. If you are younger than
59 1/2 when you take money out, in most cases, you will be charged
a 10% federal penalty tax on the amount withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase.
You may elect in advance to take systematic withdrawals described on
page 7. Withdrawals above the free withdrawal amount may be subject to
a surrender charge. We will apply a market value adjustment if you
withdraw your money from the fixed
4
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<PAGE>
account more than 30 days before the applicable maturity date. Income
taxes and a penalty tax may apply to amounts withdrawn.
8. PERFORMANCE
The value of your Contract will fluctuate depending on the investment
performance of the portfolio(s) you choose. Since this is a new
Contract, there is no actual performance history to illustrate.
Actual performance information will be shown in an updated prospectus.
Please keep in mind that past or hypothetical performance is not a
guarantee of future results.
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the Percent
Solution Enhanced Death Benefit currently offering a 3%, 5% or 7%
Solution, or (iii) the Annual Ratchet Enhanced Death Benefit. The
Percent Solution Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit are available only if the contract owner or the annuitant
(if the contract owner is not an individual) is not more than 70 years
old at the time of purchase.
The death benefit is payable when the first of the following persons dies:
the contract owner, joint owner, or annuitant (if a contract owner is not
an individual). Assuming you are the contract owner, if you die during
the accumulation phase, your beneficiary will receive a death benefit
unless the beneficiary is the surviving spouse and elects to continue
the Contract. The death benefit paid depends on the death benefit you
have chosen. The death benefit value is calculated at the close of the
business day on which we receive due proof of death at our Customer
Service Center. If your beneficiary elects to delay receipt of the death
benefit until a date after the time of your death, the amount of the benefit
payable in the future may be affected. If you die after the annuity start
date and you are the annuitant, your beneficiary will receive the death
benefit you chose under the annuity option then in effect.
Under the Standard Death Benefit, if you die before the annuity start
----------------------
date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after subtracting
any withdrawals; or
3) the cash surrender value.
Under the Percent Solution Enhanced Death Benefit, if you die before
---------------------------------------
the annuity start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after
subtracting any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit, which we determine as follows: we credit
interest each business day at of the enhanced death benefit annual
effective rate* to the enhanced death benefit from the preceding day
(which would be the initial premium if the preceding day is the
contract date), then we add additional premiums paid since the
preceding day, then we subtract any withdrawals made since the preceding
day, then we adjust for any market value adjustment, and then we
subtract any associated surrender charges. If you select the 7%
interest rate, there is a maximum enhanced death benefit of 2 times
all premium payments, less an amount to reflect withdrawals.
*Note: You select the enhanced death benefit interest rate of
3%, 5% or 7% when you purchase the Contract. The interest
rate used for calculating the death benefit for the Liquid
Asset and Limited Maturity Bond investment portfolios will be
the lesser of the enhanced death benefit annual effective rate
you selected or the net rate of return for such portfolios
during the applicable period. The interest rate used for
calculating the death benefit for your investment in the fixed
account will be the lesser of the enhanced death benefit annual
5
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<PAGE>
effective rate you selected or the interest credited to
such investment during the applicable period. The investments
you select will affect your maximum death benefit as explained
above.
Under the Annual Ratchet Enhanced Death Benefit, if you die before the
-------------------------------------
annuity start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after
subtracting any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit, which is determined as follows: On
each contract anniversary that occurs on or before the contract
owner turns age 70, we compare the prior enhanced death benefit to
the contract value and select the larger amount as the new enhanced
death benefit. On all other days, the enhanced death benefit is
the following amount: On a daily basis, we first take the enhanced
death benefit from the preceding day (which would be the initial
premium if the preceding day is the contract date), then we add
additional premiums paid since the preceding day, and then we
subtract any withdrawals made since the preceding day, then we
adjust for any market value adjustment, and then we subtract
for any associated surrender charges. That amount becomes the
new enhanced death benefit.
Note: In all cases described above, amounts could be reduced by premium
taxes owed and withdrawals not previously deducted. The enhanced
death benefits may not be available in all states.
10. OTHER INFORMATION
Free Look. If you cancel the Contract within 10 days after you
---------
receive it, you will receive a full refund of the contract value.
For purposes of the refund during the free look period, your contract
value (i) is adjusted for any market value adjustment (if you have
invested in the fixed account), and (ii) includes a refund of any
charges deducted from your contract value. Because of the market
risks associated with investing in the portfolios and the potential
positive or negative effect of the market value adjustment, the
contract value returned may be greater or less than the premium
payment you paid. Some states require us to return to you the amount
of the paid premium (rather than the contract value in which case you
will not be subject to investment risk during the free look period.
Also, in some states, you may be entitled to a longer free look
period. We determine your contract value at the close of business on
the day we receive your written refund request.
Transfers among Investment Portfolios and the Fixed Account. You can
-----------------------------------------------------------
make transfers among your investment portfolios and your investment
in the fixed account as frequently as you wish without any current tax
implications. The minimum amount for a transfer is $100. Currently
there is no charge for transfers, and we do not limit the number of
transfers. The Company may, in the future, charge a $25 fee for any
transfer after the twelfth transfer in a contract year or limit the
number of transfers allowed. Keep in mind that if you transfer or
otherwise withdraw your money from the fixed account more than 30 days
before the applicable maturity date, we will apply a market value
adjustment. A market value adjustment could increase or decrease your
contract value and/or the amount you transfer or withdraw.
No Probate. In most cases, when you die, the person you choose as
----------
your beneficiary will receive the death benefit without going through
probate.
Additional Features. This Contract has other features you may be
-------------------
interested in. These include:
Dollar Cost Averaging. This is a program that allows you to
invest a fixed amount of money in the investment portfolios each month,
which may give you a lower average cost per unit over time than a
single one-time purchase. Dollar cost averaging requires regular
investments regardless of fluctuating price levels, and does not
guarantee profits or prevent losses in a declining market. This option
is currently available only if you have $1,200 or more in the Limited
Maturity Bond or the Liquid Asset investment portfolios or in the fixed
account with either a 6-month or 1-year guaranteed interest period.
Transfers from the fixed account under this program will not be subject
to a market value adjustment.
6
<PAGE>
<PAGE>
Systematic Withdrawals. During the accumulation phase, you can
arrange to have money sent to you at regular intervals throughout the
year. Within limits these withdrawals will not result in any
withdrawal charge. Withdrawals from your money in the fixed account
under this program are not subject to a market value adjustment. Of
course, any applicable income and penalty taxes will apply on amounts
withdrawn.
Automatic Rebalancing. If your contract value is $10,000 or more,
you may elect to have the Company automatically readjust the money
between your investment portfolios periodically to keep the blend you
select. Investments in the fixed account are not eligible for
automatic rebalancing.
11. INQUIRIES If you need more information after reading this
prospectus, please contact us at:
Customer Service Center
P.O. Box 2700
West Chester, PA 19380
(800) 366-0066
or your registered representative.
7
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8
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SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
GOLDEN AMERICAN LIFE INSURANCE COMPANY
May 1, 1999
DEFERRED COMBINATION VARIABLE AND
FIXED ANNUITY PROSPECTUS
GOLDENSELECT VALUE
- -----------------------------------------------------------------------
This prospectus describes GOLDENSELECT VALUE, a group and individual deferred
variable annuity contract (the "Contract") offered by Golden American Life
Insurance Company (the "Company," "we" or "our"). The Contract is
available in connection with certain retirement plans that qualify for
special federal income tax treatment ("qualified Contracts") as well as
those that do not qualify for such treatment ("non-qualified
Contracts").
The Contract provides a means for you to invest your premium payments
in one or more of 21 investment portfolios. You may also allocate
premium payments to our Fixed Account with guaranteed interest periods.
Your contract value will vary daily to reflect the investment
performance of the investment portfolio(s) you select and any interest
credited to your allocations in the Fixed Account. The investment
portfolios available under your Contract and the portfolio managers are:
<TABLE>
<C> <C>
T. ROWE PRICE ASSOCIATES, INC. ALLIANCE CAPITAL MANAGEMENT L. P.
Equity Income Series Growth & Income Series
Fully Managed Series JANUS CAPITAL CORPORATION
A I M CAPITAL MANAGEMENT, INC. Growth Series
Capital Appreciation Series MASSACHUSETTS FINANCIAL SERVICES COMPANY
Strategic Equity Series Mid-Cap Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC Research Series
Rising Dividends Series Total Return Series
EII REALTY SECURITIES, INC. ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Real Estate Series Limited Maturity Bond Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE) Liquid Asset Series
Developing World Series PACIFIC INVESTMENT MANAGEMENT COMPANY
Global Fixed Income Series PIMCO High Yield Bond Portfolio
Hard Assets Series PIMCO StocksPLUS Growth and Income Portfolio
EAGLE ASSET MANAGEMENT, INC. WARBURG PINCUS ASSET MANAGEMENT, INC.
Value Equity Series International Equity Portfolio
FRED ALGER MANAGEMENT, INC.
Small Cap Series
</TABLE>
The above mutual fund investment portfolios are purchased and held by
corresponding divisions of our Separate Account B. We refer to the
divisions as "subaccounts" and the money you place in the Fixed
Account's guaranteed interest periods as "Fixed Interest Allocations"
in this prospectus.
We will credit your Fixed Interest Allocation(s) with a fixed rate of
interest. We set the interest rates periodically. We will not set the
interest rate to be less than a minimum annual rate of 3%. You may
choose guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10
years. The interest earned on your money as well as your principal is
guaranteed as long as you hold them until the maturity date. If you
take your money out from a Fixed Interest Allocation more than 30 days
before the applicable maturity date, we will apply a market value
adjustment ("Market Value Adjustment"). A Market Value Adjustment
could increase or decrease your contract value and/or the amount you
take out. You bear the risk that you may receive less than your
principal if we take a Market Value Adjustment. For Contracts sold in
some states, not all Fixed Interest Allocations or subaccounts are
available. You have a right to return a Contract within 10 days
after you receive it for a full refund of the contract value (which
may be more or less than the premium payments you paid), or if
required by your state, the original amount of your premium payment.
Longer free look periods apply in some states.
This prospectus provides information that you should know before
investing and should be kept for future reference. A Statement of
Additional Information, dated May 1, 1999 has been filed
with the Securities and Exchange Commission. It is available without
charge upon request. To obtain a copy of this document, write to our
Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380
or call (800) 366-0066, or access the SEC's website (http://www.sec.gov).
The table of contents of the Statement of Additional Information
("SAI") is on the last page of this prospectus and the SAI is made part
of this prospectus by reference.
- ------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE GCG TRUST, THE PIMCO TRUST OR THE WARBURG PINCUS TRUST
IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG
TRUST, THE PIMCO TRUST AND THE WARBURG PINCUS TRUST.
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Index of Special Terms............................................. 1
Fees and Expenses.................................................. 2
Performance Information............................................ 5
Accumulation Unit............................................... 5
Net Investment Factor........................................... 5
Financial Statements............................................ 6
Performance Information......................................... 6
Golden American Life Insurance Company............................. 7
The Trusts......................................................... 7
Golden American Separate Account B................................. 8
The Investment Portfolios.......................................... 8
Investment Objectives........................................... 8
Investment Portfolio Management Fees............................ 10
The Fixed Interest Allocation...................................... 10
Selecting a Guaranteed Interest Period.......................... 11
Guaranteed Interest Rates....................................... 11
Transfers from a Fixed Interest Allocation...................... 11
Withdrawals from a Fixed Interest Allocation.................... 12
Market Value Adjustment......................................... 12
The Annuity Contract............................................... 13
Contract Date and Contract Year................................. 13
Annuity Start Date.............................................. 13
Contract Owner.................................................. 14
Annuitant....................................................... 14
Beneficiary..................................................... 14
Purchase and Availability of the Contract....................... 15
Crediting of Premium Payments................................... 15
Contract Value ................................................. 16
Cash Surrender Value............................................ 16
Surrendering to Receive the Cash Surrender Value................ 16
Addition, Deletion or Substitution of Subaccounts
and Other Changes............................................. 17
The Fixed Account............................................... 17
Other Important Provisions...................................... 17
Withdrawals........................................................ 17
Regular Withdrawals............................................. 17
Systematic Withdrawals.......................................... 17
IRA Withdrawals................................................. 18
Transfers Among Your Investments................................... 19
Dollar Cost Averaging........................................... 19
Automatic Rebalancing........................................... 20
Death Benefit Choices.............................................. 20
Death Benefit During the Accumulation Phase..................... 20
Standard Death Benefit....................................... 21
Enhanced Death Benefits...................................... 21
Death Benefit During the Income Phase........................... 22
Charges and Fees................................................... 22
Charge Deduction Subaccount..................................... 22
Charges Deducted from the Contract Value........................ 22
Surrender Charge............................................. 22
Free Withdrawal Amount....................................... 23
Surrender Charge for Excess Withdrawals...................... 23
Premium Taxes................................................ 23
Administrative Charge........................................ 23
Excess Transfer Charge....................................... 23
Charges Deducted from the Subaccounts........................... 24
Mortality and Expense Risk Charge............................ 24
Asset-Based Administrative Charge............................ 24
Trust Expenses.................................................. 24
The Annuity Options................................................ 24
Annuitization of Your Contract.................................. 24
Selecting the Annuity Start Date................................ 25
</TABLE>
(i)
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Frequency of Annuity Payments................................... 25
The Annuity Options............................................. 25
Income for a Fixed Period.................................... 25
Income for Life with a Period Certain........................ 25
Joint Life Income............................................ 25
Annuity Plan................................................. 25
Payment When Named Person Dies.................................. 26
Other Contract Provisions.......................................... 26
Reports to Contract Owners...................................... 26
Suspension of Payments.......................................... 26
In Case of Errors in Your Application........................... 26
Assigning the Contract as Collateral............................ 26
Contract Changes-Applicable Tax Law............................. 26
Free Look....................................................... 26
Group or Sponsored Arrangements................................. 27
Selling the Contract............................................ 27
Other Information.................................................. 27
Voting Rights................................................... 27
Year 2000 Problem............................................... 27
State Regulation................................................ 28
Legal Proceedings............................................... 28
Legal Matters................................................... 28
Experts......................................................... 28
Federal Tax Considerations......................................... 28
More Information About Golden American............................. 34
Financial Statements of Golden American Life Insurance Company..... 56
Statement of Additional Information
Table of Contents............................................... 91
Appendix A
Market Value Adjustment Examples................................ A1
Appendix B
Surrender Charge for Excess Withdrawals Example................. B1
</TABLE>
(ii)
<PAGE>
<PAGE>
- -----------------------------------------------------------------------
INDEX OF SPECIAL TERMS
- -----------------------------------------------------------------------
The following special terms are used throughout this prospectus. Refer
to the page(s) listed for an explanation of each term:
<TABLE>
<CAPTION>
<S> <C>
SPECIAL TERM PAGE
Accumulation Unit 5
Annual Ratchet Enhanced Death Benefit 21
Annuitant 14
Annuity Start Date 13
Cash Surrender Value 16
Contract Date 13
Contract Owner 14
Contract Value 16
Contract Year 13
Fixed Interest Allocation 10
Free Withdrawal Amount 23
Market Value Adjustment 12
Net Investment Factor 5
Percent Solution Enhanced Death Benefit 21
Standard Death Benefit 21
</TABLE>
The following terms as used in this prospectus have the same or
substituted meanings as the corresponding terms currently used in the
Contract:
<TABLE>
<CAPTION>
TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE CONTRACT
<S> <C>
Accumulation Unit Value Index of Investment Experience
Annuity Start Date Annuity Commencement Date
Contract Owner Owner or Certificate Owner
Contract Value Accumulation Value
Excess Transfer Charge Excess Allocation Charge
Fixed Interest Allocation Fixed Allocation
Free Look Period Right to Examine Period
Guaranteed Interest Period Guarantee Period
Subaccount(s) Division(s)
Net Investment Factor Experience Factor
Regular Withdrawals Conventional Partial Withdrawals
Withdrawals Partial Withdrawals
</TABLE>
1
<PAGE>
<PAGE>
- -----------------------------------------------------------------------
FEES AND EXPENSES
- -----------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Complete Years Elapsed 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
Since Premium Payment | | | | | | |
Surrender Charge 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
</TABLE>
Transfer Charge................................................. None**
* If you invested in a Fixed Interest Allocation, a Market Value Adjustment
may apply to certain transactions. This may increase or decrease your
contract value and/or your transfer or surrender amount.
** We may in the future charge $25 per transfer if you make more than
12 transfers in a contract year.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
Administrative Charge........................................... $ 0
(We may in the future charge an annual contract administrative
charge of $30 or 2% of your contract value, whichever is less.)
SEPARATE ACCOUNT ANNUAL CHARGES***
<TABLE>
<CAPTION>
Standard Enhanced Death Benefit
Death Benefit Annual Ratchet
------------- --------------
<S> <C> <C>
Mortality and Expense Risk Charge...... 0.75% 0.95%
Asset Based Administrative Charge...... 0.15% 0.15%
Total Separate Account Expenses........ 0.90% 1.10%
</TABLE>
<TABLE>
<CAPTION>
Percent Solution Enhanced Death Benefit
---------------------------------------
3% Solution 5% Solution 7% Solution
----------- ----------- -----------
<S> <C> <C> <C>
Mortality and Expense Risk Charge...... 0.90% 1.05% 1.20%
Asset Based Administrative Charge...... 0.15% 0.15% 0.15%
Total Separate Account Expenses........ 1.05% 1.20% 1.35%
</TABLE>
***As a percentage of average assets in each subaccount.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net
assets of a portfolio or on the combined average daily net assets of
the indicated groups of portfolios):
[Table with Shaded Heading and Shaded lines for readability]
|---------------------------------------------------------------------------|
| OTHER TOTAL |
| EXPENSES(2) EXPENSES |
| MANAGEMENT AFTER EXPENSE AFTER EXPENSE |
| PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3) |
|---------------------------------------------------------------------------|
| Liquid Asset 0.59% 0.00% 0.59% |
| Limited Maturity Bond 0.60% 0.00% 0.60% |
| Global Fixed Income 1.60% 0.00% 1.60%(3) |
| Total Return 0.94% 0.03% 0.97%(3) |
| Equity Income 0.98% 0.00% 0.98% |
| Fully Managed 0.98% 0.00% 0.98% |
| Rising Dividends 0.98% 0.00% 0.98% |
| Growth & Income 1.08% 0.00% 1.08% |
| Growth 1.08% 0.01% 1.09% |
| Value Equity 0.98% 0.00% 0.98% |
| Research 0.94% 0.00% 0.94% |
| Strategic Equity 0.98% 0.01% 0.99% |
| Capital Appreciation 0.98% 0.00% 0.98% |
| Mid-Cap Growth 0.94% 0.01% 0.95% |
| Small Cap 0.98% 0.01% 0.99% |
| Real Estate 0.98% 0.01% 0.99% |
| Hard Assets 0.98% 0.02% 1.00% |
| Developing World 1.75% 0.08% 1.83% |
|---------------------------------------------------------------------------|
2
<PAGE>
<PAGE>
(1) Fees decline as combined assets increase. See the prospectus for
the GCG Trust for more information.
(2) Other expenses generally consist of independent trustees fees and
certain expenses associated with investing in international
markets. Other expenses are based on actual expenses for the
year ended December 31, 1998, except for portfolios that
commenced operations in 1998 where the charges have been
annualized.
(3) Directed Services, Inc. is currently reimbursing expenses to
maintain total expenses at 0.97% for the Total Return portfolio
and 1.60% for the Global Fixed Income portfolio as shown.
Without this reimbursement, and based on current estimates, total
expenses would be 0.98% for the Total Return portfolio and 1.74% for
the Global Fixed Income portfolio. This reimbursement agreement
will remain in place through December 31, 1999.
THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of a portfolio):
[Table with Shaded Heading]
|---------------------------------------------------------------------------|
| OTHER TOTAL |
| EXPENSES EXPENSES |
| MANAGEMENT AFTER EXPENSE AFTER EXPENSE |
| PORTFOLIO FEES(1) REIMBURSEMENT(1) REIMBURSEMENT(1) |
|---------------------------------------------------------------------------|
| PIMCO High Yield Bond 0.50% 0.25%(2) 0.75% |
| PIMCO StocksPLUS Growth |
| and Income 0.40% 0.25% 0.65% |
|---------------------------------------------------------------------------|
(1) PIMCO has agreed to waive some or all of its other expenses,
subject to potential future reimbursement, to the extent that
total expenses for the PIMCO High Yield Bond portfolio and PIMCO
StocksPLUS Growth and Income portfolio would exceed 0.75% and
0.65%, respectively, due to payment by the portfolios of their
pro rata portion of Trustees' fees. Without this agreement, and
based on current estimates, total expenses would be 0.81% for the
PIMCO High Yield Bond Portfolio and 0.72% for the PIMCO
StocksPLUS Growth and Income portfolio.
(2) Since the PIMCO High Yield Bond portfolio commenced operations on
April 30, 1998, other expenses as shown has been annualized for
the year ended December 31, 1998.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
| | | | |
| | | OTHER | TOTAL |
| | | EXPENSES | EXPENSES |
| | ADVISORY | AFTER EXPENSE | AFTER EXPENSE |
| PORTFOLIO | FEES | REIMBURSEMENT(1) | REIMBURSEMENT(1) |
| | | | |
|------------------------------------------------|--------------------------------------------------------|
<S> <C> <C> <C> |
| International Equity | 1.00% | 0.33% | 1.33% |
| | | | |
|------------------------------------------------|--------------------------------------------------------|
</TABLE>
Total expenses are based on actual expenses for fiscal year ended
December 31, 1998.
The purpose of the foregoing tables is to help you understand
the various costs and expenses that you will bear directly and
indirectly. See the prospectuses of the GCG Trust and the PIMCO
Trust for additional information on portfolio expenses.
Premium taxes (which currently range from 0% to 3.5% of premium
payments) may apply, but are not reflected in the tables above or in
the examples below.
3
<PAGE>
<PAGE>
Examples:
- --------
In the following examples, surrender charges may apply if you choose to
annuitize within the first 7 contract years. The examples assume
election of the Percent Solution Enhanced Death Benefit with a 7%
Solution and are based on an assumed 5% annual return.
If you surrender your Contract at the end of the applicable time
period, you would pay the following expenses for each $1,000 invested:
<TABLE>
<CAPTION>
<S> <C> <C>
THE GCG TRUST 1 YEAR 3 YEARS
Liquid Asset................. $80.10 $122.09
Limited Maturity Bond........ $80.20 $122.40
Global Fixed Income.......... $90.20 $152.42
Total Return................. $83.91 $133.61
Equity Income................ $84.01 $133.91
Fully Managed................ $84.01 $133.91
Rising Dividends............. $84.01 $133.91
Growth & Income.............. $85.01 $136.92
Growth....................... $85.11 $137.22
Value Equity................. $84.01 $133.91
Research..................... $83.61 $132.71
Strategic Equity............. $84.11 $134.21
Capital Appreciation......... $84.01 $133.91
Mid-Cap Growth............... $83.71 $133.01
Small Cap.................... $84.11 $134.21
Real Estate.................. $84.01 $133.91
Hard Assets.................. $84.21 $134.32
Developing World............. $92.49 $159.19
THE PIMCO TRUST
PIMCO High Yield Bond........ $81.70 $126.96
PIMCO StocksPLUS Growth
and Income................. $80.70 $123.92
THE WARBURG PINCUS TRUST
International Equity......... $87.51 $144.40
</TABLE>
4
<PAGE>
<PAGE>
If you do not surrender your Contract or if you annuitize on the
annuity start date, you would pay the following expenses for each
$1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS
<S> <C> <C>
Liquid Asset................. $20.10 $62.09
Limited Maturity Bond........ $20.20 $62.40
Global Fixed Income.......... $30.20 $92.42
Total Return................. $23.91 $73.61
Equity Income................ $24.01 $73.91
Fully Managed................ $24.01 $73.91
Rising Dividends............. $24.01 $73.91
Growth & Income.............. $25.01 $76.92
Growth....................... $25.11 $77.22
Value Equity................. $24.01 $73.91
Research..................... $23.61 $72.71
Strategic Equity............. $24.11 $74.21
Capital Appreciation......... $24.01 $73.91
Mid-Cap Growth............... $23.71 $73.01
Small Cap.................... $24.11 $74.21
Real Estate.................. $24.01 $73.91
Hard Assets.................. $24.21 $74.52
Developing World............. $32.49 $99.19
THE PIMCO TRUST
PIMCO High Yield Bond........ $21.70 $66.96
PIMCO StocksPLUS Growth
and Income................. $20.70 $63.92
THE WARBURG PINCUS TRUST
International Equity......... $25.71 $84.40
</TABLE>
The examples above reflect the annual administrative charge as an
annual charge of 0.04% of assets (based on an average contract value of
$75,000). If a different death benefit or a different Percent Solution
is elected instead of the Percent Solution Enhanced Death Benefit with
a 7% Solution used in the examples, the actual expenses will be less
than those represented in the examples.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN SUBJECT TO THE TERMS OF YOUR CONTRACT.
- -----------------------------------------------------------------------
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each
subaccount of Separate Account B has its own accumulation unit value.
The accumulation units are valued each business day that the New York
Stock Exchange is open for trading. Their values may increase or
decrease from day to day according to a Net Investment Factor, which
is primarily based on the investment performance of the applicable
investment portfolio. Shares in the investment portfolios are valued
at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects charges
under the Contract and the investment performance of the subaccount.
The Net Investment Factor is calculated as follows:
(1) We take the net asset value of the subaccount at the end of
each business day.
5
<PAGE>
<PAGE>
(2) We add to (1) the amount of any dividend or capital gains
distribution declared for the subaccount and reinvested
in such subaccount. We subtract from that amount a charge
for our taxes, if any.
(3) We divide (2) by the net asset value of the subaccount
at the end of the preceding business day.
(4) We then subtract the applicable daily mortality and expense
risk charge and the daily asset-based administrative charge
from each subaccount.
Calculations for the subaccounts are made on a per share basis.
FINANCIAL STATEMENTS
The unaudited financial statements of Separate Account B for the years
ended December 31, 1998 and 1997 are included in the Statement of
Additional Information. The audited consolidated financial statements
of Golden American for the years ended December 31, 1998, 1997, and
1996 are included in this prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract
owners performance information for the subaccounts of Separate Account B,
including the average annual total return performance, yields and other
nonstandard measures of performance. Such performance data will be
computed, or accompanied by performance data computed, in accordance
with standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the
subaccounts will be based on all investment income per unit (contract
value divided by the accumulative unit) earned during a given 30-day
period, less expenses accrued during such period. Information on
standard total average annual return performance will include average
annual rates of total return for 1, 3, 5 and 10 year periods, or lesser
periods depending on how long the subaccount of Separate Account B has
been in existence. We may show other total returns for periods less
than one year. Total return figures will be based on the actual
historic performance of the subaccounts of Separate Account B,
assuming an investment at the beginning of the period, withdrawal of
the investment at the end of the period, and the deduction of all
applicable portfolio and contract charges. We may also show rates of
total return on amounts invested at the beginning of the period with no
withdrawal at the end of the period. Total return figures which assume
no withdrawals at the end of the period will reflect all recurring
charges, but will not reflect the surrender charge. In addition, we
may present historic performance data for the mutual fund
investment portfolios since their inception reduced by some or all of
the fees and charges under the Contract. Such adjusted historic
performance includes data that precedes the inception dates of the
subaccounts of Separate Account B. This data is designed to show the
performance that would have resulted if the Contract had been in
existence during that time.
Current yield for the Liquid Asset subaccount is based on income
received by a hypothetical investment over a given 7-day period,
less expenses accrued, and then "annualized" (i.e., assuming that
the 7-day yield would be received for 52 weeks). We calculate
"effective yield" for the Liquid Asset subaccount in a manner
similar to that used to calculate yield, but when annualized,
the income earned by the investment is assumed to be reinvested.
The "effective yield" will thus be slightly higher than the
"yield" because of the compounding effect of earnings. We calculate
quotations of yield for the remaining subaccounts on all investment
income per accumulation unit earned during a given 30-day period,
after subtracting fees and expenses accrued during the period.
We may compare performance information for a subaccount to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average,
Donoghue Money Market Institutional Averages, or any other applicable
market indices, (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), or any other rating service, and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract. Our reports and promotional
6
<PAGE>
<PAGE>
literature may also contain other information including the ranking of
any subaccount based on rankings of variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services or
by similar rating services.
Performance information reflects only the performance of a hypothetical
contract and should be considered in light of other factors, including
the investment objective of the investment portfolio and market conditions.
Please keep in mind that past performance is not a guarantee of future
results.
- -----------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- -----------------------------------------------------------------------
Golden American Life Insurance Company is a Delaware stock life
insurance company, which was originally incorporated in Minnesota on
January 2, 1973. Golden American is a wholly owned subsidiary of
Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). Equitable of
Iowa is a wholly owned subsidiary of ING Groep N.V. ("ING"), a global
financial services holding company with approximately $461.8 billion in
assets as of December 31, 1998. Golden American is authorized to sell
insurance and annuities in all states, except New York, and the District
of Columbia. In May 1996, Golden American established a subsidiary,
First Golden American Life Insurance Company of New York, which is
authorized to sell annuities in New York and Delaware. Golden
American's consolidated financial statements appear in this prospectus.
Equitable of Iowa is the holding company for Golden American, Directed
Services, Inc., the investment manager of the GCG Trust and the distributor
of the Contracts, and other interests. Equitable of Iowa and another ING
affiliate own ING Investment Management, LLC, a portfolio manager of the
GCG Trust. ING also owns Baring International Investment Limited, another
portfolio manager of the GCG Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380. For more information, see "More Information About
Golden American."
- -----------------------------------------------------------------------
THE TRUSTS
- -----------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are available to separate
accounts funding variable annuity and variable life insurance policies
offered by Golden American. The GCG Trust also sells its shares to
separate accounts of other insurance companies, both affiliated and not
affiliated with Golden American. Pending Securities and Exchange
Commission approval, shares of the GCG Trust may also be sold to
certain qualified pension and retirement plans.
The PIMCO Trust is also a mutual fund whose shares are available to
separate accounts of insurance companies, including Golden American,
for both variable annuity contracts and variable life insurance
policies and qualified pension and retirement plans. The principal
address of the PIMCO Trust is 840 Newport Center Drive, Suite 300,
Newport Center, CA 92660.
The Warburg Pincus Trust is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including
Golden American and Equitable life Insurance Company of Iowa, and to
certain qualified and retirement plans. The principal address of the
Warburg Pincus Trust is 466 Lexington Avenue, New York, NY 10017.
In the event that, due to differences in tax treatment or other
considerations, the interests of contract owners of various contracts
participating in the Trusts conflict, we, the Boards of Trustees of the
GCG Trust, the PIMCO Trust and the Warburg Pincus Trust, Directed
Services, Inc., Pacific Investment Management Company, Warburg Pincus
Asset Management, Inc. and any other insurance companies
participating in the Trusts will monitor events to identify and resolve
any material conflicts that may arise.
YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE PIMCO
TRUST AND THE WARBURG PINCUS TRUST IN THE ACCOMPANYING TRUSTS'
PROSPECTUSES. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
7
<PAGE>
<PAGE>
- -----------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
- -----------------------------------------------------------------------
Golden American Separate Account B ("Account B") was established as a
separate account of the Company on July 14, 1988. It is registered
with the Securities and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940. Account B is a separate
investment account used for our variable annuity contracts. We own all
the assets in Account B but such assets are kept separate from our
other accounts.
Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust,
PIMCO Trust and the Warburg Pincus Trust. Each investment
portfolio has its own distinct investment objectives
and policies. Income, gains and losses, realized or unrealized,
of a portfolio are credited to or charged against the corresponding
subaccount of Account B without regard to any other income, gains
or losses of the Company. Assets equal to the reserves and other
contract liabilities with respect to each are not chargeable with
liabilities arising out of any other business of the Company. They
may, however, be subject to liabilities arising from the subaccounts
whose assets we attribute to other variable annuity contracts supported
by Account B. If the assets in Account B exceed the required reserves
and other liabilities, we may transfer the excess to our general account.
We are obligated to pay all benefits and make all payments provided
under the Contracts.
We currently offer other variable annuity contracts that invest in
Account B but are not discussed in this prospectus. Account B may also
invest in other investment portfolios which are not available under your
Contract.
- -----------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- -----------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments
and contract value to any of the 23 investment portfolios listed below.
You bear the entire investment risk for amounts you allocate to the
investment portfolios and may lose your principal.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth below.
You should understand that there is no guarantee that any portfolio 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. More detailed
information about the investment portfolios can be found in the
prospectuses for the GCG Trust, the PIMCO Trust and the Warburg
Pincus Trust. You should read these prospectuses before investing.
[Shaded Table Header]
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------
Liquid Asset Seeks high level of current income consistent with
the preservation of capital and liquidity.
Invests primarily in obligations of the U.S.
Government and its agencies and
instrumentalities, bank obligations,
commercial paper and short-term corporate debt
securities. All securities will mature in
less than one year.
----------------------------------------------------
Limited Maturity Seeks highest current income consistent with
Bond low risk to principal and liquidity.
Also seeks to enhance its total return through
capital appreciation when market factors, such as
falling interest rates and rising bond prices,
indicate that capital appreciation may be
available without significant risk to
principal.
Invests primarily in diversified limited maturity
debt securities with average maturity dates of
five years or shorter and in no cases more than
seven years.
----------------------------------------------------
Global Fixed Seeks high total return.
Income Invests primarily in high-grade fixed income
securities, both foreign and domestic.
----------------------------------------------------
Total Return Seeks above-average income (compared to a portfolio
entirely invested in equity securities)
consistent with the prudent employment of
capital.
Invests primarily in a combination of equity
and fixed income securities.
----------------------------------------------------
Equity Income Seeks substantial dividend income as well as long-
term growth of capital.
Invests primarily in common stocks of well-
established companies paying above-average
dividends.
----------------------------------------------------
Fully Managed Seeks, over the long term, a high total investment
return consistent with the preservation of
capital and with prudent investment risk.
Invests primarily in the common stocks of
established companies believed by the
portfolio manager to have above-average
potential for capital growth.
----------------------------------------------------
Rising Dividends Seeks capital appreciation. A secondary
objective is dividend income.
Invests in equity securities that meet the
following quality criteria: regular dividend
increases; 35% of earnings reinvested
annually; and a credit rating of "A" to "AAA".
----------------------------------------------------
Growth & Income Seeks long-term total return.
Invests primarily in common stocks of
companies where the potential for change
(earnings acceleration) is significant.
----------------------------------------------------
Growth Seeks capital appreciation.
Invests primarily in common stocks of growth
companies that have favorable relationships between
price/earnings ratios and growth rates in sectors
offering the potential for above-average returns.
----------------------------------------------------
Value Equity Seeks capital appreciation. Dividend income
is a secondary objective.
Invests primarily in common stocks of domestic
and foreign issuers which meet quantitative
standards relating to financial soundness and
high intrinsic value relative to price.
----------------------------------------------------
Research Seeks long-term growth of capital and future income.
Invests primarily in common stocks or
securities convertible into common stocks of
companies believed to have better than average
prospects for long-term growth.
----------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium-
and small-sized companies.
----------------------------------------------------
Capital Seeks long-term capital growth.
Appreciation Invests primarily in equity securities
believed by the portfolio manager to be
undervalued.
----------------------------------------------------
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Mid-Cap Growth Seeks long-term growth of capital.
Invests primarily in equity securities of
companies with medium market capitalization
which the portfolio manager believes have
above-average growth potential.
----------------------------------------------------
Small Cap Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies that have a total market
capitalization within the range of companies
in the Russell 2000 Growth Index or the
Standard & Poor's Small-Cap 600 Index.
----------------------------------------------------
Real Estate Seeks capital appreciation. Current income is a
secondary objective.
Invests primarily in publicly-traded real
estate equity securities.
----------------------------------------------------
Hard Assets Seeks long-term capital appreciation.
Invests primarily in hard asset securities.
Hard asset companies produce a commodity which
the portfolio manager is able to price on a
daily or weekly basis.
----------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of
companies in developing or emerging countries.
----------------------------------------------------
PIMCO High Yield Seeks to maximize total return, consistent with
Bond preservation of capital and prudent investment
management.
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 or, if unrated, determined by the portfolio
manager to be of comparable quality.
----------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds
Growth and the total return performance of the S&P 500.
Income Invests primarily in common stocks, options,
futures, options on futures and swaps.
----------------------------------------------------
International Seeks long-term appreciation.
Equity Invests primarily in a broadly diversified
portfolio of equity securities of companies
that have their principal business activities
outside of the United States.
----------------------------------------------------
INVESTMENT PORTFOLIO MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager of the GCG Trust,
PIMCO serves as the overall adviser of the PIMCO Trust and Warburg Pincus
Asset Management, Inc. serves as the investment adviser of the Warburg
Pincus Trust. Directed Services, PIMCO and Warburg Pincus Asset provide
or procure, at their own expense, the services necessary for the operation
of the portfolios. See the cover page of this prospectus for the names
of the corresponding portfolio managers. Directed Services, PIMCO and
Warburg Pincus Asset do not bear the expense of brokerage fees and other
transactional expenses for securities, taxes(if any) paid by a portfolio,
interest on borrowing, fees and expenses of the independent trustees,
and extraordinary expenses, such as litigation or indemnification expenses.
The GCG Trust pays Directed Services for its services a monthly
fee based on the annual rates of the average daily net assets of the
investment portfolios. Directed Services (and not the GCG Trust) in turn
pays each portfolio manager a monthly fee for managing the assets of
the portfolios.
The PIMCO Trust pays PIMCO a monthly advisory fee and a monthly
administrative fee of 0.25% based on the average daily net assets of
each of the investment portfolios for managing the assets of the portfolios
and for administering the PIMCO Trust.
More detailed information about each portfolio's management fees can be
found in the prospectuses for the GCG Trust, the PIMCO Trust and the Warburg
Pincus Trust. You should read these prospectuses before investing.
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THE FIXED INTEREST ALLOCATION
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You may allocate premium payments and transfer your contract value to
the guaranteed interest periods of our Fixed Account at any time during
the accumulation period. Every time you allocate money to the Fixed
Account, we set up a Fixed Interest Allocation for the guaranteed
interest period you select. We currently offer guaranteed interest
periods of 6 months, 1, 3, 5, 7, and 10 years, although we may not
offer all these periods in the future. You may select one or more
guaranteed interest periods at any one time. We will credit your Fixed
Interest Allocation with a guaranteed interest rate for the interest
period you select, so
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long as you do not withdraw money from that Fixed Interest Allocation
before the end of the guaranteed interest period. Each guaranteed
interest period ends on its maturity date which is the last day of
the month in which the interest period is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in a
Fixed Interest Allocation before the end of the guaranteed interest
period, we will apply a Market Value Adjustment to the transaction.
A market value adjustment could increase or decrease the amount you
surrender, withdraw, transfer or annuitize, depending on current
interest rates at the time of the transaction. YOU BEAR THE RISK THAT
YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE TAKE A MARKET VALUE
ADJUSTMENT.
Assets supporting amounts allocated to the Fixed Account are available
to fund the claims of all classes of our customers, contract 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 GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified
guaranteed interest periods. A guaranteed interest period is the
period that a rate of interest is guaranteed to be credited to your
Fixed Interest Allocation. We may at any time decrease or increase the
number of guaranteed interest periods offered. In addition, we may
offer DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed
Interest Allocations available exclusively in connection with our dollar
cost averaging program. For more information, see "Transfers Among Your
Investments - Dollar Cost Averaging."
Your contract value in the Fixed Account is the sum of your Fixed
Interest Allocations and the interest credited, as adjusted for any
withdrawals (including any Market Value Adjustment applied to such
withdrawal), transfers or other charges we may impose. Your Fixed Interest
Allocation will be credited with the guaranteed interest rate in effect
for the guaranteed interest period you selected when we receive and
accept your premium or reallocation of contract value. We will credit
interest daily at a rate which yields the quoted guaranteed interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is
guaranteed as long as you hold it until its maturity date. We do not
have a specific formula for establishing the guaranteed interest rates
for the different guaranteed interest periods. We determine guaranteed
interest rates at our sole discretion. The determination may
be influenced by the interest rates on fixed income investments in
which we may invest with the amounts we receive under the Contracts.
We will invest these amounts primarily in investment-grade fixed income
securities (i.e., rated by Standard & Poor's rating system to be
suitable for prudent investors) although we are not obligated to invest
according to any particular strategy, except as may be required by
applicable law. 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 the level
of future interest rates but no Fixed Interest Allocation will ever
have a guaranteed interest rate of less than 3% per year.
We may from time to time at our discretion offer interest rate specials
for new premiums that are higher than the current base interest rate
the offered. Renewal rates for such rate specials will be based on the
base interest rate and not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to
one or more new Fixed Interest Allocations with new guaranteed interest
periods, or to any of the subaccounts of Account B. Unless you tell
us the Fixed Interest Allocations from which such transfers will be
made, we will transfer amounts from your Fixed Interest Allocations
starting with the guaranteed interest period nearest its maturity
date, until we have honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract
value remaining in a Fixed Interest Allocation to less than $100, we
will treat such transfer request as a request to transfer the entire
contract value in such Fixed Interest
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Allocation. Transfers from a Fixed Interest Allocation may be subject
to a Market Value Adjustment. If you have a special Fixed Interest
Allocation offered only with dollar cost averaging, cancelling dollar
cost averaging will cause a transfer which is subject to a Market Value
Adjustment.
On the maturity date of a guaranteed interest period, you may transfer
amounts from the applicable Fixed Interest Allocation to the subaccounts
and/or to new Fixed Interest Allocations with guaranteed interest periods
of any length we are offering at that time. You may not, however, transfer
amounts to any Fixed Interest Allocation with a guaranteed interest period
that extends beyond the annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed
Interest Allocations, or earlier if required by state law, we will send
you a notice of the guaranteed interest periods that are available. You
must notify us which subaccount(s) or new guaranteed interest period(s) you
have selected before the maturity date of your Fixed Interest Allocations.
If we do not receive timely instructions from you, we will transfer the
contract value in the maturing Fixed Interest Allocation to a new Fixed
Interest Allocation with a guaranteed interest period that is the same as
the expiring guaranteed interest period. If such guaranteed interest period
is not available or would go beyond the annuity start date, we will transfer
your contract value in the maturing Fixed Interest Allocation to the next
shortest guaranteed interest period which does not go beyond the annuity
start date. If no such guaranteed interest period is available, we will
transfer the contract value to a subaccount specially designated by the
Company for such purpose. Currently we use the Liquid Asset subaccount
for such purpose.
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your
contract value in any Fixed Interest Allocation. You may make
systematic withdrawals of only the interest earned during the prior
month, quarter or year, depending on the frequency chosen, from a Fixed
Interest Allocation under our systematic withdrawal option. Systematic
withdrawals from a Fixed Interest Allocation are not permitted if such
Fixed Interest Allocation is currently participating in the dollar cost
averaging program. A withdrawal from a Fixed Interest Allocation may
be subject to a Market Value Adjustment and, in some cases, a surrender
charge. See "Charges and Fees." Withdrawals may have federal income tax
consequences, including a 10% penalty tax.
If you tell us the Fixed Interest Allocation from which your withdrawal
will be made, we will assess the withdrawal against that Fixed Interest
Allocation. If you do not, we will not assess your withdrawal against
any Fixed Interest Allocations unless the withdrawal exceeds the contract
value in the subaccounts in which you are invested. If there is no
contract value in those subaccounts, we will deduct your withdrawal from
your Fixed Interest Allocations starting with the guaranteed interest
periods nearest their maturity dates until we have honored your request.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment (i) whenever you withdraw or
transfer money from a Fixed Interest Allocation (unless made within 30
days before the maturity date of the applicable guaranteed interest
period, or under the systematic withdrawal or dollar cost averaging
programs) and (ii) if on the annuity start date a guaranteed interest
period for any Fixed Interest Allocation does not end on or within 30
days of the annuity start date. A Market Value Adjustment may
decrease, increase or have no effect on your contract value.
We determine the Market Value Adjustment by multiplying the amount you
withdraw, transfer or apply to an income plan by the following factor:
( 1+I )N/365
(---------) -1
(1+J+.0050)
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Where,
o "I" is the Index Rate for the affected Fixed Interest Allocation
as of the first day of its guaranteed interest period;
o "J" is equal to the following:
(1) If calculated for a Fixed Interest Allocation of 1 year or
more, then "J" is the Index Rate for a new Fixed Interest
Allocation with a guaranteed interest period equal to the
time remaining (rounded up to the next full year except in
Pennsylvania) in the guaranteed interest period;
(2) If calculated for a Fixed Interest Allocation of 6 months,
then "J" is the lesser of the Index Rate for a new Fixed
Interest Allocation with (i) a 6 month guaranteed interest
period, or (ii) a 1 year guaranteed interest period at the
time of calculation; and
o "N" is the remaining number of days in the guaranteed interest
period at the time of calculation.
The Index Rate is the average of the Ask Yields for U.S. Treasury
Strips as quoted by a national quoting service for a period equal to
the applicable guaranteed interest period. The average currently is
based on the period starting from the 22nd day of the calendar month
two months prior to the month of the Index Rate determination and
ending the 21st day of the calendar month immediately before the
month of determination. We currently calculate the Index Rate once
each calendar month but have the right to calculate it more frequently.
The Index Rate will always be based on a period of at least 28 days.
If the Ask Yields are no longer available, we will determine the Index
Rate by using a suitable and approved, if required, replacement method.
A Market Value Adjustment may be positive, negative or result in no
change. In general, if interest rates are rising, you bear the risk
that any Market Value Adjustment will likely be negative and reduce
your contract value. On the other hand, if interest rates are falling,
it is more likely that you will receive a positive Market Value
Adjustment that increases your contract value. In the event of a full
surrender, transfer or annuitization from a Fixed Interest Allocation,
we will add or subtract any Market Value Adjustment from the amount
surrendered, transferred or annuitized. In the event of a partial
withdrawal, transfer or annuitization, we will add or subtract any
Market Value Adjustment from the total amount withdrawn, transferred or
annuitized in order to provide the amount requested. If a negative
Market Value Adjustment exceeds your contract value in the Fixed
Interest Allocation, we will consider your request to be a full
surrender, transfer or annuitization.
Several examples which illustrate how the Market Value Adjustment
works are included in Appendix A.
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THE ANNUITY CONTRACT
- -----------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination
variable and fixed annuity contract. The Contract provides a means for
you to invest in one or more of the available mutual fund portfolios of
the GCG Trust, the PIMCO Trust and the Warburg Pincus Trust funded by
Golden American Separate Account B. It also provides a means for you
to invest in a Fixed Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-
month period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments
under your Contract. The Contract, like all deferred variable annuity
contracts, has two phases: the accumulation phase and the income phase.
The accumulation phase is the period between the contract date and the
annuity start date. The income phase begins when you start receiving
regular annuity payments from your Contract on the annuity start date.
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CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another
annuitant is named in the application. 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 will
determine the applicable death benefit if such death benefit is available
for multiple owners.
The death benefit becomes payable when you die. In the case of a sole
contract owner who dies before the income phase begins, we will pay the
beneficiary the death benefit when due. The sole contract owner's
estate will be the beneficiary if no beneficiary has been designated or
the beneficiary has predeceased the contract owner. In the case of a
joint owner of the Contract dying before the income phase begins, we
will designate the surviving contract owner as the beneficiary. This
will override any previous beneficiary designation.
If the contract owner is a trust and a beneficial owner of the trust
has been designated, the beneficial owner will be treated as the
contract owner for determining the death benefit. If a beneficial
owner is changed or added after the contract date, this will be treated
as a change of contract owner for determining the death benefit. If no
beneficial owner of the Trust has been designated, the availability of
enhanced death benefits will be based on the age of the annuitant at
the time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be
named in a written request before the Contract is in effect. Joint
owners may independently exercise transfers and other transactions
allowed under the Contract. All other rights of ownership must be
exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint
owner end at death of that owner if the other joint owner survives.
The entire interest of the deceased joint owner in the Contract will
pass to the surviving joint owner. The age of the older owner will
determine the applicable death benefit if Enhanced Death Benefits
are available for multiple owners.
ANNUITANT
The annuitant is the person designated by you to be the measuring life
in determining annuity payments. The annuitant's age determines when
the income phase must begin and the amount of the annuity payments to
be paid. You are the annuitant unless you choose to name another
person. The annuitant may not be changed after the Contract is in
effect.
The contract owner will receive the annuity benefits of the Contract if
the annuitant is living on the annuity start date. If the annuitant
dies before the annuity start date, and a contingent annuitant has been
named, the contingent annuitant becomes the annuitant (unless the
contract owner is not an individual, in which case the death benefit
becomes payable). If there is no contingent annuitant when the
annuitant dies before the annuity start date, the contract owner will
become the annuitant. The contract 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 before the
annuity start date and the contract owner is not an individual, we will
pay the designated beneficiary the death benefit then due. If a
beneficiary has not been designated, or if there is no designated
beneficiary living, the contract owner will be the beneficiary. If the
annuitant was the sole contract owner and there is no beneficiary
designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies
and any contract owner is not an individual, distribution rules under
federal tax law will apply. You should consult your tax advisor for
more information if you are not an individual.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary
is the person who receives any death benefit proceeds and who becomes
the successor contract owner if the contract owner (or the annuitant if
the contract owner is other than an individual) dies before the annuity
start date. We pay death benefits to the primary beneficiary (unless
there are joint owners, in which case death proceeds are payable to the
surviving owner(s)).
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If the beneficiary dies before the annuitant or the contract 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 contract owner's estate.
One or more persons may be a beneficiary or contingent beneficiary. In
the case of more than one beneficiary, 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 some of the rights and
options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's
lifetime, you may transfer ownership of a non-qualified Contract. A
change in ownership may affect the amount of the death benefit and the
guaranteed death benefit. You may also change the beneficiary. All
requests for changes must be in writing and submitted to our Customer
Service Center in good order. The change will be effective as of the
day you sign the request. The change will not affect any payment made
or action taken by us before recording the change.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract
owner are not older than age 85.
The initial premium payment must be $25,000 or more. You may make
additional payments of at least $1,000 or more at any time after the
free look period before you turn age 85. Under certain
circumstances, we may waive the minimum premium payment requirement.
We may also change the minimum initial or additional premium
requirements for certain group or sponsored arrangements. Any
initial or additional premium payment that would cause the contract
value of all annuities that you maintain with us to exceed $1,000,000
requires our prior approval.
CREDITING OF PREMIUM PAYMENTS
We will allocate your initial premium within 2 business days after
receipt, if the application and all information necessary for
processing the Contract are complete. Subsequent premium payments
received in good order will be credited to a Contract within 1 business
day. We may retain premium payments for up to 5 business days while
attempting to complete an incomplete application. If the application
cannot be completed within this period, we will inform you of the
reasons for the delay. We will also return the premium payment
immediately unless you direct us to hold the premium payment until the
application is completed. Once the completed application is received,
we will allocate the payment within 2 business days. We will make
inquiry to discover any missing information related to subsequent
payments. For any subsequent premium payments, the payment will be
credited at the accumulation unit value next determined after receipt
of your premium payment.
Once we allocate your premium payment to the subaccount(s) selected by you,
we convert the premium payment into accumulation units. We divide the
amount of the premium payment allocated to a particular subaccount by
the value of an accumulation unit for the subaccount to determine the
number of accumulation units of the subaccount to be held in Account B
with respect to the Contract. The net investment results of each
subaccount vary primarily with its investment performance.
In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated to a subaccount
specially designated by the Company (currently, the Liquid Asset
subaccount) during the free look period. After the free look period, we
will convert your contract value (your initial premium plus any
earnings less any expenses) into accumulation units of the subaccounts
you previously selected. The accumulation units will be allocated
based on the accumulation unit value next computed for each subaccount.
Initial premiums designated for Fixed Interest Allocations will be
allocated to a Fixed Interest Allocation with the guaranteed interest
period you have chosen; however, in the future we may allocate those
premiums to the specially designated subaccount during the free look
period.
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CONTRACT VALUE
We determine your contract value on a daily basis beginning on the
contract date. Your contract value is the sum of (a) the contract
value in the Fixed Interest Allocations, and (b) the contract value in
each subaccount in which you are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in
your Fixed Interest Allocation(s) is the sum of premium payments
allocated to the Fixed Interest Allocation(s) under the Contract, plus
credited interest, minus any transfers and withdrawals (including any
Market Value Adjustment applied to such withdrawal, contract fees, and
premium taxes.
CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the contract
value in the subaccount in which you are invested is equal to the
initial premium paid and designated to be allocated to the subaccount.
On the contract date, we allocate your contract value to each subaccount
and/or a Fixed Interest Allocation specified by you, 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 Interest Allocation will be allocated to a
subaccount specially designated by the Company during the free look period
for this purpose (currently, the Liquid Asset subaccount).
On each business day after the contract date, we calculate the amount
of contract value in each subaccount as follows:
(1) We take the contract value in the subaccount at the end of the
preceding business day.
(2) We multiply (1) by the subaccount's Net Investment Factor since
the preceding business day.
(3) We add (1) and (2).
(4) We add to (3) any additional premium payments, and then add or
subtract any transfers to or from that subaccount.
(5) We subtract from (4) any withdrawals and any related charges, and
then subtract any contract fees and premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender
the Contract. The cash surrender value will fluctuate daily based on
the investment results of the subaccounts in which you are invested,
and interest credited to Fixed Interest Allocations and any Market
Value Adjustment. We do not guarantee any minimum cash surrender value.
On any date during the accumulation phase, we calculate the cash surrender
value as follows: we start with your contract value, then we adjust for
any Market Value Adjustment, then we deduct any surrender charge, any
charge for premium taxes, and any other charges incurred but not yet
deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
You may surrender the Contract at any time while the annuitant is
living and before the annuity start date. A surrender will be
effective on the date your written request and the Contract are
received at our Customer Service Center. We will determine and pay the
cash surrender value at the price next determined after receipt of your
request. Once paid, all benefits under the Contract will be terminated.
For administrative purposes, we will transfer your money to a specially
designated subaccount (currently the Liquid Asset subaccount) prior
to processing the surrender. This transfer will have no effect on
your cash surrender value. You may receive the cash surrender value
in a single sum payment or apply it under one or more annuity options.
We will usually pay the cash surrender value within 7 days.
Consult your tax advisor regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59
1/2 may result in a 10% tax penalty. See "Federal Tax Considerations"
for more details.
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ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES
We may make additional subaccounts available to you under the Contract.
These subaccounts will invest in investment portfolios we find suitable
for your Contract.
We may amend the Contract to conform to applicable laws or governmental
regulations. If we feel that investment in any of the investment
portfolios has become inappropriate to the purposes of the Contract, we
may, with approval of the Securities and Exchange Commission (and any
other regulatory agency, if required) substitute another portfolio for
existing and future investments.
We also reserve the right to: (i) deregister Account B under the 1940
Act; (ii) operate Account B as a management company under the 1940 Act
if it is operating as a unit investment trust; (iii) operate Account B
as a unit investment trust under the 1940 Act if it is operating as a
managed separate account; (iv) restrict or eliminate any voting rights
as to Account B; and (v) combine Account B with other accounts.
We will, of course, provide you with written notice before any of these
changes are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the
assets that support a contract owner's Fixed Interest Allocations. See
"The Fixed Interest Allocations" for more information.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the
same portfolios of the Trusts. These contracts have different
charges that could effect their performance, and may offer different
benefits more
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit
Choices," "Charges and Fees," "The Annuity Options" and "Other Contract
Provisions" in this prospectus for information on other important
provisions in your Contract.
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WITHDRAWALS
- -----------------------------------------------------------------------
Any time during the accumulation phase and before the death of the
annuitant, you may withdraw all or part of your money. Keep in mind
that if you request a withdrawal for more than 90% of the cash surrender
value, we will treat it as a request to surrender the Contract. If any
single withdrawal or the sum of withdrawals exceeds the Free Withdrawal
Amount, you will incur a surrender charge. The Free Withdrawal Amount in
any contract year is the greater of: (i) any earnings less previous
free withdrawals; or (ii) 10% of premium payments paid within the
past 7 years and not previously withdrawn, less any previous
free withdrawals taken in the same contract year. You need
to submit to us a written request specifying the Fixed Interest
Allocations or subaccounts from which amounts are to be withdrawn,
otherwise the withdrawal will be made on a pro rata basis from all
of the subaccounts in which you are invested. If there is not enough
contract value in the subaccounts, we will deduct the balance
of the withdrawal from your Fixed Interest Allocations starting with
the guaranteed interest periods nearest their maturity dates until we
have honored your request. We will apply a Market Value Adjustment to
any withdrawal from your Fixed Interest Allocation taken more than 30
days before its maturity date. We will determine the contract value as
of the close of business on the day we receive your withdrawal request
at our Customer Service Center. The contract value may be more or less
than the premium payments made.
For administrative purposes, we will transfer your money to a specially
designated subaccount (currently, the Liquid Asset subaccount) prior to
processing the withdrawal. This transfer will not effect the
amount you receive.
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each
withdrawal must be a minimum of $100. We will apply a Market Value
Adjustment to any regular withdrawal from a Fixed Interest Allocation
that is taken more than 30 days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawals on a
monthly, quarterly, or annual basis from your contract value in the
subaccounts in which you are invested or from your Fixed Interest
Allocations. You may elect payments to start as
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early as 28 days after the contract date. You select the date on
which the withdrawals will be made but this date cannot be later than
the 28th day of the month. If you do not select a date, we will make the
withdrawals on the same calendar day of each month as the contract date.
Each withdrawal payment must be at least $100.
The amount of your withdrawal can either be a fixed dollar amount or an
amount based on a percentage of the premiums not previously withdrawn
from the subaccounts in which you are invested. Both options are
subject to the following maximums:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
--------- ------------------
<C> <C>
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
</TABLE>
If you select a fixed dollar amount and the amount to be systematically
withdrawn would exceed the applicable maximum percentage of your
premiums not previously withdrawn on the withdrawal date, we will
reduce the amount withdrawn so that it equals such percentage. If you
select a percentage and the amount to be systematically withdrawn based
on that percentage would be less than the minimum of $100, we will
increase the amount to $100 provided it does not exceed the maximum
percentage. If it is below the maximum percentage we will send the
$100. If it is above the maximum percentage we will send the amount
and then cancel the option.
Systematic withdrawals from Fixed Interest Allocations are limited to
interest earnings during the prior month, quarter, or year, depending
on the frequency you choose. Systematic withdrawals are not subject to
a Market Value Adjustment, unless you choose the fixed payment option
discussed below and the payments exceed your interest earnings. A Fixed
Interest Allocation may not participate in both the dollar cost averaging
program and the systematic withdrawal option at the same time.
You may choose an option available under our systematic withdrawal
program that will allow you to receive systematic payments in fixed
amounts. Under this option, you choose the amount of the fixed
systematic withdrawal which may total up to 10% of your cumulative
premium payments, or in amounts determined to satisfy Section 72(q)
or 72(t) of the Tax Code. Since the amount of the systematic fixed
payment under this option may exceed the Free Withdrawal Amount, (i)
a surrender charge would apply to the extent the systematic payment
exceeds the Free Withdrawal Amount, and (ii) a Market Value
Adjustment would apply to the extent the systematic payment exceeds
interest earnings on your Fixed Interest Allocations. Under this
option, we apply the surrender charge and any Market Value Adjustment
directly to your contract value (rather than the systematic payment)
so that the amount of your systematic withdrawals remain the amount
you requested.
Subject to the above, you may change the amount or percentage of your
systematic withdrawal once each contract year or cancel this option
at any time by sending satisfactory notice to our Customer Service
Center at least 7 days before the next scheduled withdrawal date.
You may elect to have this option commence in a contract year where
a regular withdrawal has been taken but you may not change the amount
or percentage of your withdrawals in any contract year during which
you have previously taken a regular withdrawal. You may not elect
this if you are taking IRA withdrawals.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2
during the current calendar year, you may elect to have distributions
made to you to satisfy requirements imposed by Federal tax law. IRA
withdrawals provide payout of amounts required to be distributed by the
Internal Revenue Service rules governing mandatory distributions under
qualified plans. We will send you a notice before your distributions
commence. You may elect to take IRA withdrawals at that time, or at a
later date. You may not elect IRA withdrawals and participate in
systematic withdrawals at the same time. If you do not elect to take
IRA withdrawals, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal
tax law may be made. Thus, if you are participating in systematic
withdrawals, distributions under that option must be adequate to
satisfy the mandatory distribution rules imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or
annual basis. Under this option, you may elect payments to start as
early as 28 days after the contract date. 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, we will make the
withdrawals on the same calendar day of the month as the contract date.
You may request that we calculate for you 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. When we determine the required IRA 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
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the IRA withdrawal amount is greater than the contract value, we will
cancel the Contract and send you the amount of the cash surrender value.
You may change the payment frequency of your IRA withdrawals once each
contract year or cancel this option at any time by sending us
satisfactory notice to our Customer Service Center at least 7 days
before the next scheduled withdrawal date.
An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH
TAKING WITHDRAWALS. A withdrawal made before the taxpayer reaches age
59 1/2 may result in a 10% penalty tax. See "Federal Tax
Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
- -----------------------------------------------------------------------
You may transfer your contract value among the subaccounts in which you
are invested and your Fixed Interest Allocations at the end of the
free look period until the annuity start date. We currently do not charge
you for transfers made during a contract year, but reserve the right to
charge $25 for each transfer after the twelfth transfer in a contract year.
We also reserve the right to limit the number of transfers you may make
and may otherwise modify or terminate transfer privileges if required by
our business judgement or in accordance with applicable law. We will
apply a Market Value Adjustment to transfers from a Fixed Interest
Allocation taken more than 30 days before its maturity date, unless the
transfer is made under the dollar cost averaging program.
Transfers will be based on values at the end of the business day in
which the transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your
entire contract value held in a subaccount or a Fixed Interest Allocation.
To make a transfer, you must notify our Customer Service Center and all
other administrative requirements must be met. Any transfer request
received after 4:00 p.m. eastern time or the close of the New York
Stock Exchange will be effected on the next business day. Account B
and the Company will not be liable for following instructions
communicated by telephone that we reasonably believe to be genuine. We
require personal identifying information to process a request for
transfer made over the telephone.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if you
have at least $1,200 of contract value in the (i) Limited Maturity Bond
subaccount or the Liquid Asset subaccount, or (ii) a Fixed Interest
Allocation with either a 6-month or a 1-year guaranteed interest period.
These subaccounts or Fixed Interest Allocations serve as the source accounts
from which we will, on a monthly basis, automatically transfer a set dollar
amount of money to other subaccounts selected by you. We also may offer
DCA Fixed Interest Allocations, which are 6-month and 1-year Fixed
Interest Allocations available exclusively for use with the dollar cost
averaging program. The DCA Fixed Interest Allocations require a minimum
premium payment of $1,200 directed into a DCA Fixed Interest Allocation.
The dollar cost averaging program is designed to lessen the impact of market
fluctuation on your investment. Since we transfer the same dollar amount
to other subaccounts each month, more units of a subaccount are purchased if
the value of its unit is low and less units are purchased if the value of
its unit is high. Therefore, a lower than average value per unit may be
achieved over the long term. However, we cannot guarantee this. When you
elect the dollar cost averaging program, you are continuously investing in
securities regardless of fluctuating price levels. You should consider your
tolerance for investing through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar amount
you want transferred under this program. Each monthly transfer must be at
least $100. If your source account is the Limited Maturity Bond subaccount,
the Liquid Asset subaccount or a 1-year Fixed Interest Allocation, the
maximum amount that can be transferred each month is your contract value in
such source account divided by 12. If your source account is a 6-month
Fixed Interest Allocation, the maximum amount
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that can be transferred each month is your contract value in such source
account divided by 6. You may change the transfer amount once each contract
year. If you have a DCA Fixed Interest Allocation, there is no minimum or
maximum transfer amount; we will transfer all your money allocated to that
source account into the subaccount(s) in equal payments over the selected
6-month or 1-year period. The last payment will include earnings accrued
over the course of the selected period.
Transfers from a Fixed Interest Allocation or a DCA Fixed Interest Allocation
under the dollar cost averaging program are not subject to a Market Value
Adjustment. However, if you terminate the dollar cost averaging program
for a DCA Fixed Interest Allocation and there is money remaining in the
DCA Fixed Interest Allocation, we will transfer the remaining money to the
Liquid Asset subaccount. Such transfer will trigger a Market Value Adjustment
if the transfer is made more than 30 days before the maturity date of the
DCA Fixed Interest Allocation.
If you do not specify the subaccounts to which the dollar amount of the
source account is to be transferred, we will transfer the money to
the subaccounts in which you are invested on a proportional basis. The
transfer date is the same day each month as your contract date. If, on
any transfer date, your contract value in a source account is equal or less
than the amount you have elected to have transferred, the entire amount will
be transferred and the program will end. You may terminate the dollar cost
averaging program at any time by sending satisfactory notice to our Customer
Service Center at least 7 days before the next transfer date. A Fixed
Interest Allocation or DCA Fixed Interest Allocation may not participate in
the dollar cost averaging program and in systematic withdrawals at the same
time.
We may in the future offer additional subaccounts or withdraw any subaccount
or Fixed Interest Allocation to or from the dollar cost averaging program,
stop offering DCA Fixed Interest Allocations or otherwise modify, suspend
or terminate this program. Of course, such change will not affect any
dollar cost averaging programs currently in operation at the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the
subaccounts of Account B, you may elect to have your investments in the
subaccounts automatically rebalanced. We will transfer funds under your
Contract on a quarterly, semi-annual, or annual calendar basis among
the subaccounts to maintain the investment blend of your selected
subaccounts. The minimum size of any allocation 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 withdrawal option only if 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 send satisfactory notice to our
Customer Service Center. We will begin the program on the last
business day of the 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 contract value among the
subaccounts 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.
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DEATH BENEFIT CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either
the annuitant (when contract owner is not an individual), the contract
owner or the first of joint owners dies. Assuming you are the contract
owner, your beneficiary will receive a death benefit unless the
beneficiary is your surviving spouse and elects to continue the
Contract. The death benefit value is calculated at the close of the
business day on which we receive proof of death at our Customer Service
Center. If your beneficiary elects to delay receipt of the death benefit
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until a date after the time of death, the amount of the benefit payable
in the future may be affected. The proceeds may be received in a single
sum or applied to any of the annuity options. If we do not receive a
request to apply the death benefit proceeds to an annuity option, we
will make a single sum distribution. We will generally pay death benefit
proceeds within 7 days after our Customer Service Center has received
sufficient information to make the payment.
You may choose from the following 3 death benefit choices: (1) the
Standard Death Benefit; (2) the Percent Solution Enhanced Death Benefits
(with 3%, 5% and 7% Solutions currently available); and (3) the
Annual Ratchet Enhanced Death Benefit. Once you choose a death
benefit, it cannot be changed. We may in the future stop or suspend
offering any of the enhanced death benefit options to new Contracts.
STANDARD DEATH BENEFIT. You will automatically receive the Standard
Death Benefit unless you elect one of the enhanced death benefits. The
standard death benefit under the Contract is the greatest of (i) your
contract value; (ii) total premium payments less any withdrawals; and
(iii) the cash surrender value.
ENHANCED DEATH BENEFITS. If the 3%, 5% or 7% Solution Enhanced Death
Benefit or the Annual Ratchet Enhanced Death Benefit is elected, the
death benefit under the Contract is the greatest of (i) the contract
value; (ii) total premium payments less any withdrawals; (iii) the cash
surrender value; and (iv) the enhanced death benefit as calculated
below.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
| |
| HOW THE ENHANCED DEATH BENEFIT IS CALCULATED |
| |
| PERCENT SOLUTION ANNUAL RATCHET |
| |
-----------------------------------------------------------------------------|
<S> <C> |
| We credit interest each | On each contract anniversary |
| business day at the enhanced | that occurs on or before the |
| death benefit annual effective | contract owner turns age 70, |
| rate* to the enhanced death | we compare the prior enhanced |
| benefit from the preceding day | death benefit to the contract |
| (which would be the initial | value, and select the larger |
| premium if the preceding day is | amount as the new enhanced |
| the contract date), then we add | death benefit. |
| additional premiums paid since | |
| the preceding day, then we | On all other days, the enhanced |
| subtract any withdrawals made | death benefit is the amount |
| since the preceding day, then we | determined below. We first take |
| adjust for any Market Value | the enhanced death benefit from |
| adjustment, and then | the preceding day (which would be |
| we subtract any associated | the initial premium if the |
| surrender charges. | preceding day is the contract |
| | date) and then we add additional |
| **If you select the 7% Solution, | premiums paid since the preceding |
| there is a maximum enhanced death | day, then we subtract any |
| benefit of two times all | withdrawals made since the |
| premium payments, as reduced by | preceding day, then we adjust for |
| withdrawals.*** If you select | any Market Value Adjustment, and |
| the 3% or 5% Solution, there is | then we subtract any associated |
| no maximum on the enhanced | surrender charges. That amount |
| death benefit. | becomes the new enhanced death |
| | benefit. |
| | |
------------------------------------------------------------------------------
</TABLE>
* You select the enhanced death benefit interest rate of 3%, 5% or 7%
when you purchase the Contract. The actual interest rate used for
calculating the death benefit for the Liquid Asset and Limited
Maturity Bond subaccounts will be the lesser of the enhanced
death benefit annual effective rate or the net rate of return
for such subaccounts during the applicable period. The interest
rate used for calculating the death benefit for your Fixed
Interest Allocation will be the lesser of the enhanced death
benefit annual effective rate or the interest credited to such
investment during the applicable period. Thus, selecting these
investments may limit the enhanced death benefit. If we offer
additional subaccounts in the future, we may restrict those
new subaccounts from participating in the 7% Solution Enhanced
Death Benefit.
** Each premium payment reduced by any withdrawals and any associated
surrender charges incurred, will continue to grow at the enhanced
death benefit interest rate, compounded daily.
*** Each withdrawal reduces the maximum enhanced death benefit as
follows: first, the maximum enhanced death benefit is reduced by
the amount of any withdrawal of earnings; then, it is reduced in
proportion to the reduction in the contract value for any
withdrawal of premium (in each case, including any associated
surrender charges) and as adjusted for any Market Value Adjustment.
If those withdrawals in a contract year do not exceed 7% of
cumulative premiums and did not exceed 7%
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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.
The Percent Solution Enhanced Death Benefit and the Annual Ratchet
Enhanced Death Benefit are available only at the time you purchase your
Contract and only if the contract owner or annuitant (when the contract
owner is other than an individual) is not more than 70 years old at the
time of purchase. The Percent Solution Enhanced Death Benefit may not
be available where a Contract is held by joint owners.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start
date, the Company will pay the beneficiary any certain benefit
remaining under the annuity in effect at the time.
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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 distributing and administrating the
Contracts, for paying the benefits payable under the Contracts and for
bearing various risks associated with the Contracts. The amount of a
charge will not always correspond to the actual costs associated. For
example, the surrender charge collected may not fully cover all of the
distribution expenses incurred by us with the service or benefits
provided. In the event there are any profits from fees and charges
deducted under the Contract, we may use such profits to finance the
distribution of contracts.
CHARGE DEDUCTION SUBACCOUNT
You may elect to have all charges against your contract value deducted
directly from a single subaccount designated by the Company. Currently
we use the Liquid Asset subaccount for this purpose. If you do not
elect this option, or if the amount of the charges is greater than the
amount in the designated subaccount, the charges will be deducted as
discussed below. You may cancel this option at any time by sending
satisfactory notice to our Customer Service Center.
CHARGES DEDUCTED FROM THE CONTRACT VALUE
We deduct the following charges from your contract value:
SURRENDER CHARGE. We will deduct a contingent deferred sales charge
(a "surrender charge") if you surrender your Contract or if you take a
withdrawal in excess of the Free Withdrawal Amount during the 7-year
period from the date we receive and accept a premium payment. The
surrender charge is based on a percentage of each premium payment.
This charge is intended to cover sales expenses that we have incurred.
We may in the future reduce or waive the surrender charge in certain
situations and will never charge more than the maximum surrender
charges. The percentage of premium payments deducted at the time of
surrender or excess withdrawal depends on 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Complete Years Elapsed 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
Since Premium Payment | | | | | | |
Surrender Charge 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
</TABLE>
We will waive the surrender charge in most states in the following
events: (i) you begin receiving qualified extended medical care on or
after the first contract anniversary for at least 45 days during a 60
day period and your request for the surrender or withdrawal, together
with all required documentation is received at our Customer Service
Center during the term of your care or within 90 days after the last
day of your care; or
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(ii) you are first diagnosed by a qualifying medical professional, on or
after the first contract anniversary, as having a qualifying terminal
illness. We have the right to require an examination by a physician
of our choice. If we require such an examination, we will pay for it.
You are required to send us satisfactory written proof of illness.
See your Contract for more information. The waiver of surrender charge
may not be available in all states.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract
year is the greater of: (i) any earnings less previous free
withdrawals; or (ii) 10% of premium payments paid within the past 7
years and not previously withdrawn, less any previous free withdrawals
taken in the same contract year.
SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender
charge for excess withdrawals. We consider a withdrawal to be an
"excess withdrawal" when the amount you withdraw in any contract year
exceeds the Free Withdrawal Amount. Where you are receiving systematic
withdrawals, any combination of regular withdrawals taken and any
systematic withdrawals expected to be received in a contract year
will be included in determining the amount of the excess 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.
We will deduct such charges from the contract value in proportion to the
contract value in each subaccount or Fixed Interest Allocation from
which the excess withdrawal was taken. In instances where the excess
withdrawal equals the entire contract value in such subaccounts or Fixed
Interest Allocations, we will deduct charges proportionately from all
other subaccounts and Fixed Interest Allocations in which you are invested.
ANY WITHDRAWAL FROM A FIXED INTEREST ALLOCATION MORE THAN 30 DAYS BEFORE
ITS MATURITY DATE WILL TRIGGER A MARKET VALUE ADJUSTMENT.
For the purpose of calculating the surrender charge for an excess
withdrawal: a) we treat premiums as being withdrawn on a first-in,
first-out basis; and b) amounts withdrawn which are not considered an
excess withdrawal are not considered a withdrawal of any premium
payments. We have included an example of how this works in Appendix B.
Although we treat premium payments as being withdrawn before earnings
for purpose of calculating the surrender charge for excess withdrawals,
the federal tax law treats earnings as withdrawn first.
PREMIUM TAXES. We may make a charge for state and local premium taxes
depending on the contract owner's state of residence. The tax can
range from 0% to 3.5% of the premium. We have the right to change this
amount to conform with changes in the law or if the contract owner
changes state of residence.
We deduct the premium tax from your contract value on the annuity
start date. However, some jurisdictions impose a premium tax at the
time that initial and additional premiums are paid, regardless of when
the annuity payments begin. In those states we may defer collection of
the premium taxes from your contract value and deduct it on surrender
of the Contract, on excess withdrawals or on the annuity start date.
ADMINISTRATIVE CHARGE. We currently do not charge an annual
administrative charge but may in the future deduct an annual administrative
charge of $30 or 2% of the contract value, whichever is smaller. Such
charge, if any, will be made on each Contract anniversary, or if you
surrender your Contract prior to a Contract anniversary, at the time
we determine the cash surrender value payable to you. If we deduct an
annual administrative charge, it will be deducted proportionately from
all subaccounts in which you are invested. If there is no contract value
in those subaccounts, we will deduct the charge from your Fixed Interest
Allocations starting with the guarantee interest periods nearest their
maturity dates until the charge has been paid.
TRANSFER CHARGE. We currently do not deduct any charges for
transfers made during a contract year. We have the right, however, to
assess up to $25 for each transfer after the twelfth transfer in a contract
year. If such a charge is assessed, we would deduct the charge from the
subaccounts and the Fixed Interest Allocations from which each such transfer
is made in proportion to the amount being transferred from each subaccount
and Fixed Interest Allocation, unless you have chosen to have all charges
deducted from a single subaccount. The charge will not apply to any
transfers due to the election of dollar cost averaging, auto rebalancing
and transfers we make to and from any subaccount specially designated by
the Company for such purpose.
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CHARGES DEDUCTED FROM THE SUBACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE. The amount of the mortality and
expense risk charge depends on the death benefit you have elected. If
you have elected the Standard Death Benefit, the charge, on an annual
basis, is equal to 0.75% of the assets you have in each subaccount. The
charge is deducted on each business day at the rate of .002063% for each
day since the previous business day. If you have elected an enhanced death
benefit, the charge, on an annual basis, is equal to 0.95% for the
Annual Ratchet Death Benefit, or 0.90% for the 3% Solution Death
Benefit, 1.05% for the 5% Solution Death Benefit, or 1.20% for the 7%
Solution Death Benefit, of the assets you have in each subaccount. The
charge is deducted each business day at the rate of .002615%, .002477%,
.002892%, or .003308%, respectively, for each day since the previous
business day.
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily charge
from the assets in each subaccount, to compensate us for a portion of
the administrative expenses under the Contract. The daily charge is at
a rate of .000411% (equivalent to an annual rate of 0.15%) on the
assets in each subaccount.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
GCG Trust, the PIMCO Trust and the Warburg Pincus Trust. Please read the
respective Trust prospectus for details.
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THE ANNUITY OPTIONS
- -----------------------------------------------------------------------
ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start
date, we will begin making payments to the contract owner under an
income plan. We will make these payments under the annuity option
chosen. You may change annuity option by making a written request to
us at least 30 days before the annuity start date. The amount of the
payments will be determined by applying your contract value adjusted
for any applicable Market Value Adjustment on the annuity start date in
accordance with the annuity option you chose.
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 start date. If, at the time of the contract owner's
death or the annuitant's death (if the contract owner is not an
individual), no option has been chosen for paying death benefit
proceeds, the beneficiary may choose an annuity 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 contract value
is less than $2,000 or if the calculated monthly annuity income payment
is less than $20.
For each annuity option we will issue a separate written agreement
putting the annuity option into effect. Before we pay any annuity
benefits, we require the return of your Contract. If your Contract has
been lost, we will require that you complete and return the applicable
lost Contract form. Various factors will affect the level of annuity
benefits, such as the annuity option chosen, the applicable payment
rate used and the investment performance of the portfolios and interest
credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed
annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. Some fixed annuity options provide fixed payments
either for a specified period of time or for the life of the annuitant.
The amount of life income payments will depend on the form and duration
of payments you chose, the age of the annuitant or beneficiary (and
gender, where appropriate), the total contract value applied to
purchase a Fixed Interest Allocation, and the applicable payment rate.
Our approval is needed for any option where:
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(1) The person named to receive payment is other than the contract
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.
SELECTING THE ANNUITY START DATE
You select the date on which the annuity payments commence. The
annuity start date must be at least 5 years from the contract date but
before the month immediately following the annuitant's 90th birthday,
or 10 years from the contract date, if later. If, on the annuity start
date, a surrender charge remains, the elected annuity option must
include a period certain of at least 5 years.
If you do not select an annuity start date, it will automatically begin
in the month following the annuitant's 90th birthday, or 10 years from
the contract date, if later.
If the annuity start 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" and the Statement of Additional Information. For a
Contract purchased in connection with a qualified plan, other than a
Roth IRA, distributions must commence not later than April 1st of the
calendar year following the calendar year in which you attain age 70
1/2 or, in some cases, retire. Distributions may be made through
annuitization or withdrawals. Consult your tax advisor.
FREQUENCY OF ANNUITY PAYMENTS
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, we will make the payments monthly. There may be
certain restrictions on minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options
1, 2 and 3 are fixed. Payments under Option 4 may be fixed or variable.
For a fixed annuity option, the contract value in the subaccounts is
transferred to the Company's general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make
monthly payments in equal installments for a fixed number of years
based on the contract value on the annuity start date. We guarantee
that each monthly payment will be at least the amount stated in your
Contract. If you prefer, you may request that payments be made in
annual, semi-annual or quarterly installments. We will provide you
with illustrations if you ask for them. If the cash surrender value or
contract value is applied under this option, a 10% penalty tax may
apply to the taxable portion of each income payment until the contract
owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Payment is made
for the life of the annuitant in equal monthly installments and
guaranteed for at least a period certain such as 10 or 20 years. Other
periods certain may be available to you on request. You may choose a
refund period 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 specified in
the Contract corresponding to the person's age on his or her last
birthday before the annuity start date. Amounts for ages not shown in
the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there
are 2 persons named to determine annuity payments. At least one of the
persons named must be either the contract owner or beneficiary of the
Contract. We guarantee monthly payments will be 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 if you ask for
them.
OPTION 4. ANNUITY PLAN. The contract value can be applied to any
other annuitization plan that we choose to offer on the annuity start
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 in the annuity agreement between you and Golden
American. The amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under Option 2,
we will continue payments. 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 option agreement will state the amount
we will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of
each calendar quarter. The report will show the contract value, cash
surrender value, and the death benefit as of the end of the calendar
quarter. The report will also show the allocation of your contract
value and the amounts deducted from or added to the contract value
since the last report. We will also send you copies of any shareholder
reports of the investment portfolios in which Account B invests, as well
as any other reports, notices or documents we are required by law to
furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment or determination of values on any business day (1) when the New
York Stock Exchange is closed; (2) when trading on the New York Stock
Exchange is restricted; (3) when an emergency exists as determined by
the Securities and Exchange Commission so that the sale of securities
held in Account B may not reasonably occur or so that the Company may
not reasonably determine the value of Account B's net assets; or (4)
during any other period when the Securities and Exchange Commission so
permits for the protection of security holders. We have the right to
delay payment of amounts from a Fixed Interest Allocation for up to 6
months.
IN CASE OF ERRORS IN YOUR APPLICATION
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.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a
loan but understand that your rights and any beneficiary's rights may
be subject to the terms of the assignment. An assignment may have
federal tax consequences. 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.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We have the right to make changes in the Contract to continue to
qualify the Contract as an annuity. You will be given advance notice
of such changes.
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FREE LOOK
You may cancel your Contract within your 10-day free look period. We
deem the free look period to expire 15 days after we mail the
Contract to you. Some states may require a longer free look period.
To cancel, you need to send your Contract to our Customer Service
Center or to the agent from whom you purchased it. We will refund
the contract value. For purposes of the refund during the free look
period, your contract value includes a refund of any charges deducted
from your contract value. Because of the market risks associated
with investing in the portfolios, the contract value returned may be
greater or less than the premium payment you paid. Some states
require us to return to you the amount of the paid premium (rather
than the contract value) in which case you will not be subject to
investment risk during the free look period. In these states, your
premiums designated for investment in the subaccounts will be
allocated during the free look period to a subaccount specially
designated by the Company for this purpose (currently, the Liquid
Asset subaccount). We may, in our discretion, require that premiums
designated for investment in the subaccounts from all other states as
well as premiums designated for a Fixed Interest Allocation be
allocated to the specially designated subaccount during the free look
period. Your Contract is void as of the day we receive your Contract
and cancellation request. We determine your contract value at the
close of business on the day we receive your written request. If you
keep your Contract after the free look period, we will put your money
in the subaccount(s) chosen by you, based on the accumulation unit
value next computed for each subaccount, and/or in the Fixed Interest
Allocation chosen by you.
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 an alternative or reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. 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 Directed Services
for acting as principal underwriter under a distribution agreement which
in turn pays the writing agent. The principal address of Directed Services
is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380.
Directed Services enters into sales agreements with broker-dealers to
sell the Contracts through registered representatives who are licensed
to sell securities and variable insurance products. These broker-dealers
are registered with the SEC and are members of the National Association
of Securities Dealers, Inc. Directed Services receives a maximum of
6.5% commission, and passes through 100% of the commission to the
broker-dealer whose registered representative sold the Contract:
[Shaded Table Header]
Underwriter Compensation
|----------------------------------------------------------------------------|
| NAME OF PRINCIPAL | AMOUNT OF | OTHER |
| UNDERWRITER | COMMISSION TO BE PAID | COMPENSATION |
| | | |
| Directed Services, Inc. | Maximum of 6.5% | Reimbursement of any |
| | of any initial | covered expenses incurred|
| | or additional | by registered |
| | premium payments | representatives in |
| | except when combined | connection with |
| | with some annual | the distribution |
| | trail commissions. | of the Contracts. |
|----------------------------------------------------------------------------|
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 6.5% of total premium
payments).
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OTHER INFORMATION
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VOTING RIGHTS
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 subaccount by
dividing the Contract's contract value in that subaccount by the net
asset value of one share of the portfolio in which a subaccount invests.
We count fractional votes. 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 receive your instructions in time, we will
vote the shares in the same proportion as the instructions received
from all Contracts in that subaccount. We will also vote shares we
hold in Account B which are not attributable to contract owners in
the same proportion.
YEAR 2000 PROBLEM
Like other business organizations and individuals around the world,
Golden American and Account B could be adversely affected if the
computer systems doing the accounts processing or on which Golden
American
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and/or Account B relies do not properly process and calculate
date-related information related to the end of the year 1999. This is
commonly known as the Year 2000 (or Y2K) Problem. Golden American is
taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to the computer systems that it uses and
to obtain satisfactory assurances that comparable steps are being taken
by its and Account B's major service providers. At this time, however,
we cannot guarantee that these steps will be sufficient to avoid any
adverse impact on Golden American and Account B.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware.
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 where required by those
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, 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. We believe that
currently there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Company or
Account B.
LEGAL MATTERS
The legal validity of the Contracts was 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.
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FEDERAL TAX CONSIDERATIONS
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The following summary provides a general description of the federal
income tax considerations associated with this Contract and does not
purport to be complete or to cover all tax situations. This discussion
is not intended as tax advice. You should consult your counsel or
other competent tax advisers for more complete information. This
discussion is based upon our understanding of the present federal
income tax laws. We do not make any representations as to the
likelihood of continuation of the present federal income tax laws or as
to how they may be interpreted by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or purchased
on a tax-qualified basis. Qualified Contracts are designed for use by
individuals whom premium payments are comprised solely of proceeds from
and/or contributions under retirement plans that are intended to
qualify as plans entitled to special income tax treatment under
Sections 401(a), 403(b), 408, or 408A of the Code. The ultimate effect
of federal income taxes on the amounts held under a Contract, or
annuity payments, depends on the type of retirement plan, on the tax
and employment status of the individual concerned, and on our tax
status. In addition, certain requirements must be satisfied in
purchasing a qualified Contract with proceeds from a tax-qualified plan
and receiving distributions from a qualified Contract in order to
continue receiving favorable tax treatment. Some retirement plans are
subject to distribution and other requirements that are not
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incorporated into our Contract administration procedures. Contract
owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect
to the Contract comply with applicable law. Therefore, you should seek
competent legal and tax advice regarding the suitability of a Contract
for your particular situation. The following discussion assumes that
qualified Contracts are purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended
special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments
of a variable account be "adequately diversified" in order for the
Contracts to be treated as annuity contracts for federal income tax
purposes. It is intended that Account B, through the subaccounts, will
satisfy these diversification requirements.
In certain circumstances, owners of variable annuity contracts have
been considered for federal income tax purposes to be the owners of the
assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is
the case, the contract owners have been currently taxed on income and
gains attributable to the separate account assets. There is little
guidance in this area, and some features of the Contracts, such as the
flexibility of a contract owner to allocate premium payments and transfer
contract values, have not been explicitly addressed in published rulings.
While we believe that the Contracts do not give contract owners
investment control over Account B assets, we reserve the right to modify
the Contracts as necessary to prevent a contract owner from being treated
as the owner of the Account B assets supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity
contract for federal income tax purposes, the Code requires any non-
qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of your
death. The non-qualified Contracts contain provisions that are
intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We
intend to review such provisions and modify them if necessary to assure
that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will not
be taxed on increases in the value of a Contract until a distribution
occurs or until annuity payments begin. (For these purposes, the
agreement to assign or pledge any portion of the contract value, and,
in the case of a qualified Contract, any portion of an interest in the
qualified plan, generally will be treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a
natural person generally must include in income any increase in the
excess of the contract value over the "investment in the contract"
(generally, the premiums or other consideration paid for the contract)
during the taxable year. There are some exceptions to this rule and a
prospective contract owner that is not a natural person may wish to
discuss these with a tax adviser. The following discussion generally
applies to Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs,
the amount received will be treated as ordinary income subject to tax
up to an amount equal to the excess (if any) of the contract value
(unreduced by the amount of any surrender charge) immediately before
the distribution over the contract owner's investment in the Contract
at that time. The tax treatment of market value adjustments is
uncertain. You should consult a tax adviser if you are considering
taking a withdrawal from your Contract in circumstances where a market
value adjustment would apply.
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In the case of a surrender under a non-qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the
contract owner's investment in the Contract.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution
from a non-qualified Contract, there may be imposed a federal tax
penalty equal to 10% of the amount treated as income. In general,
however, there is no penalty on distributions:
o made on or after the taxpayer reaches age 59 1/2;
o made on or after the death of a contract owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions
enumerated above. A tax adviser should be consulted with regard to
exceptions from the penalty tax.
ANNUITY PAYMENTS. Although tax consequences may vary depending on
the payment option elected under an annuity contract, a portion of each
annuity payment is generally not taxed and the remainder is taxed as
ordinary income. The non-taxable portion of an annuity payment is
generally determined in a manner that is designed to allow you to
recover your investment in the Contract ratably on a tax-free basis
over the expected stream of annuity payments, as determined when
annuity payments start. Once your investment in the Contract has been
fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from
a Contract because of your death or the death of the annuitant.
Generally, such amounts are includible in the income of recipient as
follows: (i) if distributed in a lump sum, they are taxed in the same
manner as a surrender of the Contract, or (ii) if distributed under a
payment option, they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT.
A transfer or assignment of ownership of a Contract, the designation of
an annuitant, the selection of certain dates for commencement of the
annuity phase, or the exchange of a Contract may result in certain tax
consequences to you that are not discussed herein. A contract owner
contemplating any such transfer, assignment or exchange, should consult
a tax advisor as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to
withholding for the recipient's federal income tax liability.
Recipients can generally elect, however, not to have tax withheld from
distributions.
MULTIPLE CONTRACTS. All annuity contracts that are issued by us (or
our affiliates) to the same contract owner during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in such contract owner's income when a taxable distribution
occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified
plans. The tax rules applicable to participants in these qualified
plans vary according to the type of plan and the terms and
contributions of the plan itself. Special favorable tax treatment may
be available for certain types of contributions and distributions.
Adverse tax consequences may result from: contributions in excess of
specified limits; distributions before age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Therefore, no attempt is made to provide more than
general information about the use of the Contracts with the various
types of qualified retirement plans. Contract owners, annuitants, and
beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms
and conditions of the Contract, but we shall not
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be bound by the terms and conditions of such plans to the extent such
terms contradict the Contract, unless the Company consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same
manner as under a non-qualified Contract. When a withdrawal from a
qualified Contract occurs, a pro rata portion of the amount received is
taxable, generally based on the ratio of the contract owner's
investment in the Contract (generally, the premiums or other
consideration paid for the Contract) to the participant's total accrued
benefit balance under the retirement plan. For Qualified Contracts,
the investment in the Contract can be zero. For Roth IRAs,
distributions are generally not taxed, except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires
that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) (i) reaches age 70 1/2 or (ii)
retires, and must be made in a specified form or manner. If the plan
participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner
(or plan participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no later than April
1 of the calendar year following the calendar year in which the
contract owner (or plan participant) reaches age 70 1/2. Roth IRAs
under Section 408A do not require distributions at any time before the
contract owner's death.
WITHHOLDING. Distributions from certain qualified plans generally
are subject to withholding for the contract owner's federal income tax
liability. The withholding rates vary according to the type of
distribution and the contract owner's tax status. The contract owner
may be provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a)
plans and section 403(b)tax-sheltered annuities are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a
plan, except certain distributions that are required by the Code or
distributions in a specified annuity form. The 20% withholding does
not apply, however, if the contract owner chooses a "direct rollover"
from the plan to another tax-qualified plan or IRA.
Brief descriptions of the various types of qualified retirement plans
in connection with a Contract follow. We will endorse the Contract as
necessary to conform it to the requirements of such plan.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under the Contract
which do not satisfy the requirements of Section 72(s) of the Code.
If any owner of a non-qualified Contract dies before the annuity start
date, the death benefit payable to the beneficiary will be distributed
as follows: (a) the death benefit must be completely distributed within
5 years of the contract owner's date of death; or (b) the beneficiary
may elect, within the 1-year period after the contract owner's date of
death, to receive the death benefit in the form of an annuity from us,
provided that (i) such annuity is distributed in substantially equal
installments over the life of such beneficiary or over a period not
extending beyond the life expectancy of such beneficiary; and (ii) such
distributions begin not later than 1 year after the contract owner's
date of death.
Notwithstanding (a) and (b) above, if the sole contract owner's
beneficiary is the deceased owner's surviving spouse, then such spouse
may elect to continue the Contract under the same terms as before the
contract owner's death. Upon receipt of such election from the spouse
at our Customer Service Center: (1) all rights of the spouse as
contract owner's beneficiary under the Contract in effect prior to such
election will cease; (2) the spouse will become the owner of the
Contract and will also be treated as the contingent annuitant, if none
has been named and only if the deceased owner was the annuitant; and
(3) all rights and privileges granted by the Contract or allowed by
Golden American will belong to the spouse as contract owner of the
Contract. This election will be deemed to have been made by the spouse
if such spouse makes a premium payment to the Contract or fails to make
a timely election as described in this paragraph. If the owner's
beneficiary is a nonspouse, the distribution provisions described in
subparagraphs (a) and (b) above, will apply even if the annuitant
and/or contingent annuitant are alive at the time of the contract
owner's death.
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If we do not receive an election from a nonspouse owner's beneficiary
within the 1-year period after the contract owner's date of death, then
we will pay the death benefit to the owner's beneficiary in a cash
payment within five years from date of death. We will determine the
death benefit as of the date we receive proof of death. We will make
payment of the proceeds on or before the end of the 5-year period starting
on the owner's date of death. Such cash payment will be in full settlement
of all our liability under the Contract.
If the contract owner dies after the annuity start date, we will
continue to distribute any benefit payable at least as rapidly as under
the annuity option then in effect. All of the contract owner's rights
granted under the Contract or allowed by us will pass to the contract
owner's beneficiary.
If the Contract has joint owners we will consider the date of death of
the first joint owner as the death of the contract owner and the
surviving joint owner will become the contract owner of the Contract.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits corporate employers to establish
various types of retirement plans for employees, and permits self-
employed individuals to establish these plans for themselves and their
employees. These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse
tax or other legal consequences to the plan, to the participant, or to
both may result if this Contract is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits
before transfer of the Contract. Employers intending to use the
Contract with such plans should seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement
Annuity" or "IRA." These IRAs are subject to limits on the amount that
can be contributed, the deductible amount of the contribution, the
persons who may be eligible, and the time when distributions commence.
Also, distributions from certain other types of qualified retirement
plans may be "rolled over" or transferred on a tax-deferred basis into
an IRA. There are significant restrictions on rollover or transfer
contributions from Savings Incentive Match Plans (SIMPLE), under which
certain employers may provide contributions to IRAs on behalf of their
employees, subject to special restrictions. Employers may establish
Simplified Employee Pension (SEP) Plans to provide IRA contributions on
behalf of their employees. Sales of the Contract for use with IRAs may
be subject to special requirements of the IRS.
ROTH IRAS
Section 408A of the Code permits certain eligible individuals
to contribute to a Roth IRA. Contributions to a Roth IRA,
which are subject to certain limitations, are not deductible, and
must be made in cash or as a rollover or transfer from another Roth
IRA or other IRA. A rollover from or conversion of an IRA to a Roth
IRA may be subject to tax, and other special rules may apply.
Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10% penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the
five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section
501(c)(3) organizations and public schools to exclude from their gross
income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These
premium payments may be subject to FICA (social security) tax.
Distributions of (1) salary reduction contributions made in years
beginning after December 31, 1988; (2) earnings on those contributions;
and (3) earnings on amounts held as of the last year beginning before
January 1, 1989, are not allowed prior to age 59 1/2, separation from
service, death or disability. Salary reduction contributions may also
be distributed upon hardship, but would generally be subject to penalties.
ENHANCED DEATH BENEFITS
The Contract includes an Enhanced Death Benefit that in some cases may
exceed the greater of the premium payments or the contract value. The
Internal Revenue Service has not ruled whether an Enhanced Death Benefit
could be characterized as an incidental benefit, the amount of which is
limited in any Code section 401(a) pension or profit-sharing plan or Code
section 403(b) tax sheltered annuity. Employers using the Contract may
want to consult their tax adviser regarding such limitation. Further,
the Internal Revenue Service has not addressed in a ruling of general
applicability whether a death benefit provision such as the Enhanced
Death Benefit provision in the Contract comports with IRA qualification
requirements.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax
consequences under the Contracts are not exhaustive, and special rules
are provided with respect to other tax situations not discussed in this
prospectus. Further, the federal income tax consequences discussed
herein reflect our understanding of
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current law, and the law may change. Federal estate and state and
local estate, inheritance and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual
circumstances of each contract owner or recipient of the distribution.
A competent tax adviser should be consulted for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Contracts could
change by legislation or other means. It is also possible that any
change could be retroactive (that is, effective before the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the Contract.
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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 Holdings, 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. (the "ING acquisition").
On August 13, 1996, Equitable of Iowa acquired all of the outstanding
capital stock of BT Variable, Inc., then the parent of Golden American
(the "Equitable acquisition"). For financial statement purposes, the
ING acquisition was accounted for as a purchase effective October 25,
1997 and the Equitable acquisition was accounted for as a
purchase effective August 14, 1996. As a result, the
financial data presented below for periods after 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, 1996 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 PRE-ACQUISITION
-----------------------------|-----------------------------| --------------------------------------
FOR THE PERIOD|FOR THE PERIOD FOR THE PERIOD|FOR THE PERIOD
FOR THE YEAR OCTOBER 25, | JANUARY 1, AUGUST 14, | JANUARY 1, FOR THE YEARS
ENDED 1997 THROUGH |1997 THROUGH 1996 THROUGH | 1996 THROUGH ENDED DECEMBER 31
DECEMBER 31, DECEMBER 31, | OCTOBER 24, DECEMBER 31, | AUGUST 13, -----------------------
1998 1997 | 1997 1996 | 1996 1995 1994
-------------- --------------|-------------- --------------|-------------- ------------ ------------
| |
<C> <C> <C> <C> <C> <C> <C> <C>
Annuity and Interest | |
Sensitive Life | |
Product Charges ............ $ 39,119 $ 3,834 | $18,288 $ 8,768 | $ 12,259 $ 18,388 $ 17,519
Net Income before | |
Federal Income Tax ......... $ 10,353 $ (279) | $ (608) $ 570 | $ 1,736 $ 3,364 $ 2,222
Net Income (Loss) ........... $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199 $ 3,364 $ 2,222
Total Assets ................ $ 4,752,533 $ 2,446,395 | N/A $ 1,677,899 | N/A $ 1,203,057 $ 1,044,760
Total Liabilities ........... $ 4,398,639 $ 2,219,082 | N/A $ 1,537,415 | N/A $ 1,104,932 $ 955,254
Total Stockholder's Equity .. $ 353,894 $ 227,313 | N/A $ 140,484 | N/A $ 98,125 $ 89,506
</TABLE>
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for
the insurance industry. The variable annuity competitive environment is
intense and 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 five 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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American") consolidated results of operations.
In addition, some analysis and information regarding financial condition and
liquidity and capital resources has also been provided. This analysis should
be read jointly with the consolidated financial statements, related notes and
the Cautionary Statement Regarding Forward-Looking Statements, which appear
elsewhere in this report. The Companies report financial results on a consol-
idated basis. The consolidated financial statements include the accounts of
Golden American and its wholly owned subsidiary, First Golden American Life
Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies").
RESULTS OF OPERATIONS
MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable")
shareholders approved an Agreement and Plan of Merger ("Merger Agreement")
dated July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI") and ING
Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable according 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. In addition, Equitable owned
all the outstanding capital stock of Locust Street Securities, Inc.,
Equitable Investment Services, Inc. (subsequently dissolved), Directed
Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.).
In exchange for the outstanding capital stock of Equitable, ING paid total
consideration of approximately $2.1 billion in cash and stock and assumed
approximately $400 million in debt. As a result of this transaction,
Equitable of Iowa Companies was merged into PFHI, which was simultaneously
renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware
corporation.
For financial statement purposes, the change in control of the Companies
through the ING merger was accounted for as a purchase effective October 25,
1997. This merger resulted in a new basis of accounting reflecting estimated
fair values of assets and liabilities at the merger date. As a result, the
Companies' financial statements for periods after October 24, 1997 are
presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with $227.6
million allocated to the Companies. 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 attributed to the Companies. 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 acquired
all of the outstanding capital stock of BT Variable, Inc. ("BT Variable")
and its wholly owned subsidiaries, Golden American and DSI. After 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, 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 values of assets and liabilities at the
acquisition date. As a result, the Companies' 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. The allocation of the purchase price to
Golden American was approximately $139.9 million. Goodwill of $41.1 million
was established for the excess of the acquisition cost over the fair value of
the assets and liabilities and attributed to Golden American. At June 30,
1997, goodwill was increased by $1.8 million due to the adjustment of the
value of a receivable existing at the acquisition date. Before the ING
merger, goodwill resulting from the acquisition was being amortized over 25
years on a straight-line basis.
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------- ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Variable annuity |
premiums: |
Separate account $1,513.3 $291.2 $111.0 | $180.2
Fixed account 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life premiums 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== ======
For the Companies' variable contracts, premiums collected are not reported as
revenues, but are reported as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment income and
product charges.
Variable annuity separate account premiums increased 419.7% in 1998 primarily
due to increased sales of the Premium Plus product introduced in October
of 1997 and the increased sales levels of the Companies' other products. The
fixed account portion of the Companies' variable annuity premiums increased
85.1% in 1998. Variable life premiums decreased 11.4% in 1998. Total premiums
increased 238.7% in 1998.
During 1998, the Companies' sales were further diversified among
broker/dealers. Premiums, net of reinsurance, for variable products from two
significant broker/dealers having at least ten percent of total sales for the
year ended December 31, 1998 totaled $580.7 million, or 27% of premiums
($328.2 million, or 53% from two significant broker/dealers for the year
ended December 31, 1997).
REVENUES
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------ ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Annuity and interest |
sensitive life |
product charges $39.1 $22.1 $3.8 | $18.3
Management fee revenue 4.8 2.8 0.5 | 2.3
Net investment income 42.5 26.8 5.1 | 21.7
Realized gains (losses) |
on investments (1.5) 0.1 -- | 0.1
Other income 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ===== =====
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in 1998.
Annuity and interest sensitive life product charges increased 76.8%, or $17.0
million, to $39.1 million in 1998 due to additional fees earned from the
increasing block of business under management in the separate accounts and an
increase in surrender charge revenues. This increase was partially offset by
the elimination of the unearned revenue reserve related to in force acquired
business 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 $4.8
million for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million in
1998 from $26.8 million in 1997 due to growth in invested assets. During
1998, the Company had net realized losses on investments of $1.5 million,
which includes a $1.0 million write down of two impaired bonds, compared to
gains of $0.1 million in 1997. Other income increased $4.9 million to $5.6
million in 1998 due primarily to income received under a modified coinsurance
agreement with an unaffiliated reinsurer as a result of increased sales.
EXPENSES
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------ ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Insurance benefits |
and expenses: |
Annuity and interest |
sensitive life benefits: |
Interest credited to |
account balances $94.9 $26.7 $7.4 | $19.3
Benefit claims incurred |
in excess of account |
balances 2.1 0.1 -- | 0.1
Underwriting, acquisition |
and insurance expenses: |
Commissions 121.2 36.3 9.4 | 26.9
General expenses 37.6 17.3 3.4 | 13.9
Insurance taxes 4.1 2.3 0.5 | 1.8
Policy acquisition costs |
deferred (197.8) (42.7) (13.7)| (29.0)
Amortization: |
Deferred policy |
acquisition costs 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance in force 4.7 6.1 0.9 | 5.2
Goodwill 3.8 2.0 0.6 | 1.4
----- ----- ---- | -----
$75.7 $50.7 $9.4 | $41.3
===== ===== ==== =====
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in
1998 from $50.7 million in 1997. Interest credited to account balances
increased 255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra
credit bonus on the Premium Plus product introduced in October of 1997
generated a $51.6 million increase in interest credited during 1998 compared
to 1997. The remaining increase in interest credited relates to higher
account balances associated with the Companies' fixed account option within
its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in
1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3
million in 1997. Changes 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 including the extra credit bonus have been deferred, thus having very
little impact on current earnings.
General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3
million in 1997. Management expects general expenses to continue to increase
in 1999 as a result of the emphasis on expanding the salaried wholesaler
distribution network. The Companies use a network of wholesalers to
distribute products and the salaries of these wholesalers are included in
general expenses. The portion of these salaries and related expenses that
varies with 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.
At the merger date, the Companies' deferred policy acquisition costs
("DPAC"), previous balance of value of purchased insurance in force ("VPIF")
and unearned revenue reserve were eliminated and a new asset of $44.3 million
representing VPIF was established for all policies in force at the merger
date. During 1998, VPIF was adjusted to reduce amortization by $0.2 million
to reflect changes in the assumptions related to the timing of future gross
profits. VPIF decreased $2.6 million in the second quarter of 1998 to adjust
the value of other receivables recorded at the time of merger and increased
$0.2 million in the first quarter of 1998 as the result of an adjustment to
the merger costs. The amortization of VPIF and DPAC increased $1.1 million,
or 13.0%, in 1998. During the second quarter of 1997, VPIF was adjusted by
$2.3 million to reflect narrower 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
relating to VPIF as of December 31, 1998 is $4.3 million in 1999, $4.0
million in 2000, $3.9 million in 2001, $3.7 million in 2002 and $3.3 million
in 2003. Actual amortization may vary based upon changes in assumptions and
experience.
Amortization of goodwill for the year ended December 31, 1998 totaled $3.8
million compared to $2.0 million for the year ended December 31, 1997.
Goodwill resulting from the merger is being amortized on a straight-line
basis over 40 years.
Interest expense on the $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1998,
unchanged from the same period of 1997. In addition, Golden American incurred
interest expense of $0.2 million in 1998 compared to $0.5 million in 1997 on
the line of credit with Equitable which was repaid with a capital
contribution. Golden American also paid $1.8 million in 1998 to ING America
Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan
agreement. Interest expense on the revolving note payable with SunTrust Bank,
Atlanta was $0.3 million for the year ended December 31, 1998.
INCOME. Net income for 1998 was $5.1 million, an increase of $4.8 million
from $0.3 million in 1997.
Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million
from $2.1 million in 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
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
----------------- | ----------------- | ----------------
(Dollars in millions)
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
====== ====== ======
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
----------------- | ----------------- | ---------------
(Dollars in millions)
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
====== ====== ======
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 two
significant broker/dealers having at least ten percent of total sales
for the year ended December 31, 1997, totaled $328.2 million, or 53% of
premiums ($298.0 million or 67% from two significant broker/dealers for
the year ended December 31, 1996).
REVENUES
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
- ---------------------------------------- | ----------------- | ----------------
(Dollars in millions)
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
==== ===== =====
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
----------------- | ----------------- | ---------------
(Dollars in millions)
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
===== ===== =====
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 collection of surrender charges.
Golden American provides certain managerial and supervisory services to
DSI. This fee, 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, which were the result of voluntary sales, of
$0.1 million compared to net realized losses of $0.4 million in 1996.
EXPENSES
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
-----------------| -----------------| ----------------
(Dollars in millions)
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
===== ===== =====
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
-----------------| -----------------| ----------------
(Dollars in millions)
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
===== ===== =====
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. Increases and decreases in commissions
and insurance taxes are generally related to changes in the level of
variable product sales. Insurance taxes are also impacted by several
other factors which include an increase in FICA taxes primarily due to
bonuses and an increase in state licenses and fees. Most costs incurred
as the result of new sales have been deferred, thus having very little
impact on earnings.
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. In addition, the Company uses a
network of wholesalers to distribute its products and the salaries of
these wholesalers are included in general expenses. The portion of
these salaries and related expenses which vary with sales production
levels are deferred, thus having little impact on earnings. 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. Based on current
conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization
for the next five years, relating to the PVIF as of December 31, 1997,
is $6.2 million in 1998, $6.0 million in 1999, $5.6 million in 2000,
$5.0 million in 2001 and $4.2 million in 2002. 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. The elimination of the unearned revenue
reserve related to in force acquired at the merger/acquisition dates
will result in lower annuity and interest sensitive life product
charges compared to pre-merger/pre-acquisition levels.
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. Goodwill resulting from the merger is being amortized on a
straight-line basis over 40 years and is expected to total
approximately $3.8 million annually.
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's
monthly average aggregate cost of short-term funds plus 1.00%.
During 1997, the Company paid $0.6 million to Equitable 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.
FINANCIAL CONDITION
RATINGS. During 1998, the Companies' ratings were upgraded by Standard &
Poor's Rating Services ("Standard & Poor's") from AA to AA+. During the
first quarter of 1999, the Companies' ratings were upgraded by Duff &
Phelps Credit Rating Company from AA+ to AAA.
INVESTMENTS. The financial statement carrying value and amortized cost
basis of the Companies' total investments increased 72.3% and 72.6%,
respectively, in 1998. All of the Companies' investments, other than
mortgage loans, are carried at fair value in the Companies' financial
statements. As such, growth in the carrying value of the Companies'
investment portfolio included changes in unrealized appreciation and
depreciation of fixed maturities as well as growth in the cost basis of
these securities. Growth in the cost basis of the Companies' investment
portfolio resulted from the investment of premiums from the sale of the
Companies' fixed account option. The Companies manage the growth of
insurance operations in order to maintain adequate capital ratios. To
support the fixed account option of the Companies' variable insurance
products, cash flow was invested primarily in fixed maturities, short-term
investments and mortgage loans.
At December 31, 1998, the Companies had no investment in default. At December
31, 1998, the Companies' investment portfolio had a yield of 6.4%. The
Companies estimate the total investment portfolio, excluding policy loans,
had a fair value approximately equal to 100.2% of its amortized cost value
for accounting purposes at December 31, 1998.
FIXED MATURITIES: At December 31, 1998, the Companies had fixed maturities
with an amortized cost of $739.8 million and an estimated fair value of
$742.0 million. The individual securities in the Companies' fixed maturities
portfolio (at amortized cost) include investment grade securities, which
include securities issued by the U.S. government, its agencies and
corporations that are rated at least A- by Standard & Poor's ($477.4 million
or 64.5%), that are rated BBB+ to BBB- by Standard & Poor's ($124.0 million
or 16.8%) and below investment grade securities which are securities issued
by corporations that are rated BB+ to B- by Standard & Poor's ($51.6 million
or 7.0%). Securities not rated by Standard & Poor's had a National
Association of Insurance Commissioners ("NAIC") rating of 1, 2 or 3 ($86.8
million or 11.7%). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.5% at December 31, 1998.
The Companies classify 100% of securities as available for sale. Net
unrealized appreciation of fixed maturities of $2.2 million was comprised of
gross appreciation of $6.7 million and gross depreciation of $4.5 million.
Net unrealized holding gains on these securities, net of adjustments to VPIF,
DPAC and deferred income taxes of $1.0 million was included in stockholder's
equity at December 31, 1998.
At December 31, 1998, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $52.7 million, or 5.9%, of the Companies' investment
portfolio. The Companies intend to purchase additional below investment grade
securities but do not expect the percentage of the portfolio invested in such
securities to exceed 10% of the investment portfolio. At December 31, 1998,
the yield at amortized cost on the Companies' below investment grade
portfolio was 7.9% compared to 6.4% for the Companies' investment grade
corporate bond portfolio. The Companies estimate the fair value of the below
investment grade portfolio was $51.7 million, or 98.1% of amortized cost
value, at December 31, 1998.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other
creditors of the issuer. Also, issuers of below investment grade securities
usually have higher levels of debt and are more sensitive to adverse economic
conditions, such as a recession or increasing interest rates, than are
investment grade issuers. The Companies attempt to reduce the overall risk in
the below investment grade portfolio, as in all investments, through careful
credit analysis, strict investment policy guidelines, and diversification by
company and by industry.
The Companies analyze the investment portfolio, including below investment
grade securities, at least quarterly in order to determine if the Companies'
ability to realize the 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 the Companies 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 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 Companies' portfolio. Significant write-downs in the
carrying value of investments could materially adversely affect the
Companies' net income in future periods.
In 1998, fixed maturities designated as available for sale with a combined
amortized cost of $145.3 million were called or repaid by their issuers. In
total, net pre-tax losses from sales, calls and repayments of fixed maturity
investments amounted to $0.5 million in 1998.
During the fourth quarter of 1998, Golden American determined that the
carrying value of two of its bonds exceeded their estimated net realizable
value. As a result, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to their
combined net realizable value of $2.9 million.
EQUITY SECURITIES: Equity securities represent 1.6% of the Companies'
investment portfolio. At December 31, 1998, the Companies owned equity
securities with a cost of $14.4 million and an estimated fair value of $11.5
million. Net unrealized depreciation of equity securities was comprised
entirely of gross depreciation of $2.9 million. Equity securities are
primarily comprised of the Companies' investment in shares of the mutual
funds underlying the Companies' registered separate accounts.
MORTGAGE LOANS: Mortgage loans represent 10.9% of the Companies' investment
portfolio. Mortgages outstanding were $97.3 million at December 31, 1998 with
an estimated fair value of $99.8 million. The Companies' mortgage loan
portfolio includes 57 loans with an average size of $1.7 million and average
seasoning of 0.9 years if weighted by the number of loans. The Companies'
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. Mortgage loans on real estate
have been analyzed by geographical location with concentrations by state
identified as California (12% in 1998 and 1997), Utah (11% in 1998, 13% in
1997) and Georgia (10% in 1998, 11% in 1997). There are no other
concentrations of mortgage loans in any state exceeding ten percent at
December 31, 1998 and 1997. Mortgage loans on real estate have also been
analyzed by collateral type with significant concentrations identified in
office buildings (36% in 1998, 43% in 1997), industrial buildings (32% in
1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997). At
December 31, 1998, the yield on the Companies' mortgage loan portfolio was
7.3%.
At December 31, 1998, no mortgage loan was delinquent by 90 days or more. The
Companies' loan investment strategy is consistent with other life insurance
subsidiaries of EIC. The insurance subsidiaries have experienced a
historically low default rate in their mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $3.2 million during 1998
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
Companies' variable products.
DPAC represents certain deferred costs of acquiring insurance business,
principally first year commissions and interest bonuses, extra credit bonuses
and other expenses related to the production of new business after the merger.
The Companies' DPAC and previous balance of VPIF were eliminated as of the
merger date, and an asset representing VPIF was established for all policies
in force at the merger date. VPIF is amortized into income in proportion to
the expected gross profits of in force acquired business in a manner similar
to DPAC amortization. Any expenses which vary directly with the sales of the
Companies' products are deferred and amortized. At December 31, 1998, the
Companies had DPAC and VPIF balances of $205.0 million and $36.0 million,
respectively. VPIF decreased $2.6 million in the second quarter of 1998 for
an adjustment to the value of other receivables recorded at the time of the
merger and increased $0.2 million in the first quarter of 1998 for an
adjustment made to the merger costs.
Property and equipment increased $5.8 million during 1998, due to
installation of a new policy administration system, introduction of an
imaging system as well as the growth in the business.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the
merger date. Accumulated amortization of goodwill through December 31, 1998
was $4.4 million.
Other assets increased $5.5 million during 1998 due mainly to an increase in
amounts due from an unaffiliated reinsurer under a modified coinsurance
agreement.
At December 31, 1998, the Companies had $3.4 billion of separate account
assets compared to $1.6 billion at December 31, 1997. The increase in
separate account assets resulted from market appreciation and growth in sales
of the Companies' variable annuity products, net of redemptions.
At December 31, 1998, the Companies had total assets of $4.8 billion, an
increase of 94.3% over total assets at December 31, 1997.
LIABILITIES. In conjunction with the volume of variable annuity sales, the
Companies' total liabilities increased $2.2 billion, or 98.2%, during 1998
and totaled $4.4 billion at December 31, 1998. Future policy benefits for
annuity and interest sensitive life products increased $375.8 million, or
74.4%, to $881.1 million reflecting premium growth in the Companies' fixed
account option of its variable products. Market appreciation and premium
growth, net of redemptions, accounted for the $1.7 billion, or 106.3%,
increase in separate account liabilities to $3.4 billion at December 31,
1998.
On December 30, 1998, Golden American issued a $60 million, 7.25% surplus
note to Equitable Life which matures on December 29, 2028.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus
note to Equitable which matures on December 17, 2026. As a result of the
Merger Agreement, the surplus note is now payable to EIC.
Golden American maintained a line of credit agreement with Equitable 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.
Other liabilities increased $15.3 million from $17.3 million at December 31,
1997, due primarily to increases in accounts payable, outstanding checks,
guaranty fund assessment liability and pension liability.
The effects of inflation and changing prices on the Companies' financial
position 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.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $122.6 million,
or 54.5%, from December 31, 1997 to $347.6 million at December 31, 1998
primarily due to capital contributions from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash flows
to meet the cash requirements of their operating, investing and financing
activities. The Companies' principal sources of cash are variable annuity
premiums and product charges, investment income, maturing investments,
proceeds from debt issuance and capital contributions made by the Parent.
Primary uses of these funds are payments of commissions and operating
expenses, interest and extra premium credits, investment purchases, repayment
of debt, as well as withdrawals and surrenders.
Net cash used in operating activities was $63.9 million in 1998 compared to
$4.8 million in 1997. Annually, the Companies have predominantly had negative
cash flows from operating activities since Golden American started issuing
variable insurance products in 1989. These negative operating cash flows
result primarily from the funding of commissions and other deferrable
expenses related to the continued growth in the variable annuity product line
of Golden American. The 1998 increase in net cash used in operating
activities resulted principally from the introduction of Golden American's
extra premium credit product in October 1997. In 1998, $54.4 million in extra
premium credits was added to contractholders' account values versus $2.8
million in 1997.
Net cash used in investing activities was $390.0 million during 1998 as
compared to $198.5 million in 1997. This increase is primarily due to greater
net purchases of fixed maturities resulting from an increase in funds
available from net fixed account deposits. Net purchases of fixed maturities
reached $331.3 million in 1998 versus $135.3 million in 1997. Net purchases
of mortgage loans on real estate, on the other hand, declined to $12.6
million from $51.2 million in the prior year. In 1998, net purchases of short-
term investments were unusually high due to the investment of the remaining
proceeds of Golden American's $60.0 million surplus note issued on
December 30, 1998.
Net cash provided by financing activities was $439.5 million during 1998 as
compared to $218.6 million during the prior year. In 1998, net cash provided
by financing activities was positively impacted by net fixed account deposits
of $520.8 million compared to $303.6 million in 1997. This increase was
partially offset by net reallocations to the Companies' separate accounts,
which increased to $239.7 million from $110.1 million during the prior year.
In 1998, other important sources of cash provided by financing activities
were $98.4 million of capital contributions from the Parent and $60.0 million
of proceeds from the issuance of a surplus note on December 30, 1998. The
Companies have used part of the proceeds of the surplus note to repay
outstanding short-term debt.
The Companies' liquidity position is managed by maintaining adequate levels
of liquid assets, such as cash or cash equivalents and short-term
investments. Additional sources of liquidity include borrowing facilities to
meet short-term cash requirements. Golden American maintains a $65.0 million
reciprocal loan agreement with ING AIH and the Companies have established an
$85.0 million revolving note facility with SunTrust Bank, Atlanta. Management
believes that these sources of liquidity are adequate to meet the Companies'
short-term cash obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities, given the continued growth of the variable annuity
product line. It is anticipated that a continuation of capital contributions
from the Parent and the issuance of additional surplus notes will cover these
net cash outflows. It is ING's policy to ensure that adequate capital and
surplus is provided for the Companies and additional funds will be
contributed to the Companies in 1999.
During the first quarter of 1999, Golden American's operations were moved to
a new site in West Chester, Pennsylvania. Golden American currently occupies
65,000 square feet of leased space and has made commitments for an additional
60,000 square feet to be added during 1999 to be occupied by itself and its
affiliates. Previously, Golden American's home office operations were housed in
leased locations in Wilmington, Delaware and various locations in Pennsylvania,
which are being leased on a short-term basis for use in the transition to the
new office building. Golden American's New York subsidiary is housed in leased
space in New York, New York. The Companies intend to spend approximately $7.0
million on capital needs for 1999.
The ability of Golden American to pay dividends to its Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 1999,
Golden American cannot pay dividends to its Parent without prior approval of
statutory authorities.
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 intent to declare a dividend and the amount of the dividend has been
filed at least thirty days in advance of the proposed declaration. If the
Superintendent finds the financial condition of First Golden does not warrant
the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing.
The management of First Golden does not anticipate paying any dividends to
Golden American during 1999.
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 monitor the
capitalization of insurance companies based upon the type and mixture of
risks inherent in a company's operations. The formula includes components for
asset risk, liability risk, interest rate exposure and other factors. The
Companies have complied with the NAIC's risk-based capital reporting
requirements. Amounts reported indicate that the Companies have total
adjusted capital well above all required capital levels.
REINSURANCE: At December 31, 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 READINESS DISCLOSURE: Based on and in conjunction with a 1997 study
and an ongoing analysis of computer software and hardware, the Companies have
assessed their exposure to the Year 2000 change of the century date issue.
Some of the Companies' 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 process
transactions. To a lesser extent, the Companies depend on various non-
information technology systems, which could also fail or misfunction as a
result of the Year 2000.
The Companies have 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 Actual/
as of Estimated
March 15, Completion
PHASES 1999 Dates
- -------------------------------------------------------------------------------
ASSESSMENT AND DEVELOPMENT of the steps to be taken to
address Year 2000 systems issues 100% 12/31/1997
REMEDIATION of business critical systems to address
Year 2000 issues 100% 2/28/1999
REMEDIATION of non-critical systems to address Year
2000 issues 76-99% 6/01/1999
TESTING of business critical systems 100% 3/05/1999
TESTING of non-critical systems and integrated testing
of hardware and infrastructure 25-50% 6/15/1999
POINT-TO-POINT TESTING of external interfaces with third
party computer systems that communicate with the
Companies' systems 50-75% 4/30/1999
IMPLEMENTATION of tested business critical software
addressing Year 2000 systems issues 100% 3/05/1999
IMPLEMENTATION of tested non-critical software
addressing Year 2000 systems issues 25-50% 6/30/1999
CONTINGENCY PLAN 76-99% 6/01/1999
The Companies' operations could be adversely affected if significant
customers, suppliers and other third parties, including underlying mutual
funds, would be unable to transact business in the Year 2000 and thereafter
as a result of the Year 2000 issue. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000, the Companies
have identified and contacted these third parties to obtain assurances that
necessary steps are being taken to prepare for the Year 2000. The Companies
will continue these communications and establish compliance checkpoints
through the Year 2000 transition.
Management believes the Companies' systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$335,000 during 1998 for the Year 2000 project. The Companies anticipate
charging to expense an additional $200,000 to $300,000 in 1999 which includes
upgrade and internal resources costs.
Despite the Companies' efforts to modify or replace "time sensitive" computer
and information systems, the Companies could experience a disruption to their
operations as a result of the Year 2000. The Companies are currently
developing a contingency plan to address the content of third party
compliance statements and any systems that may malfunction despite the
testing being performed. The contingency plan is anticipated to be completed
by June 1, 1999.
The Year 2000 project costs and completion dates 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.
It is the Companies' intention to make every reasonable effort to achieve
business continuity through appropriate planning, testing and establishing
contingency scenarios; however, the Companies do not make any representations
because of many unknown factors beyond the control of the Companies.
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development and crediting
rates determination. As part of the risk management process, different
economic scenarios are modeled, including cash flow testing required for
insurance regulatory purposes, to determine that existing assets are adequate
to meet projected liability cash flows. Key variables include contractholder
behavior and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable products. Therefore, the risks associated with the investments
supporting the variable separate accounts are assumed by contractholders, not
by the Companies (subject to, among other things, certain minimum
guarantees). The Companies' products also provide certain minimum death
benefits that depend on the performance of the variable separate accounts.
Currently the majority of death benefit risks are reinsured, which protects
the Companies from adverse mortality experience and prolonged capital market
decline.
A surrender, partial withdrawal, transfer or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material
amount of market risk volatility. The fixed account liabilities are supported
by a portfolio principally composed of fixed rate investments that can
generate predictable, steady rates of return. The portfolio management
strategy for the fixed account considers the assets available for sale. This
enables the Companies to respond to changes in market interest rates, changes
in prepayment risk, changes in relative values of asset sectors and
individual securities and loans, changes in credit quality outlook and other
relevant factors. The objective of portfolio management is to maximize
returns, taking into account interest rate and credit risks as well as other
risks. The Companies' asset/liability management discipline includes
strategies to minimize exposure to loss as interest rates and economic and
market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values
from year-end 1998 levels, variable separate account funds, which represent
80% of the in force, pass the risk in underlying fund performance to the
contractholder (except for certain minimum guarantees that are mostly
reinsured). With respect to interest rate movements up or down 100 basis
points from year-end 1998 levels, the remaining 20% of the in force are fixed
account funds and almost all of these have market value adjustments which
provide significant protection against changes in interest rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or
written statement by the Companies or any of their officers, directors or
employees is qualified by the fact that actual results of the Companies may
differ materially from such statement, among other risks and uncertainties
inherent in the Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which
may affect the ability of the Companies to sell their products, the
market value and liquidity of the Companies' investments and the lapse
rate of the Companies' policies, notwithstanding product design features
intended to enhance persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations which may
affect the relative tax advantages of the Companies' 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 Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation,
insurance industry insolvencies, availability of competitive reinsurance
on new business, investment performance of the underlying portfolios of
the variable products, variable product design and sales volume by
significant sellers of the Companies' variable products.
6. To the extent third parties are unable to transact business in the Year
2000 and thereafter, the Companies' 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. Two broker-dealers, including Locust Street
Securities, Inc., produce 10% or more of Golden American's product
sales.
REINSURANCE. Golden American reinsures its mortality risk associated
with the Contract's guaranteed death benefit with one or more
appropriately licensed insurance companies. Golden American also,
effective June 1, 1994, entered into a reinsurance agreement on a
modified coinsurance basis with an affiliate of a broker-dealer which
distributes Golden American's products with respect to 25% of the
business produced by that broker-dealer.
RESERVES. In accordance with the life insurance laws and regulations
under which Golden American operates, it is obligated to carry on its
books, as liabilities, actuarially determined reserves to meet its
obligations on outstanding Contracts. Reserves, based on valuation
mortality tables in general use in the United States, where applicable,
are computed to equal amounts which, together with interest on such
reserves computed annually at certain assumed rates, make adequate
provision according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual
obligations and related expenses of Golden American.
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. Equitable Life billed Golden American
and its subsifiary First Golden American Life Insurance Company of New
York ("First Golden"), $1.1 million in 1998 under this service agreement.
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 $4.8 million, $2.8 million and $2.3
million for the years of 1998, 1997 and 1996, respectively.
Since January 1, 1998, Golden American and First Golden have had an asset
management agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management services for a fee,
payable quarterly. For the year ended December 31, 1998, Golden American
and First Golden incurred fees of $1.5 million under this agreement. Prior
to 1998, Golden American and First Golden had a service agreement with
Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI
provided investment management services. Golden American and First Golden
paid fees of $.9 million 1998 and $72,000 for the period from August 14,
1996 through December 31, 1996, respectively.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Fees for these services totaled $5.8
million for 1998 and $4.3 million for 1997.
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 which as of December 31,
1998, are sold primarily through two broker/dealer institutions. For
the years 1998, 1997 and 1996, commissions paid by Golden American to
DSI aggregated $117.5 million, $36.4 million and $27.1 million,
respectively.
EMPLOYEES. Golden American, as a result of its Service Agreement with
Bankers Trust (Delaware) and EIC Variable, had very few direct
employees. Instead, various management services were provided by
Bankers Trust (Delaware), EIC Variable and Bankers Trust New York
Corporation, as described above under "Service Agreement." The cost of
these services were allocated to Golden American. Since August 14,
1996, Golden American has hired individuals to perform various
management services and has looked to Equitable of Iowa and its
affiliates for certain other 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 1475
Dunwoody Drive, West Chester, Pennsylvania 19380, 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 intitiatives designed to
improve the surveillance and financial analysis regarding the solvency
of insurance companies in general. These inititatives 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 "Manangement's Discussion and Analysis Results of
Operations"
In addition, many states regulate affiliated groups of insurers, such
as Golden American, and its affilaites, 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 11 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 (49) President and Director
Myles R. Tashman (56) Director, Executive Vice President,
General Counsel and Secretary
R. Brock Armstrong (52) Director
Michael W. Cunningham (50) Director
Linda B. Emory (60) Director
Phillip R. Lowery (46) Director
James R. McInnis (51) Executive Vice President
Stephen J. Preston (41) Executive Vice President and Chief
Actuary
E. Robert Koster (40) Senior Vice President and Chief
Financial Officer
Patricia M. Corbett (34) Treasurer
David L. Jacobson (49) Senior Vice President and Assistant
Secretary
William B. Lowe (35) 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. He also serves as a
Director, Executive Vice President, General Counsel and Secretary of
First Golden. From 1986 through 1993, he was Senior Vice President
and General Counsel of United Pacific Life Insurance Company.
Mr. R. Brock Armstrong was appointed to serve as President and
Chairman of The GCG Trust in February 1999. He was also elected to
serve as Director of Golden American Life Insurance Company Director
and President of Equitable Life Insurance Company of Iowa in April
1999. He has served as Director and Chairman of the Board of First
Golden American Life Insurance Company of New York since December
1998, and as Group Executive of ING Group since October 1998. Mr.
Armstrong was Senior Vice President, The Prudential Insurance Company
of America, April 1997 to October 1998; Executive Vice President,
London Insurance Group, August 1994 to April 1997; President and Chief
Financial Officer of Security First Group, August 1991 to August 1994,
and Executive Vice President, London Insurance Group, November 1988 to
August 1991.
Mr. Michael W. Cunningham became a Director of Golden American and
First Golden in April 1999. Also, he has served as a Director of Life
of Georgia and Security Life of Denver since 1995. Currently, he
serves as Executive Vice President and Chief Financial Officer of ING
North America Insurance Corporation, and has worked for them since
1991. Mr. Cunningham served as Senior Vice President and Chief
Financial Officer from 1987 to 1991 and Vice President and Controller
from 1983 to 1987 for Integon Corporation. From 1973 through 1983, he
was a Manager and held various other positions with Ernst & Young.
Ms. Linda B. Emory became a Director of Golden American in April 1999.
Since September 1995, she has served as a Director for Life Insurance
Company of Georgia, Southland Life Insurance Company, Security Life of
Denver, Midwestern United Life Insurance Company, First ING of New
York and Columbine Insurance Company. Also, she is an Executive Vice
President of ING North America Insurance Corporation. From 1963 to
1993 she held the positions of Vice President, Senior Vice President,
Corporate Actuary and Director for Life Insurance Company of Georgia.
Also, she served as International Actuary and Manager of Nationale
Nederlanden from 1988 to 1990.
Mr. Phillip R. Lowery became a Director of Golden American in April
1999. Presently, he is Executive Vice President and Chief Actuary for
ING FSI North America. He served as Vice President of Sun Life of
America from 1986 to 1990 and as Vice President of Protective Life
Insurance Company from 1978 to 1986. From 1974 to 1978, he was an
actuary with Kennesaw Life and Accident Insurance Company.
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.
Ms. Patricia M. Corbett was elected Treasurer of Golden American in
December 1998. She joined Equitable Life Insurance Company of Iowa in
1987 and is currently Treasurer and Assistant Vice President of
Equitable Life and USG Annuity & Life Company.
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 became an
Executive Vice President and Chief Actuary in June 1998. 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. Steven G. Mandel joined Golden American in October 1988 and became
a 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
became a 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.
<PAGE>
<PAGE>
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief
Executive Officer of Golden American as well as the annual salary and
bonus for the next five highly compensated executive officers for the
fiscal year ended December 31, 1998. Certain executive officers of
Golden American are also officers of DSI. The salaries of such
individuals are allocated between Golden American and DSI. Executive
officers of Golden American are also officers of DSI. The salaries of
such individuals are allocated between Golden American and DSI pursuant
to an arrangement among these companies. Throughout 1995 and until
August 13, 1996, 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 Officers and the
five other most highly compensated executive officers for the fiscal
year ended December 31, 1998.
<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>
Barnett Chernow,....... 1998 $284,171 $105,375 8,000
President 1997 $234,167 $ 31,859 $ 277,576 4,000
1996 $207,526 $150,000 $ 7,755(/4/)
James R. McInnis,...... 1998 $250,004 $626,245 2,000
Executive Vice
President
Keith Glover,.......... 1998 $250,000 $145,120 3,900
Executive Vice
President
Myles R. Tashman,...... 1998 $189,337 $ 54,425 3,500
Executive Vice 1997 $181,417 $ 25,000 $ 165,512 5,000
President, General 1996 $176,138 $ 90,000 $ 5,127(/4/)
Counsel and Secretary
Stephen J. Preston,.... 1998 $173.870 $ 32,152 3,500
Executive Vice 1997 $160,758 $ 16,470
President and Chief 1996 $156,937 $ 58,326
Actuary
Paul R. Schlaack,..... 1998 $406,730 $210,600
Former Chairman 1997 $351,000 $249,185 $1,274,518 19,000 $ 15,000
and Vice President 1996 $327,875 $249,185 $ 245,875 19,000 $ 15,000
Terry L. Kendall,...... 1998 $145,237 $181,417
Former President and 1997 $362,833 $ 80,365 $ 644,844 16,000
CEO (/3/) 1996 $288,298 $400,000 $ 11,535(/4/)
</TABLE>
________________
(1) The amount shown relates to bonuses paid in 1998, 1997 and 1996.
(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) In 1996, 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 1996 to employees on
record as of December 31, 1996, after an employee completed 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.
Option Grants in Last Fiscal Year (1998)
<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 EXERCISE TERM (/4/)
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------
NAME GRANTED (/1/) YEAR PRICE (/2/) DATE 5% 10%
- ---- ------------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow......... 8,000 11.99 $60.518 5/26/2003 $164,016 $ 362,433
James R. McInnis........ 2,000 3.00 $60.518 5/26/2003 $ 41,004 $ 90,608
Keith Glover............ 3,900 5.85 $60.518 5/26/2003 $ 79,958 $ 176,686
Myles Tashman........... 3,500 5.25 $60.518 5/26/2003 $ 71,758 $ 158,564
Stephen J. Preston...... 3,500 5.25 $60.518 5/26/2003 $ 71,758 $ 158,564
</TABLE>
________________
(1) Stock appreciation rights granted on May 26, 1198 to the officers of
Golden American have a three-year vesting period and an expiration
date as shown.
(2) The base price was equal to the fair market value of ING's stock on
on the date of grant.
(3) Total dollar gains based on indicated rates of appreciation of share
price over a the five year term of the rights.
Directors of Golden American receive no additional compensation for serving
as a director.
<PAGE>
<PAGE>
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the years ended December 31, 1998 and 1997
[FS] 1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of Golden
American Life Insurance Company as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the year ended December 31, 1998 and 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. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golden American
Life Insurance Company at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the year ended December 31,
1998 and 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 in conformity with
generally accepted accounting principles.
s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
[FS] 2
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
--------------------------------------
December 31, 1998 December 31, 1997
------------------- -----------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (cost: 1998 - $739,772;
1997 - $413,288) $741,985 $414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 - $4,437) 11,514 3,904
Mortgage loans on real estate 97,322 85,093
Policy loans 11,772 8,832
Short-term investments 41,152 14,460
------------------ ----------------
Total investments 903,745 526,690
Cash and cash equivalents 6,679 21,039
Due from affiliates 2,983 827
Accrued investment income 9,645 6,423
Deferred policy acquisition costs 204,979 12,752
Value of purchased insurance in force 35,977 43,174
Current income taxes recoverable 628 272
Deferred income tax asset 31,477 36,230
Property and equipment, less allowances
for depreciation of $801 in 1998 and
$97 in 1997 7,348 1,567
Goodwill, less accumulated amortization
of $4,408 in 1998 and $630 in 1997 146,719 150,497
Other assets 6,239 755
Separate account assets 3,396,114 1,646,169
------------------ ----------------
Total assets $4,752,533 $2,446,395
================== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products $881,112 $505,304
Unearned revenue reserve 3,840 1,189
Other policy claims and benefits -- 10
------------------ ----------------
884,952 506,503
Line of credit with affiliate -- 24,059
Surplus notes 85,000 25,000
Due to affiliates -- 80
Other liabilities 32,573 17,271
Separate account liabilities 3,396,114 1,646,169
------------------- -----------------
4,398,639 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 347,640 224,997
Accumulated other comprehensive income
(loss) (895) 241
Retained earnings (deficit) 4,649 (425)
------------------ ----------------
Total stockholder's equity 353,894 227,313
------------------ ----------------
Total liabilities and stockholder's
equity $4,752,533 $2,446,395
================== ================
See accompanying notes.
[FS] 3
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
------------------------------------ ------------------------------------ ------------------
For the period| For the period For the period| For the period
October 25, 1997| January 1, 1997 August 14, 1996| January 1, 1996
For the year ended through| through through| through
December 31, 1998 December 31, 1997| October 24, 1997 December 31, 1996| August 13, 1996
------------------ -----------------|------------------ -----------------|------------------
| |
<S> <C> <C> <C> <C> <C>
Revenues: | |
Annuity and interest sensitive life | |
product charges $39,119 $3,834 | $18,288 $8,768 | $12,259
Management fee revenue 4,771 508 | 2,262 877 | 1,390
Net investment income 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments (1,491) 15 | 151 42 | (420)
Other income 5,569 236 | 426 486 | 70
----------------- ---------------- |----------------- ---------------- |-----------------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
Insurance benefits and expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in excess | |
of account balances 2,123 -- | 125 1,262 | 915
Underwriting, acquisition and | |
insurance expenses: | |
Commissions 121,171 9,437 | 26,818 9,866 | 16,549
General expenses 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization: | |
Deferred policy acquisition costs 5,148 892 | 1,674 244 | 2,436
Value of puchased insurance in force 4,724 948 | 5,225 2,745 | 951
Goodwill 3,778 630 | 1,398 589 | --
----------------- ---------------- |----------------- ---------------- |-----------------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense 4,390 557 | 2,082 85 | --
----------------- ---------------- |----------------- ---------------- |-----------------
80,100 9,999 | 43,391 15,398 | 16,553
----------------- ---------------- |----------------- ---------------- |-----------------
Income (loss) before income taxes 10,353 (279)| (608) 570 | 1,736
| |
Income taxes 5,279 146 | (1,337) 220 | (1,463)
----------------- ---------------- |----------------- ---------------- |-----------------
| |
Net income (loss) $5,074 ($425)| $729 $350 | $3,199
================= ================ |================= ================ |=================
</TABLE>
See accompanying notes.
[FS] 4
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
PRE-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500 $50,000 $45,030 $658 ($63) $98,125
Comprehensive income:
Net income -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses) -- -- -- (1,175) -- (1,175)
-----------
Comprehensive income 2,024
Preferred stock dividends -- -- -- -- (719) (719)
------------ ------------ ------------ ------------ ------------ -----------
Balance at August 13, 1996 $2,500 $50,000 $45,030 ($517) $2,417 $99,430
============ ============ ============ ============ ============ ===========
<CAPTION>
POST-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996 $2,500 $50,000 $87,372 -- -- $139,872
Comprehensive income:
Net income -- -- -- -- $350 350
Change in net unrealized
investment gains (losses) -- -- -- $262 -- 262
-----------
Comprehensive income 612
Contribution of preferred
stock to additional
paid-in capital -- (50,000) 50,000 -- -- --
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1996 $2,500 -- $137,372 $262 $350 $140,484
Comprehensive income:
Net income -- -- -- -- 729 729
Change in net unrealized
investment gains (losses) -- -- -- 1,543 -- 1,543
-----------
Comprehensive income 2,272
Contribution of capital -- -- 1,121 -- -- 1,121
------------ ------------ ------------ ------------ ------------ -----------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
[FS] 5
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997 $2,500 -- $224,997 -- -- $227,497
Comprehensive loss:
Net loss -- -- -- -- ($425) (425)
Change in net unrealized
investment gains (losses) -- -- -- $241 -- 241
-----------
Comprehensive loss (184)
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1997 $2,500 -- $224,997 $241 ($425) $227,313
Comprehensive income:
Net income -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses) -- -- -- (1,136) -- (1,136)
-----------
Comprehensive income 3,938
Contribution of capital -- -- 122,500 -- -- 122,500
Other -- -- 143 -- -- 143
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1998 $2,500 -- $347,640 ($895) $4,649 $353,894
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
[FS] 6
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES | |
Net income (loss) $5,074 ($425)| $729 $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: | |
Interest credited and other charges on | |
interest sensitive products 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned revenues 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in accrued | |
investment income (3,222) 1,205 | (3,489) (877)| (2,494)
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization of deferred policy | |
acquisition costs 5,148 892 | 1,674 244 | 2,436
Amortization of value of purchased | |
insurance in force 4,724 948 | 5,225 2,745 | 951
Change in other assets, other | |
liabilities and accrued income taxes 9,891 4,205 | (8,944) (96)| 4,672
Provision for depreciation and | |
amortization 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred income taxes 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on investments 1,491 (15)| (151) (42)| 420
------------- ------------- | ------------- ------------- | -----------
Net cash provided by (used in) | |
operating activities (63,923) 3,127 | (7,971) (757)| (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment of | |
investments: | |
Fixed maturities - available for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real estate 3,791 1,644 | 5,828 40 | --
Short-term investments - net -- -- | 11,415 2,629 | 354
------------- ------------- | ------------- ------------- | ------------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available for sale (476,523) (29,596)| (155,173) (147,170)| (184,589)
Equity securities (10,000) (1)| (4,865) (5)| --
Mortgage loans on real estate (16,390) (14,209)| (44,481) (31,499)| --
Policy loans - net (2,940) (328)| (3,870) (637)| (1,977)
Short-term investments - net (26,692) (13,244)| -- -- | --
------------- ------------- | ------------- ------------- | ------------
(532,545) (57,378)| (208,389) (179,311)| (186,566)
Purchase of property and equipment (6,485) (252)| (875) (137)| --
------------- ------------- | -------------- ------------- | ------------
Net cash used in investing activities (389,986) (46,115)| (152,399) (129,326)| (131,121)
</TABLE>
See accompanying notes.
[FS] 7
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of surplus note $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings (500,722) -- | -- -- | --
Proceeds from revolving note payable 108,495 -- | -- -- | --
Repayment from revolving note payable (108,495) -- | -- -- | --
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 account balances 593,428 62,306 | 261,549 116,819 | $ 149,750
Return of account balances | |
on annuity and interest sensitive | |
life policies (72,649) (6,350)| (13,931) (3,315)| (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017)| (93,069) (10,237)| (8,286)
Contributions of capital by parent 98,441 -- | 1,011 -- | --
Dividends paid on preferred stock -- -- | -- -- | (719)
------------- ------------- | -------------- ------------- | ------------
Net cash provided by financing | |
activities 439,549 46,851 | 171,707 128,267 | 138,050
------------- ------------- | -------------- ------------- | ------------
Increase (decrease) in cash and | |
cash equivalents (14,360) 3,863 | 11,337 (1,816)| 2,609
| |
Cash and cash equivalents at | |
beginning of period 21,039 17,176 | 5,839 7,655 | 5,046
------------- ------------- | -------------- ------------- | ------------
Cash and cash equivalents at end | |
of period $ 6,679 $ 21,039 | $ 17,176 $ 5,839 | $ 7,655
============= ============= | ============== ============= | =============
| |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW | |
INFORMATION | |
Cash paid during the period for: | |
Interest 4,305 295 | 1,912 -- | --
Income taxes 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to additional | |
paid-in capital for adjusted merger | |
costs 143 -- | -- -- | --
Contribution of property and equipment | |
from EIC Variable, Inc. net of $353 of | |
accumulated depreciation -- -- | 110 -- | --
Contribution of capital from parent to | |
repay line of credit borrowings 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
[FS] 8
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 "Companies"). 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 Companies'
products are marketed by broker/dealers, financial institutions and insurance
agents. The Companies' primary customers are consumers and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") according to the terms of an Agreement and Plan of Merger
("Merger Agreement") dated 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 this
transaction, Equitable was merged into PFHI, which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware
corporation. See Note 6 for additional information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its
wholly owned subsidiaries, Golden American and Directed Services, Inc.
("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for
additional information regarding the acquisition.
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 Companies' financial
statements for the periods after 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: The Companies account for their investments under the
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires fixed
maturities 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 value of purchased insurance in force ("VPIF"),
deferred policy acquisition costs ("DPAC") and deferred income taxes. At
December 31, 1998 and 1997, all of the Companies' fixed maturities are
designated as available for sale, although the Companies are not precluded
from designating fixed maturities 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 new cost basis by
a charge to realized losses in the Companies' Statements of Operations.
Premiums and discounts are amortized/accrued utilizing a method which results
in a constant yield over the securities' expected lives. Amortization/accrual
of premiums and discounts on mortgage and other asset-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 then becomes the new cost basis by a charge to
realized losses in the Companies' Statements of Operations.
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
Companies 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.
REALIZED GAINS AND LOSSES: Realized gains and losses are determined on the
basis of specific identification and average cost methods for manager
initiated and issuer initiated disposals, respectively.
FAIR VALUES: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market and
publicly traded fixed maturities 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
consist of the Companies' investment in its registered separate accounts are
based upon the quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the Companies
consider all demand deposits and interest-bearing accounts not related to the
investment function to be cash equivalents. All interest-bearing accounts
classified as cash equivalents have original maturities of three months or
less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally first year
commissions and interest bonuses, extra credit bonuses 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 adjusted
retrospectively when the Companies revise their 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
maturities the Companies have designated as "available for sale" under SFAS
No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the purchase
price related to each transaction was allocated to the right to receive
future cash flows from existing insurance contracts. This allocated cost
represents VPIF 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 VPIF is
charged to expense in proportion to expected gross profits of the underlying
business. This amortization is adjusted retrospectively when the Companies
revise the estimate of current or future gross profits to be realized from
the insurance contracts acquired. VPIF is adjusted to reflect the pro forma
impact of unrealized gains and losses on available for sale fixed maturities.
See Notes 6 and 7 for additional information on VPIF resulting from the
merger and acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, office
furniture, certain other equipment and capitalized computer software and are
not considered to be significant to the Companies' 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 and is being amortized
over 40 years on a straight-line basis. Goodwill established as a result of
the acquisition was being amortized over 25 years on a straight-line basis.
See Notes 6 and 7 for additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest guarantees 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 3.00% to 10.00% during 1998, 3.30% to
8.25% during 1997 and 4.00% to 7.25% during 1996. The unearned revenue
reserve represents unearned distribution fees. These distribution fees have
been deferred and are amortized over the life of the contracts in proportion
to expected gross profits.
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the accompanying
Balance Sheets represent funds separately administered principally for
variable annuity and variable life contracts. Contractholders, rather than
the Companies, bear the investment risk for the variable products. At the
direction of the contractholders, the separate accounts invest the premiums
from the sale of variable 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 Companies. The portion of
the separate account assets equal to the reserves and other liabilities of
variable annuity and variable life contracts cannot be charged with
liabilities arising out of any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the underlying
investments and 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; the fair value of these liabilities is
equal to their carrying amount. Net investment income and realized and
unrealized capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable 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 maturities the Companies have
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 Companies' Statements of Operations are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is restricted. Prior
approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 1999,
Golden American cannot pay dividends to its Parent without prior approval of
statutory authorities.
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 intent to declare a dividend and the amount of the dividend has been
filed at least thirty days in advance of the proposed declaration. If the
Superintendent finds the financial condition of First Golden does not warrant
the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing.
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires enterprises to report selected information about
operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
The Companies manage their business as one segment, the sale of variable
products designed to meet customer needs for tax-advantaged methods of saving
for retirement and protection from unexpected death. Variable products are
sold to consumers and corporations throughout the United States. The adoption
of SFAS No. 131 did not affect the results of operations or financial
position of the Companies.
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 value of purchased insurance in force, (4) fair values
of assets and liabilities recorded as a result of merger and acquisition
transactions, (5) asset valuation 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 proceeding are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could
materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended within the
years ended December 31, 1997 and 1996 have been reclassified to conform to
the December 31, 1998 financial statement presentation.
2. BASIS OF FINANCIAL REPORTING
- ------------------------------------------------------------------------------
The financial statements of the Companies 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
divisions with fixed interest guarantees 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 value of purchased insurance in force, deferred policy
acquisition costs and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized cost; (6)
the carrying value of fixed maturities is reduced to fair value by a charge
to realized losses in the Statements of Operations 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 products consist of policy
charges applicable to each contract 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.
The net loss for Golden American as determined in accordance with statutory
accounting practices was $68,002,000 in 1998, $428,000 in 1997 and $9,188,000
in 1996. Total statutory capital and surplus was $183,045,000 at December 31,
1998 and $76,914,000 at December 31, 1997.
<PAGE>
3. INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities $35,224 $4,443 | $18,488
Equity securities -- 3 | --
Mortgage loans on real |
estate 6,616 879 | 3,070
Policy loans 619 59 | 482
Short-term investments 1,311 129 | 443
Other, net 246 (154) | 24
Funds held in escrow -- -- | --
------- ------ | -------
Gross investment income 44,016 5,359 | 22,507
Less investment expenses (1,531) (232) | (851)
------- ------ | -------
Net investment income $42,485 $5,127 | $21,656
======= ====== | =======
<PAGE>
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
------------------ | ---------------
(Dollars in thousands)
Fixed maturities $5,083 | $4,507
Equity securities 103 | --
Mortgage loans on real |
estate 203 | --
Policy loans 78 | 73
Short-term investments 441 | 341
Other, net 2 | 22
Funds held in escrow -- | 145
------ | ------
Gross investment income 5,910 | 5,088
Less investment expenses (115) | (98)
------ | ------
Net investment income $5,795 | $4,990
====== | ======
Realized gains (losses) on investments are as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------|-----------------
(Dollars in thousands)
Fixed maturities, |
available for sale ($1,428) $25 | $151
Mortgage loans (63) (10) | --
------- --- | ----
Realized gains (losses) |
on investments ($1,491) $15 | $151
======= === ====
<PAGE>
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities, |
available for sale $42 | ($420)
Mortgage loans -- | --
--- | -----
Realized gains (losses) |
on investments $42 | ($420)
=== =====
The change in unrealized appreciation (depreciation) on securities at
fair value is as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| -----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $1,100 ($3,494) | $4,197
Held for investment -- -- | --
Equity securities (2,390) (68) | (462)
------- ------- | ------
Unrealized appreciation |
(depreciation) of |
securities ($1,290) ($3,562) | $3,735
======= ======= ======
<PAGE>
POST-ACQUISITION | PRE-ACQUISITION
----------------- | ----------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $2,497 | ($3,045)
Held for investment -- | (90)
Equity securities (4) | (2)
------ | -------
Unrealized appreciation |
(depreciation) of |
securities $2,493 | ($3,137)
====== =======
<PAGE>
At December 31, 1998 and December 31, 1997, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturities, all of which
are designated as available for sale, are as follows:
POST-MERGER
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
December 31, 1998
- ----------------------------
U.S. government and
governmental agencies
and authorities $ 13,568 $ 182 ($ 8) $ 13,742
Foreign governments 2,028 8 -- 2,036
Public utilities 67,710 546 (447) 67,809
Corporate securities 365,569 4,578 (2,658) 367,489
Other asset-backed securities 99,877 281 (1,046) 99,112
Mortgage-backed securities 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total $739,772 $6,742 ($4,529) $741,985
======== ====== ======= ========
December 31, 1997
- ----------------------------
U.S. government and
governmental agencies
and authorities $5,705 $5 ($1) $5,709
Foreign governments 2,062 -- (9) 2,053
Public utilities 26,983 55 (4) 27,034
Corporate securities 259,798 1,105 (242) 260,661
Other asset-backed securities 3,155 32 -- 3,187
Mortgage-backed securities 115,585 202 (30) 115,757
-----------------------------------------------
Total $413,288 $1,399 ($286) $414,401
===============================================
At December 31, 1998, net unrealized investment gains on fixed maturities
designated as available for sale totaled $2,213,000. Appreciation of
$1,005,000 was included in stockholder's equity at December 31, 1998 (net of
an adjustment of $203,000 to VPIF, an adjustment of $455,000 to DPAC and
deferred income taxes of $550,000). 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, 1998 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.
<PAGE>
POST-MERGER
-------------------------
Estimated
Amortized Fair
December 31, 1998 Cost Value
- ----------------- --------- ---------
(Dollars in thousands)
Due within one year $ 50,208 $ 50,361
Due after one year through five years 310,291 311,943
Due after five years through ten years 78,264 78,541
Due after ten years 10,112 10,231
-------- --------
448,875 451,076
Other asset-backed securities 99,877 99,112
Mortgage-backed securities 191,020 191,797
-------- --------
Total $739,772 $741,985
======== ========
<PAGE>
An analysis of sales, maturities and principal repayments of the Companies'
fixed maturities portfolio is as follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
For the year ended
December 31, 1998:
Scheduled principal
repayments, calls and
tenders $102,504 $ 60 ($ 3) $102,561
Sales 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total $145,708 $578 ($1,033) $145,253
======== ==== ======= ========
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
======== ==== ======= ========
POST-ACQUISITION:
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
======== ==== ======= ========
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRE-ACQUISITION:
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
======== ==== ======= ========
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio
at least quarterly in order to determine if the carrying value of any
investment 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 the year
ended December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no investments were
identified as having an other than temporary impairment.
INVESTMENTS ON DEPOSIT: At December 31, 1998 and 1997, affidavits of deposits
covering bonds with a par value of $6,470,000 and $6,605,000, respectively,
were on deposit with regulatory authorities pursuant to certain statutory
requirements.
INVESTMENT DIVERSIFICATIONS: The Companies' investment policies related to
the 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, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997), conventional
mortgage-backed securities (25% in 1998, 13% in 1997), financial companies
(19% in 1998, 24% in 1997), other asset-backed securities (11% in 1998) and
various government bonds and government or agency mortgage-backed securities
(5% in 1998, 17% in 1997). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997) and
Georgia (10% in 1998, 11% in 1997). There are no other concentrations of
mortgage loans in any state exceeding ten percent at December 31, 1998 and
1997. Mortgage loans on real estate have also been analyzed by collateral
type with significant concentrations identified in office buildings (36% in
1998, 43% in 1997), industrial buildings (32% in 1998, 33% in 1997) and
retail facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' 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, 1998.
4. COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------
As of January 1, 1998, the Companies adopted the 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 Companies' net income or stockholder's
equity. SFAS No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred income taxes)
to be included in other comprehensive income. Prior to the adoption of SFAS
No. 130, unrealized gains (losses) were reported separately in stockholder's
equity. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes $1,015,000 for
the year ended December 31, 1998 for First Golden ($159,000, $536,000 and
$(57,000), respectively, for the periods October 25, 1997 through December
31, 1997, October 1, 1997 through October 24, 1997 and December 17, 1996
through December 31, 1996). Other comprehensive income excludes net
investment gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These amounts total
$(2,133,000) in 1998. Such amounts, which have been measured through the date
of sale, are net of income taxes and adjustments to VPIF and DPAC totaling
$705,000 in 1998.
5. 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 Companies' investments, investment
contracts and debt fall within the standards' definition of a financial
instrument. Fair values for the Companies' 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 Companies' business or financial condition
based on the information presented herein.
The Companies closely monitor the composition and yield of 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 Companies' 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. These assumptions may not result in values consistent
with those obtained through an actuarial appraisal of the Companies' business
or values that might arise in a negotiated transaction.
<PAGE>
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
POST-MERGER
-----------------------------------------
December 31 1998 1997
- ----------- -------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- -----------
(Dollars in thousands)
ASSETS
Fixed maturities, available
for sale $741,985 $741,985 $414,401 $414,401
Equity securities 11,514 11,514 3,904 3,904
Mortgage loans on real estate 97,322 99,762 85,093 86,348
Policy loans 11,772 11,772 8,832 8,832
Short-term investments 41,152 41,152 14,460 14,460
Cash and cash equivalents 6,679 6,679 21,039 21,039
Separate account assets 3,396,114 3,396,114 1,646,169 1,646,169
LIABILITIES
Annuity products 869,009 827,597 493,181 469,714
Surplus notes 85,000 90,654 25,000 28,837
Line of credit with affiliate -- -- 24,059 24,059
Separate account liabilities 3,396,114 3,396,114 1,646,169 1,646,169
The following methods and assumptions were used by the Companies in
estimating fair values.
FIXED MATURITIES: Estimated fair values of conventional mortgage-backed
securities not actively traded in a liquid market and publicly traded
securities 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 Companies' investment in the portfolios underlying its separate
accounts, are based upon the quoted fair value of individual securities
comprising the individual portfolios. For equity securities not actively
traded, estimated fair values are based upon values of issues of comparable
returns 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.
<PAGE>
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
reported in the Companies' 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 reported at the quoted
fair values of the individual securities in the separate accounts.
ANNUITY PRODUCTS: Estimated fair values of the Companies' liabilities for
future policy benefits for the divisions of the variable annuity products
with fixed interest guarantees and for supplemental contracts without life
contingencies are stated at cash surrender value, the cost the Companies
would incur to extinguish the liability.
SURPLUS NOTES: Estimated fair value of the Companies' surplus notes were
based upon discounted future cash flows using a discount rate approximating
the Companies' return on invested assets.
LINE OF CREDIT WITH AFFILIATE: Carrying value reported in the Companies'
historical cost basis balance sheet approximates estimated fair value for
this instrument.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
full account value in the Companies' historical cost balance sheet. Estimated
fair values of separate account liabilities are equal to their carrying
amount.
6. MERGER
- ------------------------------------------------------------------------------
TRANSACTION: On October 23, 1997, Equitable's shareholders approved the
Merger Agreement dated 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 according 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.
In addition, Equitable owned all the outstanding capital stock of Locust
Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc.
(subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa Securities
Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange
for the outstanding capital stock of Equitable, ING paid total consideration
of approximately $2.1 billion in cash and stock and assumed approximately
$400 million in debt. As a result of this transaction, 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 with $227,497,000 allocated to the Companies. Goodwill was
established for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden American
and First Golden. The amount of goodwill allocated to the Companies 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
Companies' DPAC, previous balance of VPIF and unearned revenue reserve, as of
the merger date, were eliminated and a new asset of $44,297,000 representing
VPIF was established for all policies in force at the merger date.
VALUE OF PURCHASED INSURANCE IN FORCE: 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 Companies at the merger date. This
allocated cost represents VPIF reflecting the value of those purchased
policies calculated by discounting the actuarially determined expected future
cash flow at the discount rate determined by ING.
An analysis of the VPIF asset is as follows:
POST-MERGER
------------------ -----------------
For the period
October 25, 1997
For the year ended through
December 31, 1998 December 31, 1997
------------------ -----------------
(Dollars in thousands)
Beginning balance $43,174 $44,297
------- -------
Imputed interest 2,802 1,004
Amortization (7,753) (1,952)
Changes in assumptions of timing
of gross profits 227 --
------- -------
Net amortization (4,724) (948)
Adjustment for unrealized gains
on available for sale securities (28) (175)
Adjustment for other receivables
and merger costs (2,445) --
------- -------
Ending balance $35,977 $43,174
======= =======
Interest is imputed on the unamortized balance of VPIF at a rate of 7.38% for
the year ended December 31, 1998 and 7.03% for the period October 25, 1997
through December 31, 1997. The amortization of VPIF, net of imputed interest,
is charged to expense. VPIF decreased $2,664,000 in the second quarter of
1998 to adjust the value of other receivables at merger date and increased
$219,000 in the first quarter of 1998 as a result of an adjustment to the
merger costs. VPIF is 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
amortization relating to VPIF as of December 31, 1998 is $4,300,000 in 1999,
$4,000,000 in 2000, $3,900,000 in 2001, $3,700,000 in 2002 and $3,300,000 in
2003. Actual amortization may vary based upon changes in assumptions and
experience.
<PAGE>
7. 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"), according to the terms of the
Purchase Agreement dated 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. After 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, 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. The allocation of the purchase price to Golden American was
approximately $139,872,000. Goodwill was established for the excess of the
purchase price over the fair value of the net assets acquired and attributed
to Golden American. 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. Golden American's DPAC, previous
balance of VPIF and unearned revenue reserve, as of the acquisition date,
were eliminated and an asset of $85,796,000 representing VPIF was established
for all policies in force at the acquisition date.
VALUE OF PURCHASED INSURANCE IN FORCE: As part of the acquisition, a portion
of the acquisition cost was allocated to the right to receive future cash
flows from the insurance contracts existing with Golden American at the date
of acquisition. This allocated cost represents VPIF reflecting the value of
those purchased policies calculated by discounting the actuarially determined
expected future cash flows at the discount rate determined by Equitable.
<PAGE>
An analysis of the VPIF asset is as follows:
| PRE-
POST-ACQUISITION | ACQUISITION
-------------------- | -----------
For the For the | For the
period period | period
January August | January
1, 1997 14, 1996 | 1, 1996
through through | through
October December | August
24, 1997 31, 1996 | 13, 1996
------------------------ | -----------
(Dollars in thousands)
Beginning balance $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest 5,138 2,465 | 273
Amortization (12,656) (5,210) | (1,224)
Changes in assumption of |
timing of gross profits 2,293 -- | --
------- ------- | ------
Net amoritization (5,225) (2,745) | (951)
Adjustment for unrealized |
gains (losses) on available |
for sale securities (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= ======
Pre-Acquisition VPIF 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 VPIF at rates of 7.70% to
7.80% for the period August 14, 1996 through October 24, 1997. The
amortization of VPIF net of imputed interest was charged to expense. VPIF was
also adjusted for the unrealized gains (losses) on available for sale
securities; such changes were included directly in stockholder's equity.
8. INCOME TAXES
- ------------------------------------------------------------------------------
Golden American files a consolidated federal income tax return. Under the
nternal Revenue Code, a newly acquired insurance company cannot file as part
of its parent's consolidated tax return for 5 years.
At December 31, 1998, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $50,917,000.
Approximately $5,094,000, $3,354,000 and $42,469,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012 and 2013, respectively.
<PAGE>
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated financial
statements is as follows:
</TABLE>
<TABLE>
<CAPTION>
PRE-
POST-MERGER | POST-ACQUISITION | ACQUISITION
--------------------------| --------------------------| -------------
For the| For the For the| For the
period| period period| period
October 25,| January 1, August 14,| January 1,
For the year 1997| 1997 1996| 1996
ended through| through through| through
December 31, December 31,| October 24, December 31,| August 13,
1998 1997| 1997 1996| 1996
--------------------------| --------------------------| -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Current -- -- | $12 -- | --
Deferred $5,279 $146 | (1,349) $220 | ($1,463)
--------------------------| --------------------------| -------------
$5,279 $146 | ($1,337) $220 | ($1,463)
=====================================================================
</TABLE>
<PAGE>
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>
| | PRE-
| | ACQUISI-
POST-MERGER | POST-ACQUISITION | TION
----------------------| --------------------| ---------
For the| For the For the| For the
period| period period| period
October| January August| January
For the 25, 1997| 1, 1997 14, 1996| 1, 1996
year ended through| through through| through
December December| October December| August
31, 1998 31, 1997| 24, 1997 31, 1996| 13, 1996
----------------------| --------------------| ---------
(Dollars in thousands)
<S> <C> <C> | <C> <C> | <C>
Income (loss) | |
before income taxes $10,353 ($279)| ($608) $570 | $1,736
======================| ====================| =========
Income tax | |
(benefit) at federal | |
statutory rate $3,624 ($98)| ($213) $200 | $607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards -- -- | -- -- | (1,214)
Goodwill amortization 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense -- -- | (1,011) -- | --
Meals and | |
entertainment 157 23 | 53 20 |
Other items 176 1 | (166) -- | --
Change in valuation | |
allowance -- -- | -- -- | (856)
----------------------| --------------------| ---------
Income tax expense | |
(benefit) $5,279 $146 | ($1,337) $220 | ($1,463)
=======================================================
</TABLE>
<PAGE>
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies'
deferred income tax assets and liabilities at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------- ----------------
December 31 1998 1997
- ------------------------------------------------------------ ----------------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Net unrealized depreciation of
securities at fair value $691 --
Future policy benefits 66,273 $27,399
Deferred policy acquisition costs -- 4,558
Goodwill 16,323 17,620
Net operating loss carryforwards 17,821 3,044
Other 1,272 1,548
---------------- ----------------
102,380 54,169
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value -- (130)
Fixed maturity securities (1,034) (1,665)
Deferred policy acquisition costs (55,520) --
Mortgage loans on real estate (845) (845)
Value of purchased insurance in force (12,592) (15,172)
Other (912) (127)
---------------- ----------------
(70,903) (17,939)
---------------- ----------------
Deferred income tax asset $31,477 $36,230
================ ================
</TABLE>
The Companies are required to establish a "valuation allowance" for any
portion of the deferred tax assets management believes will not be realized.
In the opinion of management, it is more likely than not the Companies will
realize the benefit of the deferred tax assets; therefore, no such valuation
allowance has been established.
<PAGE>
9. RETIREMENT PLANS
- ------------------------------------------------------------------------------
DEFINED BENEFIT PLANS
In 1998 and 1997, the Companies were allocated their share of the pension
liability associated with their employees. The Companies' employees are
covered by the employee retirement plan of an affiliate, Equitable Life.
Further, Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The following tables
summarize the benefit obligations and the funded status for pension benefits
over the two-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $956 $192
Service cost 1,138 682
Interest cost 97 25
Actuarial loss 2,266 57
Benefit payments (3) --
------------------------
Benefit obligation at December 31 $4,454 $956
========================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Funded status:
Funded status at December 31 ($4,454) ($956)
Unrecognized net loss 2,266 --
------------------------
Net amount recognized ($2,188) ($956)
========================
</TABLE>
During 1998 and 1997, the Companies' plan assets were held by Equitable Life,
an affiliate.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation are as follows:
<TABLE>
<CAPTION>
December 31 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.75% 7.25%
Expected return on plan assets 9.50 9.00
Rate of compensation increase 4.00 5.00
</TABLE>
The following table provides the net periodic benefit cost for the fiscal
years 1998 and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-----------------------------------|----------------
For the period| For the period
For the year October 25, 1997| January 1, 1997
ended through| through
December 31, 1998 December 31, 1997|October 24, 1997
----------------- -----------------|----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost $1,138 $114 | $568
Interest cost 97 10 | 15
Amortization of net loss -- -- | 1
----------------- -----------------|----------------
Net periodic benefit cost $1,235 $124 | $584
====================================================
</TABLE>
There were no gains or losses resulting from curtailments or settlements
during 1998 or 1997.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $4,454,000, $3,142,000 and $0, respectively, as
of December 31, 1998 and $956,000, $579,000 and $0, respectively, as of
December 31, 1997.
10. RELATED PARTY TRANSACTIONS
- ------------------------------------------------------------------------------
OPERATING AGREEMENTS: DSI acts as the principal underwriter (as defined in
the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) and distributor of the variable insurance products issued by the
Companies. DSI is authorized to enter into agreements with broker/dealers to
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid commissions to
DSI totaling $117,470,000, $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).
Golden American provides certain managerial and supervisory services to DSI.
The fee paid by DSI for these services is calculated as a percentage of
average assets in the variable separate accounts. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $4,771,000, $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.
Effective January 1, 1998, the Companies have an asset management agreement
with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM
provides asset management services. Under the agreement, the Companies record
a fee based on the value of the assets under management. The fee is payable
quarterly. For the year ended December 31, 1998, the Companies incurred fees
of $1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with Equitable
Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided
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, an affiliate.
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 in 1998 or in 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 $5,833,000 for the year
ended December 31, 1998 ($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 Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $1,058,000 for the year ended
December 31, 1998 ($13,000 and $16,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
respectively).
First Golden provides resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies, totaled
$75,000 in 1998.
For the year ended December 31, 1998, the Companies 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 $122,900,000, $44,900,000, $13,600,000 and
$13,400,000, respectively. The Companies had premiums, net reinsurance, for
variable products from three affiliates, Locust Street Securities, Inc.,
Vestax Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through December 31,
1997 ($16,900,000, $1,200,000 and $400,000 for the period January 1, 1997
through October 24, 1997, respectively).
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware
corporation and affiliate, 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 $1,765,000 in 1998. At December 31, 1998, Golden American did not
have any borrowings or receivables from ING AIH under this agreement.
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, Golden American incurred interest expense of $211,000
for the year ended December 31, 1998 ($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). The outstanding balance was paid by a capital
contribution.
SURPLUS NOTES: On December 30, 1998, Golden American issued a 7.25% surplus
note in the amount of $60,000,000 to Equitable Life. The note matures on
December 29, 2028. The note and related accrued interest is subordinate to
payments due to policyholders, claimant and beneficiary claims, as well as
debts owed to all other classes of debtors, other than surplus note holders,
of Golden American. Any payment of principal and/or interest made is subject
to the prior approval of the Delaware Insurance Commissioner. Golden American
incurred no interest in 1998.
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 related accrued interest is 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 is
subject to the prior approval of the Delaware Insurance Commissioner. Golden
American incurred interest totaling $2,063,000 in 1998 ($344,000 and
$1,720,000 for the periods 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.
STOCKHOLDER'S EQUITY: On September 23, 1996, EIC Variable, Inc. contributed
$50,000,000 of Preferred Stock to the Companies' additional paid-in capital.
During 1998, Golden American received $122,500,000 of capital contributions
from its Parent.
11. 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 estimated
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, 1998, the Companies had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under variable contracts. The
Companies remain liable to the extent reinsurers do not meet their
obligations under the reinsurance agreements. Reinsurance ceded in force for
life mortality risks were $111,552,000 and $96,686,000 at December 31, 1998
and 1997, respectively. At December 31, 1998, the Companies have a net
receivable of $7,470,000 for reserve credits, reinsurance claims or other
receivables from these reinsurers comprised of $439,000 for claims
recoverable from reinsurers, $543,000 for a payable for reinsurance premiums
and $7,574,000 for a receivable from an unaffiliated reinsurer. Included in
the accompanying financial statements are net considerations to reinsurers of
$4,797,000, $326,000, $1,871,000, $875,000 and $600,000 and net policy
benefits recoveries of $2,170,000, $461,000, $1,021,000, $654,000 and
$1,267,000 for the year ended December 31, 1998 and 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.
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 $1,022,000, $265,000, $335,000, $10,000 and $56,000 for the year
ended December 31, 1998 and 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.
GUARANTY FUND ASSESSMENTS: Assessments are levied against the Companies by
life and health guaranty associations in most states in which the Companies
are 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 Companies 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
Companies have 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 Companies
accrued and charged to expense an additional $1,123,000 for the year ended
December 31, 1998, $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, 1998, the Companies have an undiscounted reserve of $2,446,000 to cover
estimated future assessments (net of related anticipated premium tax credits)
and has established an asset totaling $586,000 for assessments paid which may
be recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments,
based upon previous premiums, and known insolvencies at this time.
LITIGATION: The Companies, 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 Companies
currently believe no pending or threatened lawsuits exist that are reasonably
likely to have a material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations
in its investment portfolio (see Note 3 for further information). The
Companies' 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 cause a severe impact to the
Companies' financial condition. Two broker/dealers generated 27% of the
Companies' sales (53% by two broker/dealers during 1997).
LEASES: The Companies lease their home office space, certain other equipment
and capitalized computer software under operating leases which expire through
2018. During the year ended December 31, 1998 and 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, rent expense totaled $1,241,000, $39,000, $331,000, $147,000 and
$247,000, respectively. At December 31, 1998, minimum rental payments due
under all non-cancelable operating leases with initial terms of one year or
more are: 1999 - $1,528,000; 2000 - $1,429,000; 2001 - $1,240,000; 2002 -
$1,007,000; 2003 - $991,000 and 2004 and thereafter - $5,363,000.
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies have
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 the Boards of Directors of Golden American and First Golden on August 5,
1998 and September 29, 1998, respectively. The total amount the Companies 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 Companies for the advance. The
terms of the agreement require the Companies to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the Companies
incurred interest expense of $352,000. At December 31, 1998, the Companies
did not have any borrowings under this agreement.
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STATEMENT OF ADDITIONAL INFORMATION
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
Introduction............................................ 1
Description of Golden American Life Insurance Company... 1
Safekeeping of Assets................................... 1
The Administrator....................................... 1
Independent Auditors.................................... 2
Distribution of Contracts............................... 2
Performance Information................................. 3
IRA Withdrawal Option................................... 9
Other Information....................................... 9
Financial Statements of Separate Account................ 10
Appendix -- Description of Bond Ratings................. A-1
</TABLE>
- -----------------------------------------------------------------------
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
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STREET ADDRESS
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CITY, STATE, ZIP
G3770 VALUE 5/99
91
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[THIS PAGE IS INTENTIONALLY LEFT BLANK]
92
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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 Interest Allocation with a
guarantee interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a full surrender is
requested 3 years into the guaranteed interest period; that the then Index
Rate for a 7 year guaranteed interest period ("J") is 8%; and that no
prior transfers or partial withdrawals affecting this Fixed Interest
Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest 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 Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a full surrender is
requested 3 years into the guaranteed interest period; that the then Index
Rate for a 7 year guaranteed interest period ("J") is 6%; and that no
prior transfers or partial withdrawals affecting this Fixed Interest
Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest 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: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE
ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a partial withdrawal of
$112,695 is requested 3 years into the guaranteed interest period; that
the then Index Rate ("J") for a 7 year guaranteed interest period is 8%;
and that no prior transfers or partial withdrawals affecting this
Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed
Interest Allocation to provide the amount requested.
1. The contract value of the Fixed Interest 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
A1
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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 withdrawal paid to you is
$112,695, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $112,695, and also reduced by the
Market Value Adjustment of $11,535, for a total reduction in the
Fixed Interest Allocation of $124,230.
EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE
ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate of 7%; that a partial withdrawal of $128,371
requested 3 years into the guaranteed interest period; that the then Index
Rate ("J") for a 7 year guaranteed interest period is 6%; and that no
prior transfers or withdrawals affecting this Fixed Interest
Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed
Interest Allocation to provide the amount requested.
1. The contract value of Fixed Interest 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 Interest Allocation will be reduced
by the amount of the partial withdrawal, $128,371, but increased by the
Market Value Adjustment of $4,141, for a total reduction in the
Fixed Interest Allocation of $124,230.
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APPENDIX B
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $25,000
and additional premium payments of $25,000 in each of the second and
third contract years, for total premium payments under the Contract of
$75,000. It also assumes a withdrawal at the beginning of the fifth
contract year of 30% of the contract value of $90,000.
In this example, $15,000 (maximum of $15,000 or $75,000 x .10) is the
maximum free withdrawal amount that you may withdraw during the
contract year without a surrender charge. The total withdrawal would
be $27,000 ($90,000 x .30). Therefore, $12,000 ($27,000 - $15,000) is
considered an excess withdrawal of a part of the initial premium
payment of $25,000 and would be subject to a 4% surrender charge of
$480 ($12,000 x .04). This example does not take into account any
Market Value Adjustment or deduction of any premium taxes.
B1
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Delaware
G3770 VALUE 5/99
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
[begin shaded block]
PROFILE OF
GOLDENSELECT VALUE
FIXED AND VARIABLE ANNUITY CONTRACT
MAY 1, 1999
[inset within shaded block]
This Profile is a summary of some of the more important points
that you should know and consider before purchasing the Contract.
The Contract is more fully described in the full prospectus which
accompanies this Profile. Please read the prospectus carefully.
[end inset within shaded block]
[end shaded block]
1.THE ANNUITY CONTRACT
The Contract offered in this prospectus is a deferred combination
variable and fixed annuity contract between you and Golden American
Life Insurance Company. The Contract provides a means for you to
invest on a tax-deferred basis in (i) one or more of the 21 mutual
fund investment portfolios through our Separate Account B listed on
the next page and/or (ii) in a fixed account of Golden American with
guaranteed interest periods. We set the interest rates in the fixed
account (which will never be less than 3%) periodically. We
currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7
and 10 years. We may credit a different interest rate for each
interest period. The interest you earn in the fixed account as well
as your principal is guaranteed by Golden American as long as you do
not take your money out before the maturity date for the interest
period. We will apply a market value adjustment if you withdraw your
money from the fixed account more than 30 days before the applicable
maturity date. The investment portfolios are designed to offer a
better return than the fixed account. However, this is NOT
guaranteed. You may not make any money, and you can even lose the
money you invest.
The Contract, like all deferred variable annuity contracts, has two
phases: the accumulation phase and the income phase. The
accumulation phase is the period between the contract date and the
date on which you start receiving the annuity payments under your
Contract. The amounts you accumulate during the accumulation phase
will determine the amount of annuity payments you will receive. The
income phase begins when you start receiving regular annuity payments
from your Contract on the annuity start date.
You determine (1) the amount and frequency of premium payments, (2)
the investments, (3) transfers between investments, (4) the type of
annuity to be paid after the accumulation phase, (5) the beneficiary
who will receive the death benefits, and (6) the amount and frequency
of withdrawals.
2.YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving
on the annuity start date. You may choose one of the following
annuity payment options:
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<PAGE>
[Table with Shaded Heading]
Annuity Options
|------------------------------------------------------------------------|
| Option 1 Income for a Payments are made for a specified |
| fixed period number of years to you |
| or your beneficiary. |
|------------------------------------------------------------------------|
| Option 2 Income for Payments are made for the rest of |
| life with a your life or longer for a specified |
| period certain period such as 10 or 20 years or |
| until the total amount used to buy |
| this option has been repaid. This |
| option comes with an added guarantee|
| that payments will continue to your |
| beneficiary for the remainder of |
| period if you should die during the |
| period. |
|------------------------------------------------------------------------|
| Option 3 Joint life income Payments are made for your life |
| and the life of another person |
| (usually your spouse). |
|------------------------------------------------------------------------|
| Option 4 Annuity plan Any other annuitization plan that we|
| choose to offer on the annuity |
| start date. |
|------------------------------------------------------------------------|
Annuity payments under Options 1, 2 and 3 are fixed. Annuity
payments under Option 4 may be fixed or variable. Once you elect an
annuity option and begin to receive payments, it cannot be changed.
3.PURCHASE (BEGINNING OF THE ACCUMULATION PHASE)
You may purchase the Contract with an initial payment of $25,000 or
more up to and including age 85. You may make additional payments of
$1,000 or more ($250 for a qualified Contract) at any time before you
turn age 85 during the accumulation phase. Under certain
circumstances, we may waive the minimum initial and additional
premium payment requirement. Any initial or additional premium
payment that would cause the contract value of all annuities that you
maintain with us to exceed $1,000,000 requires our prior approval.
Who may purchase this Contract? The Contract may be purchased by
individuals as part of a personal retirement plan (a "non-qualified
Contract"), or as a Contract that qualifies for special tax treatment
when purchased as either an Individual Retirement Annuity (IRA) or in
connection with a qualified retirement plan (each a "qualified
Contract").
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term
purposes. The tax-deferred feature is more attractive to people in
high federal and state tax brackets. You should not buy this
Contract if you are looking for a short-term investment or if you
cannot risk getting back less money than you put in.
4.THE INVESTMENT PORTFOLIOS
You can direct your money into (1) the fixed account with guaranteed
interest periods of 6 months, and 1, 3, 5, 7 and 10 years, and/or (2)
into any one or more of the following 21 mutual fund investment
portfolios through our Separate Account B. The investment portfolios
are described in the prospectuses for the GCG Trust, the PIMCO
Variable Insurance Trust and the Warburg Pincus Trust. Keep in mind
that any amount you direct into the fixed account earns a fixed
interest rate. But if you invest in any of the following investment
portfolios, depending on market conditions, you may make or lose
money:
<TABLE>
<S> <C> <C>
THE GCG TRUST
Liquid Asset Series Growth & Income Series Small Cap Series
Limited Maturity Bond Series Growth Series Real Estate Series
Global Fixed Income Series Value Equity Series Hard Assets Series
Total Return Series Research Series Developing World Series
Equity Income Series Strategic Equity Series
Fully Managed Series Capital Appreciation Series
Rising Dividends Series Mid-Cap Growth Series
2
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THE PIMCO TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
</TABLE>
5.EXPENSES
The Contract has insurance features and investment features, and
there are costs related to each. The Company currently does not
deduct an annual contract administrative charge but may in the future
charge an annual contract administrative fee of $30 or 2% of the
contract value, whichever is less. We also collect a mortality and
expense risk charge and an asset-based administrative charge. These
2 charges are deducted daily directly from the amounts in the
investment portfolios. The asset-based administrative charge is
0.15% annually. The annual rate of the mortality and expense risk
charge is:
Mortality & Expense Risk Charge 0.75%
Asset-Based Administrative Charge 0.15%
-----
Total 0.90%
Each investment portfolio has charges for investment management fees
and other expenses. These charges, which vary by investment
portfolio, currently range from 0.59% to 1.83% annually (see
following table) of the portfolio's average daily net asset balance.
If you withdraw money from your Contract, or if you begin receiving
annuity payments, the Company may deduct a premium tax of 0%-3.5% to
pay to your state.
We deduct a surrender charge if you surrender your Contract or
withdraw an amount exceeding the free withdrawal amount. The free
withdrawal amount in any contract year is the greater of (i) any
earnings less previous withdrawals; or (ii) 10% of premium payments
paid within the last 7 years and not previously withdrawn, less any
previous withdrawals taken in the same contract year. The following
table shows the schedule of the surrender charge that will apply.
The surrender charge is a percent of each premium payment.
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
SINCE PREMIUM PAYMENT | | | | | | |
SURRENDER CHARGE 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
The following table is designed to help you understand the Contract
charges. The "Total Annual Insurance Charges" column includes the
mortality and expense risk charge, the asset-based administrative
charge, and reflects the annual contract administrative charge as
0.04% (based on an average contract value of $75,000). The "Total
Annual Investment Portfolio Charges" column reflects the portfolio
charges for each portfolio and are based on actual expenses as of
December 31, 1998, except for portfolios that commenced operations
during 1998 where the charges have been annualized. The column
"Total Annual Charges" reflects the sum of the previous two columns.
The columns under the heading "Examples" show you how much you would
pay under the Contract for a 1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples
assume that you invested $1,000 in a Contract that earns 5% annually
and that you withdraw your money at the end of Year 1 or at the end
of Year 10. For Years 1 and 10, the examples show the total annual
charges assessed during that time. For these examples, the premium
tax is assumed to be 0%.
3
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[Table with Shaded Heading]
TOTAL ANNUAL EXAMPLES:
TOTAL ANNUAL INVESTMENT TOTAL TOTAL CHARGES AT THE END OF:
INSURANCE PORTFOLIO ANNUAL
INVESTMENT PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
THE GCG TRUST
Liquid Asset 0.94% 0.59% 1.53% $75.43 $180.41
Limited Maturity Bond 0.94% 0.60% 1.54% $75.53 $181.52
Global Fixed Income 0.94% 1.60% 2.54% $85.58 $285.93
Total Return 0.94% 0.97% 1.91% $79.26 $221.46
Equity Income 0.94% 0.98% 1.92% $79.36 $222.51
Fully Managed 0.94% 0.98% 1.92% $79.36 $222.51
Rising Dividends 0.94% 0.98% 1.92% $79.36 $222.51
Growth & Income 0.94% 1.08% 2.02% $80.37 $233.03
Growth 0.94% 1.09% 2.03% $80.47 $234.07
Value Equity 0.94% 0.98% 1.92% $79.36 $222.51
Research 0.94% 0.94% 1.88% $78.96 $218.28
Strategic Equity 0.94% 0.99% 1.93% $79.46 $223.57
Capital Appreciation 0.94% 0.98% 1.92% $79.36 $222.51
Mid-Cap Growth 0.94% 0.95% 1.89% $79.06 $219.34
Small Cap 0.94% 0.99% 1.93% $79.46 $223.57
Real Estate 0.94% 0.99% 1.93% $79.46 $223.57
Hard Assets 0.94% 1.00% 1.94% $79.56 $224.63
Developing World 0.94% 1.83% 2.77% $87.88 $308.39
THE PIMCO TRUST
PIMCO High Yield Bond 0.94% 0.75% 1.69% $77.04 $197.90
PIMCO StocksPLUS
Growth and Income 0.94% 0.65% 1.59% $76.03 $187.01
THE WARBURG PINCUS TRUST
International Equity 0.94% 1.33% 2.27% $82.88 $258.83
For the newly formed portfolios, the charges have been estimated.
The "Total Annual Investment Portfolio Charges" reflect current
expense reimbursements for the Total Return and Global Fixed Income
portfolios. The Year 1 examples above include a 6% surrender charge.
For more detailed information, see the fee table in the prospectus
for the Contract.
6.TAXES
Under a qualified Contract, your premiums are generally pre-tax
contributions and accumulate on a tax-deferred basis. Premiums and
earnings are generally taxed as income when you make a withdrawal or
begin receiving annuity payments, presumably when you are in a lower
tax bracket.
Under a non-qualified Contract, premiums are paid with after-tax
dollars, and any earnings will accumulate tax-deferred. You will be
taxed on these earnings, but not on premiums, when you withdraw them
from the Contract.
For owners of most qualified Contracts, when you reach age 70 1/2 (or
in some cases, retire), you will be required by federal tax laws to
begin receiving payments from your annuity or risk paying a penalty
tax. In those cases, we will calculate and pay you the minimum
required distribution amounts. If you are younger than 59 1/2 when
you take money out, in most cases, you will be charged a 10% federal
penalty tax on the amount withdrawn.
7.WITHDRAWALS
You can withdraw your money at any time during the accumulation
phase. You may elect in advance to take systematic withdrawals
described on page 6. Withdrawals above the free withdrawal amount
may be subject
4
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to a surrender charge. We will apply a market value
adjustment if you withdraw your money from the fixed account more
than 30 days before the applicable maturity date. Income taxes and a
penalty tax may apply to amounts withdrawn.
8.PERFORMANCE
The value of your Contract will fluctuate depending on the investment
performance of the portfolio(s) you choose. Since this is a new
Contract, there is no actual performance history to illustrate.
Actual performance information will be shown in an updated
prospectus. Please keep in mind that past or hypothetical
performance is not a guarantee of future results.
9.DEATH BENEFIT
The death benefit is payable when the first of the following persons
dies: the contract owner, joint owner, or annuitant (if a contract
owner is not an individual). Assuming you are the contract owner, if
you die during the accumulation phase, your beneficiary will receive
a death benefit unless the beneficiary is your surviving spouse and
elects to continue the Contract. The death benefit paid depends on
the death benefit you have chosen. The death benefit value is
calculated at the close of the business day on which we receive due
proof of death at our Customer Service Center. If your beneficiary
elects to delay receipt of the death benefit until a date after the
time of your death, the amount of the benefit payable in the future
may be affected. If you die after the annuity start date and you are
the annuitant, your beneficiary will receive the death benefit under
the annuity option then in effect.
The death benefit may be subject to certain mandatory distribution
rules required by federal tax law.
Under the Death Benefit, if you die before the annuity start date,
your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after
subtracting any withdrawals; or
3) the cash surrender value.
Note:The amounts above could be reduced by premium taxes owed and
withdrawals not previously deducted.
10.OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after you
receive it, you will receive a full refund of the contract value.
For purposes of the refund during the free look period, your contract
value (i) is adjusted for any market value adjustment (if you have
invested in the fixed account), and (ii) includes a refund of any
charges deducted from your contract value. Because of the market
risks associated with investing in the portfolios and the potential
positive or negative effect of the market value adjustment, the
contract value returned may be greater or less than the premium
payment you paid. Some states require us to return to you the amount
of the paid premium (rather than the contract value in which case you
will not be subject to investment risk during the free look period.
Also, in some states, you may be entitled to a longer free look
period. We determine your contract value at the close of business on
the day we receive your written refund request.
TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You
can make transfers among your investment portfolios and your
investment in the fixed account as frequently as you wish without any
current tax implications. The minimum amount for a transfer is $100.
Currently there is no charge for transfers, and we do not limit the
number of transfers. The Company may, in the future, charge a $25
fee for any transfer after the twelfth transfer in a contract year or
limit the number of transfers allowed. Keep in mind that if you
transfer or otherwise withdraw your money from the fixed account more
than 30 days before the applicable maturity date, we will apply a
market value adjustment. A market value adjustment could increase or
decrease your contract value and/or the amount you transfer or
withdraw.
5
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<PAGE>
NO PROBATE. In most cases, when you die, the person you choose as
your beneficiary will receive the death benefit without going through
probate.
ADDITIONAL FEATURES. This Contract has other features you may be
interested in. These include:
Dollar Cost Averaging. This is a program that allows you to
invest a fixed amount of money in the investment portfolios each
month, which may give you a lower average cost per unit over time
than a single one-time purchase. Dollar cost averaging requires
regular investments regardless of fluctuating price levels, and does
not guarantee profits or prevent losses in a declining market. This
option is currently available only if you have $1,200 or more in the
Limited Maturity Bond or the Liquid Asset investment portfolios or in
the fixed account with either a 6-month or 1-year guaranteed interest
period. Transfers from the fixed account under this program will not
be subject to a market value adjustment.
Systematic Withdrawals. During the accumulation phase, you can
arrange to have money sent to you at regular intervals throughout the
year. Within limits these withdrawals will not result in any
withdrawal charge. Withdrawals from your money in the fixed account
under this program are not subject to a market value adjustment. Of
course, any applicable income and penalty taxes will apply on amounts
withdrawn.
Automatic Rebalancing. If your contract value is $10,000 or
more, you may elect to have the Company automatically readjust the
money between your investment portfolios periodically to keep the
blend you select. Investments in the fixed account are not eligible
for automatic rebalancing.
11.INQUIRIES
If you need more information after reading this prospectus, please
contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PA 19380
(800) 366-0066
or your registered representative.
6
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[begin shaded block]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
MAY 1, 1999
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT VALUE
[end shaded block]
- ----------------------------------------------------------------------
This prospectus describes GoldenSelect Value, a group and individual
deferred variable annuity contract (the "Contract") offered by Golden
American Life Insurance Company (the "Company," "we" or "our"). The
Contract is available in connection with certain retirement plans
that qualify for special federal income tax treatment ("qualified
Contracts") as well as those that do not qualify for such treatment
("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments
in one or more of 21 mutual fund investment portfolios. You may also
allocate premium payments to our Fixed Account with guaranteed
interest periods. Your contract value will vary daily to reflect the
investment performance of the investment portfolio(s) you select and
any interest credited to your allocations in the Fixed Account. The
investment portfolios available under your Contract and the portfolio
managers are:
<TABLE>
<C> <C>
T. ROWE PRICE ASSOCIATES, INC. ALLIANCE CAPITAL MANAGEMENT L. P.
Equity Income Series Growth & Income Series
Fully Managed Series JANUS CAPITAL CORPORATION
A I M CAPITAL MANAGEMENT, INC. Growth Series
Capital Appreciation Series MASSACHUSETTS FINANCIAL SERVICES COMPANY
Strategic Equity Series Mid-Cap Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC Research Series
Rising Dividends Series Total Return Series
EII REALTY SECURITIES, INC. ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Real Estate Series Limited Maturity Bond Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE) Liquid Asset Series
Developing World Series PACIFIC INVESTMENT MANAGEMENT COMPANY
Global Fixed Income Series PIMCO High Yield Bond Portfolio
Hard Assets Series PIMCO StocksPLUS Growth and Income Portfolio
EAGLE ASSET MANAGEMENT, INC. WARBURG PINCUS ASSET MANAGEMENT, INC.
Value Equity Series International Equity Portfolio
FRED ALGER MANAGEMENT, INC.
Small Cap Series
</TABLE>
The above mutual fund investment portfolios are purchased and held by
corresponding divisions of our Separate Account B. We refer to the
divisions as "subaccounts" and the money you place in the Fixed
Account's guaranteed interest periods as "Fixed Interest Allocations"
in this prospectus.
We will credit your Fixed Interest Allocation(s) with a fixed rate of
interest. We set the interest rates periodically. We will not set
the interest rate to be less than a minimum annual rate of 3%. You
may choose guaranteed interest periods of 6 months, and 1, 3, 5, 7
and 10 years. The interest earned on your money as well as your
principal is guaranteed as long as you hold them until the maturity
date. If you take your money out from a Fixed Interest Allocation
more than 30 days before the applicable maturity date, we will apply
a market value adjustment ("Market Value Adjustment"). A Market
Value Adjustment could increase or decrease your contract value
and/or the amount you take out. You bear the risk that you may
receive less than your principal if we take a Market Value
Adjustment. For Contracts sold in some states, not all Fixed
Interest Allocations or subaccounts are available. You have a right
to return a Contract within 10 days after you receive it for a full
refund of the contract value (which may be more or less than the
premium payments you paid), or if required by your state, the
original amount of your premium payment. Longer free look periods
apply in some states.
This prospectus provides information that you should know before
investing and should be kept for future reference. A Statement of
Additional Information, dated May 1, 1999, has been filed with the
Securities and Exchange Commission. It is available without charge
upon request. To obtain a copy of this document, write to our
Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania
19380 or call (800) 366-0066, or access the SEC's website
(http://www.sec.gov). The table of contents of the Statement of
Additional Information ("SAI") is on the last page of this prospectus
and the SAI is made part of this prospectus by reference.
- ----------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THE GCG TRUST, THE PIMCO TRUST OR THE WARBURG PINCUS
TRUST IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
GCG TRUST, THE PIMCO TRUST AND THE WARBURG PINCUS TRUST.
<PAGE>
<PAGE>
[Shaded Section Header]
- ----------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------------------------
PAGE
Index of Special Terms................................. 1
Fees and Expenses...................................... 2
Performance Information................................ 5
Accumulation Unit................................... 5
Net Investment Factor............................... 5
Financial Statements................................ 6
Performance Information............................. 6
Golden American Life Insurance Company................. 7
The Trusts............................................. 7
Golden American Separate Account B..................... 8
The Investment Portfolios.............................. 8
Investment Objectives............................... 8
Investment Portfolio Management Fees................ 10
The Fixed Interest Allocation.......................... 11
Selecting a Guaranteed Interest Period.............. 11
Guaranteed Interest Rates........................... 11
Transfers from a Fixed Interest Allocation.......... 12
Withdrawals from a Fixed Interest Allocation........ 13
Market Value Adjustment............................. 13
The Annuity Contract................................... 13
Contract Date and Contract Year..................... 14
Annuity Start Date.................................. 14
Contract Owner...................................... 14
Annuitant........................................... 14
Beneficiary......................................... 15
Purchase and Availability of the Contract........... 15
Crediting of Premium Payments....................... 15
Contract Value...................................... 16
Cash Surrender Value................................ 17
Surrendering to Receive the Cash Surrender Value.... 17
Addition, Deletion or Substitution of Subaccounts
and Other Changes................................. 17
The Fixed Account................................... 17
Other Contracts..................................... 17
Other Important Provisions.......................... 18
Withdrawals............................................ 18
Regular Withdrawals................................. 18
Systematic Withdrawals.............................. 18
IRA Withdrawals..................................... 19
Transfers Among Your Investments....................... 20
Dollar Cost Averaging............................... 20
Automatic Rebalancing............................... 21
Death Benefit.......................................... 22
Death Benefit During the Accumulation Phase......... 22
Death Benefit During the Income Phase............... 22
Charges and Fees....................................... 22
Charge Deduction Subaccount......................... 22
Charges Deducted from the Contract Value............ 22
Surrender Charge.................................. 22
Free Withdrawal Amount............................ 23
i
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[Shaded Section Header]
- ----------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- ----------------------------------------------------------------------
PAGE
Surrender Charge for Excess Withdrawals........... 23
Premium Taxes..................................... 23
Administrative Charge............................. 23
Transfer Charge................................... 23
Charges Deducted from the Subaccounts............... 24
Mortality and Expense Risk Charge................. 24
Asset-Based Administrative Charge................. 24
Trust Expenses...................................... 24
The Annuity Options.................................... 24
Annuitization of Your Contract...................... 24
Selecting the Annuity Start Date.................... 25
Frequency of Annuity Payments....................... 25
The Annuity Options................................. 25
Income for a Fixed Period......................... 25
Income for Life with a Period Certain............. 25
Payment When Named Person Dies...................... 26
Other Contract Provisions.............................. 26
Reports to Contract Owners.......................... 26
Suspension of Payments.............................. 26
In Case of Errors in Your Application............... 26
Assigning the Contract as Collateral................ 26
Contract Changes-Applicable Tax Law................. 26
Free Look........................................... 27
Group or Sponsored Arrangements..................... 27
Selling the Contract................................ 27
Other Information...................................... 28
Voting Rights....................................... 28
Year 2000 Problem................................... 28
State Regulation.................................... 28
Legal Proceedings................................... 28
Legal Matters....................................... 28
Experts............................................. 28
Federal Tax Considerations............................. 29
More Information About Golden American................ {xx}
Financial Statements of Golden American Life
Insurance Company.................................. {xx}
Statement of Additional Information
Table of Contents.................................. {89}
Appendix A
Market Value Adjustment Examples................... A1
Appendix B
Surrender Charge for Excess Withdrawals Example.... B1
ii
<PAGE>
<PAGE>
[Shaded Section Header]
- ----------------------------------------------------------------------
INDEX OF SPECIAL TERMS
- ----------------------------------------------------------------------
The following special terms are used throughout this prospectus.
Refer to the page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 5
Annuitant 14
Annuity Start Date 14
Cash Surrender Value 17
Contract Date 14
Contract Owner 14
Contract Value 16
Contract Year 14
Fixed Interest Allocation 11
Free Withdrawal Amount 23
Market Value Adjustment 13
Net Investment Factor 5
Death Benefit 22
The following terms as used in this prospectus have the same or
substituted meanings as the corresponding terms currently used in the
Contract:
TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN
THE CONTRACT
Accumulation Unit Value Index of Investment Experience
Annuity Start Date Annuity Commencement Date
Contract Owner Owner or Certificate Owner
Contract Value Accumulation Value
Transfer Charge Excess Allocation Charge
Fixed Interest Allocation Fixed Allocation
Free Look Period Right to Examine Period
Guaranteed Interest Period Guarantee Period
Subaccount(s) Division(s)
Net Investment Factor Experience Factor
Regular Withdrawals Conventional Partial Withdrawals
Withdrawals Partial Withdrawals
1
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[Shaded Section Header]
- ----------------------------------------------------------------------
FEES AND EXPENSES
- ----------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
SINCE PREMIUM PAYMENT | | | | | | |
| | | | | | |
SURRENDER CHARGE 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
Transfer Charge None**
*If you invested in a Fixed Interest Allocation, a
Market Value Adjustment may apply to certain
transactions. This may increase or decrease your
contract value and/or your transfer or surrender
amount.
**We may in the future charge $25 per transfer if you
make more than 12 transfers in a contract year.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
Administrative Charge................................. $0
(We may in the future charge an annual contract
administrative charge of $30 or 2% of your contract
value, whichever is less.)
SEPARATE ACCOUNT ANNUAL CHARGES***
DEATH BENEFIT
Mortality and Expense Risk Charge........ 0.75%
Asset Based Administrative Charge........ 0.15%
-----
Total Separate Account Expenses.......... 0.90%
***As a percentage of average assets in each subaccount.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of an investment portfolio or on the combined average
daily net assets of the indicated groups of portfolios):
[Table with Shaded Heading and Shaded lines for readability]
|---------------------------------------------------------------------------|
| OTHER TOTAL |
| EXPENSES(2) EXPENSES |
| MANAGEMENT AFTER EXPENSE AFTER EXPENSE |
| PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3) |
|---------------------------------------------------------------------------|
| Liquid Asset 0.59% 0.00% 0.59% |
| Limited Maturity Bond 0.60% 0.00% 0.60% |
| Global Fixed Income 1.60% 0.00% 1.60%(3) |
| Total Return 0.94% 0.03% 0.97%(3) |
| Equity Income 0.98% 0.00% 0.98% |
| Fully Managed 0.98% 0.00% 0.98% |
| Rising Dividends 0.98% 0.00% 0.98% |
| Growth & Income 1.08% 0.00% 1.08% |
| Growth 1.08% 0.01% 1.09% |
| Value Equity 0.98% 0.00% 0.98% |
| Research 0.94% 0.00% 0.94% |
| Strategic Equity 0.98% 0.01% 0.99% |
| Capital Appreciation 0.98% 0.00% 0.98% |
| Mid-Cap Growth 0.94% 0.01% 0.95% |
| Small Cap 0.98% 0.01% 0.99% |
| Real Estate 0.98% 0.01% 0.99% |
| Hard Assets 0.98% 0.02% 1.00% |
| Developing World 1.75% 0.08% 1.83% |
|---------------------------------------------------------------------------|
2
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<PAGE>
(1) Fees decline as combined assets increase. See the prospectus for
the GCG Trust for more information.
(2) Other expenses generally consist of independent trustees fees and
certain expenses associated with investing in international
markets. Other expenses are based on actual expenses for the
year ended December 31, 1998, except for portfolios that
commenced operations in 1998 where the charges have been
annualized.
(3) Directed Services, Inc. is currently reimbursing expenses to
maintain total expenses at 0.97% for the Total Return portfolio
and 1.60% for the Global Fixed Income portfolio as shown.
Without this reimbursement, and based on current estimates, total
expenses would be 0.98% for the Total Return portfolio and 1.74% for
the Global Fixed Income portfolio. This reimbursement agreement
will remain in place through December 31, 1999.
THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of a portfolio):
[Table with Shaded Heading]
|---------------------------------------------------------------------------|
| OTHER TOTAL |
| EXPENSES EXPENSES |
| MANAGEMENT AFTER EXPENSE AFTER EXPENSE |
| PORTFOLIO FEES(1) REIMBURSEMENT(1) REIMBURSEMENT(1) |
|---------------------------------------------------------------------------|
| PIMCO High Yield Bond 0.50% 0.25%(2) 0.75% |
| PIMCO StocksPLUS Growth |
| and Income 0.40% 0.25% 0.65% |
|---------------------------------------------------------------------------|
(1) PIMCO has agreed to waive some or all of its other expenses,
subject to potential future reimbursement, to the extent that
total expenses for the PIMCO High Yield Bond portfolio and PIMCO
StocksPLUS Growth and Income portfolio would exceed 0.75% and
0.65%, respectively, due to payment by the portfolios of their
pro rata portion of Trustees' fees. Without this agreement, and
based on current estimates, total expenses would be 0.81% for the
PIMCO High Yield Bond Portfolio and 0.72% for the PIMCO
StocksPLUS Growth and Income portfolio.
(2) Since the PIMCO High Yield Bond portfolio commenced operations on
April 30, 1998, other expenses as shown has been annualized for
the year ended December 31, 1998.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of the portfolio):
[Table with Shaded Heading]
|---------------------------------------------------------------------------|
| ADVISORY OTHER TOTAL |
| PORTFOLIO FEES EXPENSES EXPENSES(1) |
|---------------------------------------------------------------------------|
| International Equity 1.00% 0.33% 1.33% |
|---------------------------------------------------------------------------|
(1) Total expenses are based on actual expenses for the fiscal year
ended December 31, 1998.
The purpose of the foregoing tables is to help you understand the
various costs and expenses that you will bear directly and
indirectly. See the prospectuses of the GCG Trust, the PIMCO Trust
and the Warburg Pincus Trust for additional information on portfolio
expenses.
Premium taxes (which currently range from 0% to 3.5% of premium
payments) may apply, but are not reflected in the tables above or in
the examples below.
3
<PAGE>
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EXAMPLES:
In the following examples, surrender charges may apply if you choose
to annuitize within the first 7 contract years. The examples are
based on an assumed 5% annual return.
If you surrender your Contract at the end of the applicable time
period, you would pay the following expenses for each $1,000
invested:
WITH ADMIN. CHARGE WITHOUT ADMIN. CHARGE
THE GCG TRUST 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------ ---------------------
Liquid Asset........... $75.43 $107.89 $75.16 $107.10
Limited Maturity Bond.. $75.53 $108.20 $75.26 $107.41
Global Fixed Income.... $85.58 $138.63 $85.31 $137.85
Total Return........... $79.26 $119.56 $78.99 $118.78
Equity Income.......... $79.36 $119.87 $79.09 $119.09
Fully Managed.......... $79.36 $119.87 $79.09 $119.09
Rising Dividends....... $79.36 $119.87 $79.09 $119.09
Growth & Income........ $80.37 $122.92 $80.10 $122.14
Growth................. $80.47 $123.22 $80.20 $122.44
Value Equity........... $79.36 $119.87 $79.09 $110.09
Research............... $78.96 $118.65 $78.69 $117.86
Strategic Equity....... $79.46 $120.18 $79.19 $119.39
Capital Appreciation... $79.36 $119.87 $79.09 $119.09
Mid-Cap Growth......... $79.06 $118.95 $78.79 $118.17
Small Cap.............. $79.46 $120.18 $79.19 $119.39
Real Estate............ $79.46 $120.18 $79.19 $119.39
Hard Assets............ $79.56 $120.48 $79.29 $119.70
Developing World....... $87.88 $145.50 $87.61 $144.72
THE PIMCO TRUST
PIMCO High Yield Bond.. $77.04 $112.82 $76.78 $112.03
PIMCO StocksPLUS Growth
and Income............ $76.03 $109.74 $75.77 $108.95
THE WARBURG PINCUS TRUST
International Equity... $82.88 $130.50 $82.61 $129.72
4
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<PAGE>
If you do not surrender your Contract or if you annuitize on the
annuity start date, you would pay the following expenses for each
$1,000 invested:
WITH ADMIN. CHARGE WITHOUT ADMIN. CHARGE
THE GCG TRUST 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------ ---------------------
Equity Income.......... $19.36 $59.87 $19.09 $59.09
Fully Managed.......... $19.36 $59.87 $19.09 $59.09
Capital Appreciation... $19.36 $59.09 $19.09 $59.87
Rising Dividends....... $19.36 $59.87 $19.09 $59.09
Real Estate............ $19.46 $60.18 $19.19 $59.39
Hard Assets............ $19.56 $60.48 $19.29 $59.70
Value Equity........... $19.36 $59.87 $19.09 $59.09
Strategic Equity....... $19.46 $60.18 $19.19 $59.39
Small Cap.............. $19.46 $60.18 $19.19 $59.39
Developing World....... $27.88 $85.50 $27.61 $84.72
Growth & Income........ $20.37 $62.92 $20.10 $62.14
Growth................. $20.47 $63.22 $20.20 $62.44
Mid-Cap Growth......... $19.06 $58.95 $18.79 $58.17
Total Return........... $19.26 $59.56 $18.99 $58.78
Research............... $18.96 $58.65 $18.69 $57.86
Global Fixed Income.... $25.58 $78.63 $25.31 $77.85
Limited Maturity Bond.. $15.53 $48.20 $15.26 $47.41
Liquid Asset........... $15.43 $47.89 $15.16 $47.10
THE PIMCO TRUST
PIMCO High Yield Bond.. $17.04 $52.82 $16.78 $52.03
PIMCO StocksPLUS Growth
and Income............ $16.03 $49.74 $15.77 $48.95
THE WARBURG PINCUS TRUST
International Equity... $22.88 $70.50 $22.61 $69.72
The examples above for both surrender and not surrender in columns
one and two reflect the annual administrative charge of 0.04% of
assets (based on an average contract value of $75,000). The examples
above for both surrender and not surrender in columns three and four
show the expenses without the annual administrative charge of 0.04%.
We currently waive the 0.04% annual administrative charge.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN SUBJECT TO THE TERMS OF YOUR CONTRACT.
[Shaded Section Header]
- ----------------------------------------------------------------------
PERFORMANCE INFORMATION
- ----------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each
subaccount of Separate Account B has its own accumulation unit value.
The accumulation units are valued each business day that the New York
Stock Exchange is open for trading. Their values may increase or
decrease from day to day according to a Net Investment Factor, which
is primarily based on the investment performance of the applicable
investment portfolio. Shares in the investment portfolios are valued
at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects charges
under the Contract and the investment performance of the subaccount.
The Net Investment Factor is calculated as follows:
(1) We take the net asset value of the subaccount at the end of
each business day.
5
<PAGE>
<PAGE>
(2) We add to (1) the amount of any dividend or capital gains
distribution declared for the subaccount and reinvested in
such subaccount. We subtract from that amount a charge for
our taxes, if any.
(3) We divide (2) by the net asset value of the subaccount at the
end of the preceding business day.
(4) We then subtract the applicable daily mortality and expense
risk charge and the daily asset-based administrative charge
from each subaccount.
Calculations for the subaccounts are made on a per share basis.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years
ended December 31, 1998 and 1997 are included in the Statement of
Additional Information. The audited consolidated financial
statements of Golden American for the years ended December 31, 1998,
1997, and 1996 are included in this prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract
owners performance information for the subaccounts of Separate
Account B, including the average annual total return performance,
yields and other nonstandard measures of performance. Such
performance data will be computed, or accompanied by performance data
computed, in accordance with standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the
subaccounts will be based on all investment income per unit (contract
value divided by the accumulative unit) earned during a given 30-day
period, less expenses accrued during such period. Information on
standard total average annual return performance will include average
annual rates of total return for 1, 5 and 10 year periods, or lesser
periods depending on how long the subaccount of Separate Account B
has been in existence. We may show other total returns for periods
less than one year. Total return figures will be based on the actual
historic performance of the subaccounts of Separate Account B,
assuming an investment at the beginning of the period, withdrawal of
the investment at the end of the period, and the deduction of all
applicable portfolio and contract charges. We may also show rates of
total return on amounts invested at the beginning of the period with
no withdrawal at the end of the period. Total return figures which
assume no withdrawals at the end of the period will reflect all
recurring charges, but will not reflect the surrender charge. In
addition, we may present historic performance data for the mutual
fund investment portfolios since their inception reduced by some or
all of the fees and charges under the Contract. Such adjusted
historic performance includes data that precedes the inception dates
of the subaccounts of Separate Account B. This data is designed to
show the performance that would have resulted if the Contract had
been in existence during that time.
Current yield for the Liquid Asset subaccount is based on income
received by a hypothetical investment over a given 7-day period, less
expenses accrued, and then "annualized" (i.e., assuming that the 7-
day yield would be received for 52 weeks). We calculate "effective
yield" for the Liquid Asset subaccount in a manner similar to that
used to calculate yield, but when annualized, the income earned by
the investment is assumed to be reinvested. The "effective yield"
will thus be slightly higher than the "yield" because of the
compounding effect of earnings. We calculate quotations of yield for
the remaining subaccounts on all investment income per accumulation
unit earned during a given 30-day period, after subtracting fees and
expenses accrued during the period.
We may compare performance information for a subaccount to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average,
Donoghue Money Market Institutional Averages, or any other applicable
market indices, (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), or any other rating service, and (iii)
the Consumer Price Index (measure for inflation) to assess the real
rate of return from an investment in the Contract. Our reports and
promotional literature may also contain other information including
the ranking of any subaccount based on rankings of variable annuity
separate accounts or other investment products tracked by Lipper
Analytical Services or by similar rating services.
6
<PAGE>
<PAGE>
Performance information reflects only the performance of a
hypothetical contract and should be considered in light of other
factors, including the investment objective of the investment
portfolio and market conditions. Please keep in mind that past
performance is not a guarantee of future results.
[Shaded Section Header]
- ----------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- ----------------------------------------------------------------------
Golden American Life Insurance Company is a Delaware stock life
insurance company, which was originally incorporated in Minnesota on
January 2, 1973. Golden American is a wholly owned subsidiary of
Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). Equitable
of Iowa is a wholly owned subsidiary of ING Groep N.V. ("ING"), a
global financial services holding company with approximately $461.8
billion in assets as of December 31, 1998. Golden American is
authorized to sell insurance and annuities in all states, except New
York, and the District of Columbia. In May 1996, Golden American
established a subsidiary, First Golden American Life Insurance
Company of New York, which is authorized to sell annuities in New
York and Delaware. Golden American's consolidated financial
statements appear in this prospectus.
Equitable of Iowa is the holding company for Golden American,
Directed Services, Inc., the investment manager of the GCG Trust and
the distributor of the Contracts, and other interests. Equitable of
Iowa and another ING affiliate own ING Investment Management, LLC, a
portfolio manager of the GCG Trust. ING also owns Baring
International Investment Limited, another portfolio manager of the
GCG Trust.
Our principal office is located 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
[Shaded Section Header]
- ----------------------------------------------------------------------
THE TRUSTS
- ----------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are available to separate
accounts funding variable annuity and variable life insurance
policies offered by Golden American. The GCG Trust also sells its
shares to separate accounts of other insurance companies, both
affiliated and not affiliated with Golden American. Pending SEC
approval, shares of the GCG Trust may also be sold to certain
qualified pension and retirement plans.
The PIMCO Trust is also a mutual fund whose shares are available to
separate accounts of insurance companies, including Golden American,
for both variable annuity contracts and variable life insurance
policies and qualified pension and retirement plans. The principal
address of the PIMCO Trust is 840 Newport Center Drive, Suite 300,
Newport Center, CA 92660.
The Warburg Pincus Trust is also a mutual fund whose shares are
available to separate accounts of life insurance companies, including
Golden American and Equitable Life Insurance Company of Iowa, and to
certain qualified and retirement plans. The principal address of the
Warburg Pincus Trust is 466 Lexington Avenue, New York, NY 10017.
In the event that, due to differences in tax treatment or other
considerations, the interests of contract owners of various contracts
participating in the Trusts conflict, we, the Boards of Trustees of
the GCG Trust, the PIMCO Trust, and the Warburg Pincus Trust,
Directed Services, Inc., Pacific Investment Management Company
("PIMCO"), Warburg Pincus Asset Management, Inc. and any other
insurance companies participating in the Trusts will monitor events
to identify and resolve any material conflicts that may arise.
YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE PIMCO
TRUST AND THE WARBURG PINCUS TRUST IN THE ACCOMPANYING TRUSTS'
PROSPECTUSES. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
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GOLDEN AMERICAN SEPARATE ACCOUNT B
- ----------------------------------------------------------------------
Golden American Separate Account B ("Account B") was established as a
separate account of the Company on July 14, 1988. It is registered
with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Account B is a
separate investment account used for our variable annuity contracts.
We own all the assets in Account B but such assets are kept separate
from our other accounts.
Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust,
PIMCO Trust and the Warburg Pincus Trust. Each investment portfolio
has its own distinct investment objectives and policies. Income,
gains and losses, realized or unrealized, of a portfolio are credited
to or charged against the corresponding subaccount of Account B
without regard to any other income, gains or losses of the Company.
Assets equal to the reserves and other contract liabilities with
respect to each are not chargeable with liabilities arising out of
any other business of the Company. They may, however, be subject to
liabilities arising from the subaccounts whose assets we attribute to
other variable annuity contracts supported by Account B. If the
assets in Account B exceed the required reserves and other
liabilities, we may transfer the excess to our general account. We
are obligated to pay all benefits and make all payments provided
under the Contracts.
We currently offer other variable annuity contracts that invest in
Account B but are not discussed in this prospectus. Account B may
also invest in other investment portfolios which are not available
under your Contract.
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THE INVESTMENT PORTFOLIOS
- ----------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments
and contract value to any of the 21 investment portfolios listed
below. You bear the entire investment risk for amounts you allocate
to the investment portfolios and may lose your principal.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth
below. You should understand that there is no guarantee that any
portfolio 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. More detailed information about the investment
portfolios can be found in the prospectuses for the GCG Trust, the
PIMCO Trust and the Warburg Pincus Trust. You should read these
prospectuses before investing.
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[Shaded Table Header]
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------
Liquid Asset Seeks high level of current income consistent with
the preservation of capital and liquidity.
Invests primarily in obligations of the U.S.
Government and its agencies and
instrumentalities, bank obligations,
commercial paper and short-term corporate debt
securities. All securities will mature in
less than one year.
----------------------------------------------------
Limited Maturity Seeks highest current income consistent with
Bond low risk to principal and liquidity.
Also seeks to enhance its total return through
capital appreciation when market factors, such as
falling interest rates and rising bond prices,
indicate that capital appreciation may be
available without significant risk to
principal.
Invests primarily in diversified limited maturity
debt securities with average maturity dates of
five years or shorter and in no cases more than
seven years.
----------------------------------------------------
Global Fixed Seeks high total return.
Income Invests primarily in high-grade fixed income
securities, both foreign and domestic.
----------------------------------------------------
Total Return Seeks above-average income (compared to a portfolio
entirely invested in equity securities)
consistent with the prudent employment of
capital.
Invests primarily in a combination of equity
and fixed income securities.
----------------------------------------------------
Equity Income Seeks substantial dividend income as well as long-
term growth of capital.
Invests primarily in common stocks of well-
established companies paying above-average
dividends.
----------------------------------------------------
Fully Managed Seeks, over the long term, a high total investment
return consistent with the preservation of
capital and with prudent investment risk.
Invests primarily in the common stocks of
established companies believed by the
portfolio manager to have above-average
potential for capital growth.
----------------------------------------------------
Rising Dividends Seeks capital appreciation. A secondary
objective is dividend income.
Invests in equity securities that meet the
following quality criteria: regular dividend
increases; 35% of earnings reinvested
annually; and a credit rating of "A" to "AAA".
----------------------------------------------------
Growth & Income Seeks long-term total return.
Invests primarily in common stocks of
companies where the potential for change
(earnings acceleration) is significant.
----------------------------------------------------
Growth Seeks capital appreciation.
Invests primarily in common stocks of growth
companies that have favorable relationships between
price/earnings ratios and growth rates in sectors
offering the potential for above-average returns.
----------------------------------------------------
Value Equity Seeks capital appreciation. Dividend income
is a secondary objective.
Invests primarily in common stocks of domestic
and foreign issuers which meet quantitative
standards relating to financial soundness and
high intrinsic value relative to price.
----------------------------------------------------
Research Seeks long-term growth of capital and future income.
Invests primarily in common stocks or
securities convertible into common stocks of
companies believed to have better than average
prospects for long-term growth.
----------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium-
and small-sized companies.
----------------------------------------------------
Capital Seeks long-term capital growth.
Appreciation Invests primarily in equity securities
believed by the portfolio manager to be
undervalued.
----------------------------------------------------
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Mid-Cap Growth Seeks long-term growth of capital.
Invests primarily in equity securities of
companies with medium market capitalization
which the portfolio manager believes have
above-average growth potential.
----------------------------------------------------
Small Cap Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies that have a total market
capitalization within the range of companies
in the Russell 2000 Growth Index or the
Standard & Poor's Small-Cap 600 Index.
----------------------------------------------------
Real Estate Seeks capital appreciation. Current income is a
secondary objective.
Invests primarily in publicly-traded real
estate equity securities.
----------------------------------------------------
Hard Assets Seeks long-term capital appreciation.
Invests primarily in hard asset securities.
Hard asset companies produce a commodity which
the portfolio manager is able to price on a
daily or weekly basis.
----------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of
companies in developing or emerging countries.
----------------------------------------------------
PIMCO High Yield Seeks to maximize total return, consistent with
Bond preservation of capital and prudent investment
management.
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 or, if unrated, determined by the portfolio
manager to be of comparable quality.
----------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds
Growth and the total return performance of the S&P 500.
Income Invests primarily in common stocks, options,
futures, options on futures and swaps.
----------------------------------------------------
International Seeks long-term appreciation.
Equity Invests primarily in a broadly diversified
portfolio of equity securities of companies
that have their principal business activities
outside of the United States.
----------------------------------------------------
INVESTMENT PORTFOLIO MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager of the GCG
Trust, PIMCO serves as the overall adviser of the PIMCO Trust and
Warburg Pincus Asset Management, Inc. serves as the investment
adviser of the Warburg Pincus Trust. Directed Services and PIMCO
provide or procure, at their own expense, the services necessary for
the operation of the portfolios. The Warburg Pincus Trust pays for
the services necessary for the operation of its portfolio. See the
cover page of this prospectus for the names of the corresponding
portfolio managers. Directed Services, PIMCO and Warburg Pincus
Asset Management do not bear the expense of brokerage fees and other
transactional expenses for securities, taxes (if any) paid by a
portfolio, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation
or indemnification expenses.
The GCG Trust pays Directed Services for its services a monthly fee
based on the annual rates of the average daily net assets of the
investment portfolios. Directed Services (and not the GCG Trust) in
turn pays each portfolio manager a monthly fee for managing the
assets of the portfolios.
The PIMCO Trust pays PIMCO a monthly advisory fee and a monthly
administrative fee of 0.25% based on the average daily net assets of
each of the investment portfolios for managing the assets of the
portfolios and for administering the PIMCO Trust.
The Warburg Pincus Trust pays Warburg Pincus Asset Management a
monthly advisory fee based on the average daily net assets of the
portfolio. The portfolio pays its own administrative costs.
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More detailed information about each portfolio's management fees can
be found in the prospectuses for each Trust. You should read these
prospectuses before investing.
[Shaded Section Header]
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THE FIXED INTEREST ALLOCATION
- ----------------------------------------------------------------------
You may allocate premium payments and transfer your contract value to
the guaranteed interest periods of our Fixed Account at any time
during the accumulation period. Every time you allocate money to the
Fixed Account, we set up a Fixed Interest Allocation for the
guaranteed interest period you select. We currently offer guaranteed
interest periods of 6 months, 1, 3, 5, 7, and 10 years, although we
may not offer all these periods in the future. You may select one or
more guaranteed interest periods at any one time. We will credit
your Fixed Interest Allocation with a guaranteed interest rate for
the interest period you select, so long as you do not withdraw money
from that Fixed Interest Allocation before the end of the guaranteed
interest period. Each guaranteed interest period ends on its
maturity date which is the last day of the month in which the
interest period is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in
a Fixed Interest Allocation more than 30 days before the end of the
guaranteed interest period, we will apply a Market Value Adjustment
to the transaction. A market value adjustment could increase or
decrease the amount you surrender, withdraw, transfer or annuitize,
depending on current interest rates at the time of the transaction.
YOU BEAR THE RISK THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE
APPLY A MARKET VALUE ADJUSTMENT.
Assets supporting amounts allocated to the Fixed Account are
available to fund the claims of all classes of our customers,
contract 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 GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified
guaranteed interest periods. A guaranteed interest period is the
period that a rate of interest is guaranteed to be credited to your
Fixed Interest Allocation. We may at any time decrease or increase
the number of guaranteed interest periods offered. In addition, we
may offer DCA Fixed Interest Allocations, which are 6-month and 1-
year Fixed Interest Allocations available exclusively in connection
with our dollar cost averaging program. For more information, see
"Transfers Among Your Investments - Dollar Cost Averaging."
Your contract value in the Fixed Account is the sum of your Fixed
Interest Allocations and the interest credited, as adjusted for any
withdrawals (including any Market Value Adjustment applied to such
withdrawal), transfers or other charges we may impose. Your Fixed
Interest Allocation will be credited with the guaranteed interest
rate in effect for the guaranteed interest period you selected when
we receive and accept your premium or reallocation of contract value.
We will credit interest daily at a rate which yields the quoted
guaranteed interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is
guaranteed as long as you hold it until its maturity date. We do not
have a specific formula for establishing the guaranteed interest
rates for the different guaranteed interest periods. We determine
guaranteed interest rates at our sole discretion. The determination
may be influenced by the interest rates on fixed income investments
in which we may invest with the amounts we receive under the
Contracts. We will invest these amounts primarily in investment-
grade fixed income securities (i.e., rated by Standard & Poor's
rating system to be suitable for prudent investors) although we are
not obligated to invest according to any particular strategy, except
as may be required by applicable law. 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
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competitive
factors. We cannot predict the level of future interest rates but no
Fixed Interest Allocation will ever have a guaranteed interest rate
of less than 3% per year.
We may from time to time at our discretion offer interest rate
specials for new premiums that are higher than the current base
interest rate then offered. Renewal rates for such rate specials
will be based on the base interest rate and not on the special rates
initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation
to one or more new Fixed Interest Allocations with new guaranteed
interest periods, or to any of the subaccounts of Account B. Unless
you tell us the Fixed Interest Allocations from which such transfers
will be made, we will transfer amounts from your Fixed Interest
Allocations starting with the guaranteed interest period nearest its
maturity date, until we have honored your transfer request.
The minimum amount that you can transfer to or from any Fixed
Interest Allocation is $100. If a transfer request would reduce the
contract value remaining in a Fixed Interest Allocation to less than
$100, we will treat such transfer request as a request to transfer
the entire contract value in such Fixed Interest Allocation.
Transfers from a Fixed Interest Allocation may be subject to a Market
Value Adjustment. If you have a special Fixed Interest Allocation
offered only with dollar cost averaging, cancelling dollar cost
averaging will cause a transfer of the entire contract value in such
Fixed Interest Allocation to the Liquid Asset subaccount, and such a
transfer will be subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may
transfer amounts from the applicable Fixed Interest Allocation to the
subaccounts and/or to new Fixed Interest Allocations with guaranteed
interest periods of any length we are offering at that time. You may
not, however, transfer amounts to any Fixed Interest Allocation with
a guaranteed interest period that extends beyond the annuity start
date.
At least 30 calendar days before a maturity date of any of your Fixed
Interest Allocations, or earlier if required by state law, we will
send you a notice of the guaranteed interest periods that are
available. You must notify us which subaccounts or new guaranteed
interest periods you have selected before the maturity date of your
Fixed Interest Allocations. If we do not receive timely instructions
from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a
guaranteed interest period that is the same as the expiring
guaranteed interest period. If such guaranteed interest period is
not available or would go beyond the annuity start date, we will
transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does
not go beyond the annuity start date. If no such guaranteed interest
period is available, we will transfer the contract value to a
subaccount specially designated by the Company for such purpose.
Currently we use the Liquid Asset subaccount for such purpose.
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your
contract value in any Fixed Interest Allocation. You may make
systematic withdrawals of only the interest earned during the prior
month, quarter or year, depending on the frequency chosen, from a
Fixed Interest Allocation under our systematic withdrawal option.
Systematic withdrawals from a Fixed Interest Allocation are not
permitted if such Fixed Interest Allocation is currently
participating in the dollar cost averaging program. A withdrawal
from a Fixed Interest Allocation may be subject to a Market Value
Adjustment and, in some cases, a surrender charge. Be aware that
withdrawals may have federal income tax consequences, including a 10%
penalty tax.
If you tell us the Fixed Interest Allocation from which your
withdrawal will be made, we will assess the withdrawal against that
Fixed Interest Allocation. If you do not, we will assess your
withdrawal against the subaccounts in which you are invested, unless
the withdrawal exceeds the contract value in the subaccounts. If
there is no contract value in those subaccounts, we will deduct your
withdrawal from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until we
have honored your request.
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MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment (i) whenever you withdraw or
transfer money from a Fixed Interest Allocation (unless made within
30 days before the maturity date of the applicable guaranteed
interest period, or under the systematic withdrawal or dollar cost
averaging programs) and (ii) if on the annuity start date a
guaranteed interest period for any Fixed Interest Allocation does not
end on or within 30 days of the annuity start date. A Market Value
Adjustment may decrease, increase or have no effect on your contract
value.
We determine the Market Value Adjustment by multiplying the amount
you withdraw, transfer or apply to an income plan by the following
factor:
( 1+I )N/365
(---------) -1
(1+J+.0050)
Where,
o "I" is the Index Rate for the affected Fixed Interest Allocation
as of the first day of its guaranteed interest period;
o "J" is equal to the following:
(1) If calculated for a Fixed Interest Allocation of 1 year or
more, then "J" is the Index Rate for a new Fixed Interest
Allocation with a guaranteed interest period equal to the
time remaining (rounded up to the next full year except in
Pennsylvania) in the guaranteed interest period;
(2) If calculated for a Fixed Interest Allocation of 6 months,
then "J" is the lesser of the Index Rate for a new Fixed
Interest Allocation with (i) a 6 month guaranteed interest
period, or (ii) a 1 year guaranteed interest period at the
time of calculation; and
o "N" is the remaining number of days in the guaranteed interest
period at the time of calculation.
The Index Rate is the average of the Ask Yields for U.S. Treasury
Strips as quoted by a national quoting service for a period equal to
the applicable guaranteed interest period. The average currently is
based on the period starting from the 22nd day of the calendar month
two months prior to the month of the Index Rate determination and
ending the 21st day of the calendar month immediately before the
month of determination. We currently calculate the Index Rate once
each calendar month but have the right to calculate it more
frequently. The Index Rate will always be based on a period of at
least 28 days. If the Ask Yields are no longer available, we will
determine the Index Rate by using a suitable and approved, if
required, replacement method.
A Market Value Adjustment may be positive, negative or result in no
change. In general, if interest rates are rising, you bear the risk
that any Market Value Adjustment will likely be negative and reduce
your contract value. On the other hand, if interest rates are
falling, it is more likely that you will receive a positive Market
Value Adjustment that increases your contract value. In the event of
a full surrender, transfer or annuitization from a Fixed Interest
Allocation, we will add or subtract any Market Value Adjustment from
the amount surrendered, transferred or annuitized. In the event of a
partial withdrawal, transfer or annuitization, we will add or
subtract any Market Value Adjustment from the total amount withdrawn,
transferred or annuitized in order to provide the amount requested.
If a negative Market Value Adjustment exceeds your contract value in
the Fixed Interest Allocation, we will consider your request to be a
full surrender, transfer or annuitization of the Fixed Interest
Allocation.
Several examples which illustrate how the Market Value Adjustment
works are included in Appendix A.
[Shaded Section Header]
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THE ANNUITY CONTRACT
- ----------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination
variable and fixed annuity contract. The Contract provides a means
for you to invest in one or more of the available mutual fund
portfolios of the GCG
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Trust, the PIMCO Trust and the Warburg Pincus
Trust funded by Golden American Separate Account B. It also provides
a means for you to invest in a Fixed Interest Allocation through the
Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-
month period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity
payments under your Contract. The Contract, like all deferred
variable annuity contracts, has two phases: the accumulation phase
and the income phase. The accumulation phase is the period between
the contract date and the annuity start date. The income phase
begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless
another annuitant is named in the application. 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 will determine the applicable death benefit if such
death benefit is available for multiple owners.
The death benefit becomes payable when you die. In the case of a
sole contract owner who dies before the income phase begins, we will
pay the beneficiary the death benefit then due. The sole contract
owner's estate will be the beneficiary if no beneficiary has been
designated or the beneficiary has predeceased the contract owner. In
the case of a joint owner of the Contract dying before the income
phase begins, we will designate the surviving contract owner as the
beneficiary. This will override any previous beneficiary
designation.
If the contract owner is a trust and a beneficial owner of the trust
has been designated, the beneficial owner will be treated as the
contract owner for determining the death benefit. If a beneficial
owner is changed or added after the contract date, this will be
treated as a change of contract owner for determining the death
benefit.
JOINT OWNER. For non-qualified Contracts only, joint owners may
be named in a written request before the Contract is in effect.
Joint owners may independently exercise transfers and other
transactions allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal
shares of any benefits accruing or payments made to them. All rights
of a joint owner end at death of that owner if the other joint owner
survives. The entire interest of the deceased joint owner in the
Contract will pass to the surviving joint owner. The age of the
older owner will determine the applicable death benefit if Enhanced
Death Benefits are available for multiple owners.
ANNUITANT
The annuitant is the person designated by you to be the measuring
life in determining annuity payments. The annuitant's age determines
when the income phase must begin and the amount of the annuity
payments to be paid. You are the annuitant unless you choose to name
another person. The annuitant may not be changed after the Contract
is in effect.
The contract owner will receive the annuity benefits of the Contract
if the annuitant is living on the annuity start date. If the
annuitant dies before the annuity start date, and a contingent
annuitant has been named, the contingent annuitant becomes the
annuitant (unless the contract owner is not an individual, in which
case the death benefit becomes payable). If there is no contingent
annuitant when the annuitant dies before the annuity start date, the
contract owner will become the annuitant. The contract 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 before
the annuity start date and the contract owner is not an individual,
we will pay the designated beneficiary the death benefit then due.
If a beneficiary has not been designated, or if there is no
designated beneficiary living, the contract owner will be
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the
beneficiary. If the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the
beneficiary.
Regardless of whether a death benefit is payable, if the annuitant
dies and any contract owner is not an individual, distribution rules
under federal tax law will apply. You should consult your tax
advisor for more information if you are not an individual.
BENEFICIARY
The beneficiary is named by you in a written request. The
beneficiary is the person who receives any death benefit proceeds and
who becomes the successor contract owner if the contract owner (or
the annuitant if the contract owner is other than an individual) dies
before the annuity start date. We pay death benefits to the primary
beneficiary (unless there are joint owners, in which case death
proceeds are payable to the surviving owner(s)).
If the beneficiary dies before the annuitant or the contract 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 contract owner's estate.
One or more persons may be a beneficiary or contingent beneficiary.
In the case of more than one beneficiary, 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 some of
the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's
lifetime, you may transfer ownership of a non-qualified Contract. A
change in ownership may affect the amount of the death benefit and
the guaranteed death benefit. You may also change the beneficiary.
All requests for changes must be in writing and submitted to our
Customer Service Center in good order. The change will be effective
as of the day you sign the request. The change will not affect any
payment made or action taken by us before recording the change.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract
owner are not older than age 85.
The initial premium payment must be $25,000 or more. You may make
additional payments of at least $1,000 or more at any time after the
free look period before you turn age 85. Under certain
circumstances, we may waive the minimum premium payment requirement.
We may also change the minimum initial or additional premium
requirements for certain group or sponsored arrangements. Any
initial or additional premium payment that would cause the contract
value of all annuities that you maintain with us to exceed $1,000,000
requires our prior approval.
CREDITING OF PREMIUM PAYMENTS
We will allocate your initial premium within 2 business days after
receipt, if the application and all information necessary for
processing the Contract are complete. Subsequent premium payments
will be credited to a Contract within 1 business day if they are
received in good order. In certain states we also accept initial and
premium payments by wire order. Wire transmittals must be
accompanied by sufficient electronically transmitted data. We may
retain premium payments for up to 5 business days while attempting to
complete an incomplete application. If the application cannot be
completed within this period, we will inform you of the reasons for
the delay. We will also return the premium payment immediately
unless you direct us to hold the premium payment until the
application is completed. Once the completed application is
received, we will allocate the payment to the subaccount and/or Fixed
Interest Allocation specified by you within 2 business days. We will
make inquiry to discover any missing information related to
subsequent payments. For any subsequent premium payments, the
payment will be credited at the accumulation unit value next
determined after receipt of your premium payment.
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Once we allocate your premium payment to the subaccounts selected by
you, we convert the premium payment into accumulation units. We
divide the amount of the premium payment allocated to a particular
subaccount by the value of an accumulation unit for the subaccount to
determine the number of accumulation units of the subaccount to be
held in Account B with respect to your Contract. The net investment
results of each subaccount vary with its investment performance.
If your premium payment was transmitted by wire order from your
broker-dealer, we will follow one of the following two procedures
after we receive and accept the wire order and investment
instructions. The procedure we follow depends on state availability
and the procedures of your broker-dealer.
(1) If either your state or broker-dealer do not permit us to
issue a Contract without an application, we reserve the right
to rescind the Contract if we do not receive and accept a
properly completed application or enrollment form within 15
days of the premium payment. If we do not receive the
application or form within 15 days of the premium payment, we
will refund the contract value plus any charges we deducted,
and the Contract will be voided. Some states require that we
return the premium paid, in which case we will comply.
(2) If your state and broker-dealer allow us to issue a Contract
without an application, we will issue and mail the Contract to
you, together with an Application Acknowledgement Statement
for your execution. Until our Customer Service Center
receives the executed Application Acknowledgement Statement,
neither you nor the broker-dealer may execute any financial
transactions on your Contract unless they are requested in
writing by you.
In some states, we may require that an initial premium designated for
a subaccount of Account B or the Fixed Account be allocated to a
subaccount specially designated by the Company (currently, the Liquid
Asset subaccount) during the free look period. After the free look
period, we will convert your contract value (your initial premium
plus any earnings less any expenses) into accumulation units of the
subaccounts you previously selected. The accumulation units will be
allocated based on the accumulation unit value next computed for each
subaccount. Initial premiums designated for Fixed Interest
Allocations will be allocated to a Fixed Interest Allocation with the
guaranteed interest period you have chosen; however, in the future we
may allocate those premiums to the specially designated subaccount
during the free look period.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the
contract date. Your contract value is the sum of (a) the contract
value in the Fixed Interest Allocations, and (b) the contract value
in each subaccount in which you are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value
in your Fixed Interest Allocation is the sum of premium payments
allocated to the Fixed Interest Allocation under the Contract, plus
contract value transferred to the Fixed Interest Allocation, plus
credited interest, minus any transfers and withdrawals from the Fixed
Interest Allocation (including any Market Value Adjustment applied to
such withdrawal), contract fees, and premium taxes.
CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the
contract value in the subaccount in which you are invested is equal
to the initial premium paid and designated to be allocated to the
subaccount. On the contract date, we allocate your contract value to
each subaccount and/or a Fixed Interest Allocation specified by you,
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 Interest
Allocation will be allocated to a subaccount specially designated by
the Company during the free look period for this purpose (currently,
the Liquid Asset subaccount).
On each business day after the contract date, we calculate the amount
of contract value in each subaccount as follows:
(1) We take the contract value in the subaccount at the end of the
preceding business day.
(2) We multiply (1) by the subaccount's Net Investment Factor
since the preceding business day.
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(3) We add (1) and (2).
(4) We add to (3) any additional premium payments, and then add or
subtract any transfers to or from that subaccount.
(5) We subtract from (4) any withdrawals and any related charges,
and then subtract any contract fees and premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender
the Contract. The cash surrender value will fluctuate daily based on
the investment results of the subaccounts in which you are invested,
and interest credited to Fixed Interest Allocations and any Market
Value Adjustment. We do not guarantee any minimum cash surrender
value. On any date during the accumulation phase, we calculate the
cash surrender value as follows: we start with your contract value,
then we adjust for any Market Value Adjustment, then we deduct any
surrender charge, any charge for premium taxes, and any other charges
incurred but not yet deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
You may surrender the Contract at any time while the annuitant is
living and before the annuity start date. A surrender will be
effective on the date your written request and the Contract are
received at our Customer Service Center. We will determine and pay
the cash surrender value at the price next determined after receipt
of your request. Once paid, all benefits under the Contract will be
terminated. For administrative purposes, we will transfer your money
to a specially designated subaccount (currently the Liquid Asset
subaccount) prior to processing the surrender. This transfer will
have no effect on your cash surrender value. You may receive the
cash surrender value in a single sum payment or apply it under one or
more annuity options. We will usually pay the cash surrender value
within 7 days.
Consult your tax advisor regarding the tax consequences associated
with surrendering your Contract. A surrender made before you reach
age 59 1/2 may result in a 10% tax penalty. See "Federal Tax
Considerations" for more details.
ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES
We may make additional subaccounts available to you under the
Contract. These subaccounts will invest in investment portfolios we
find suitable for your Contract.
We may amend the Contract to conform to applicable laws or
governmental regulations. If we feel that investment in any of the
investment portfolios has become inappropriate to the purposes of the
Contract, we may, with approval of the SEC (and any other regulatory
agency, if required) substitute another portfolio for existing and
future investments.
We also reserve the right to: (i) deregister Account B under the 1940
Act; (ii) operate Account B as a management company under the 1940
Act if it is operating as a unit investment trust; (iii) operate
Account B as a unit investment trust under the 1940 Act if it is
operating as a managed separate account; (iv) restrict or eliminate
any voting rights as to Account B; and (v) combine Account B with
other accounts.
We will, of course, provide you with written notice before any of
these changes are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the
assets that support a contract owner's Fixed Interest Allocations.
See "The Fixed Interest Allocations" for more information.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the
same portfolios of the Trusts. These contracts have different
charges that could effect their performance, and may offer different
benefits more
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suitable to your needs. To obtain more information
about these other contracts, contact our Customer Service Center or
your registered representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit
Choices," "Charges and Fees," "The Annuity Options" and "Other
Contract Provisions" in this prospectus for information on other
important provisions in your Contract.
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WITHDRAWALS
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Any time during the accumulation phase and before the death of the
annuitant, you may withdraw all or part of your money. Keep in mind
that if you request a withdrawal for more than 90% of the cash
surrender value, we will treat it as a request to surrender the
Contract. If any single withdrawal or the sum of withdrawals exceeds
the Free Withdrawal Amount, you will incur a surrender charge. The
Free Withdrawal Amount in any contract year is the greater of (i) any
earnings less previous free withdrawals, or (ii) 10% of premium
payments paid within the past 7 years not previously withdrawn, less
any previous free withdrawals taken in the same contract year.
You need to submit to us a written request specifying the Fixed
Interest Allocations or subaccounts from which amounts are to be
withdrawn, otherwise the withdrawal will be made on a pro rata basis
from all of the subaccounts in which you are invested. If there is
not enough contract value in the subaccounts, we will deduct the
balance of the withdrawal from your Fixed Interest Allocations
starting with the guaranteed interest periods nearest their maturity
dates until we have honored your request. We will apply a Market
Value Adjustment to any withdrawal from your Fixed Interest
Allocation taken more than 30 days before its maturity date. We will
determine the contract value as of the close of business on the day
we receive your withdrawal request at our Customer Service Center.
The contract value may be more or less than the premium payments
made.
For administrative purposes, we will transfer your money to a
specially designated subaccount (currently, the Liquid Asset
subaccount) prior to processing the withdrawal. This transfer will
not effect the withdrawal amount you receive.
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each
withdrawal must be a minimum of $100. We will apply a Market Value
Adjustment to any regular withdrawals from a Fixed Interest
Allocation taken more than 30 days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawals on a
monthly, quarterly, or annual basis from the contract value in the
subaccounts in which you are invested or from your Fixed Interest
Allocations. You may elect payments to start as early as 28 days
after the contract date. You choose the date on which the
withdrawals will be made but this date cannot be later than the 28th
day of the month. If you do not choose a date, we will make the
withdrawals on the same calendar day of each month as the contract
date. Each withdrawal payment must be at least $100.
The amount of your withdrawal can either be a fixed dollar amount or
an amount based on a percentage of the premiums not previously
withdrawn from the subaccounts in which you are invested. Both
options are subject to the following maximums:
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Frequency Maximum Percentage
--------- ------------------
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If you select a fixed dollar amount and the amount to be
systematically withdrawn would exceed the applicable maximum
percentage of your premiums not previously withdrawn on the
withdrawal date, we will reduce the amount withdrawn so that it
equals such percentage. If you select a percentage and the amount to
be systematically withdrawn based on that percentage would be less
than the minimum of $100, we will increase the amount to $100
provided it does not exceed the maximum percentage. If it is below
the maximum percentage we will send the $100. If it is above the
maximum percentage we will send the amount and then cancel the
option.
Systematic withdrawals from Fixed Interest Allocations are limited to
interest earnings during the prior month, quarter, or year, depending
on the frequency you choose. Systematic withdrawals are not subject
to a Market Value Adjustment, unless you choose the fixed payment
option discussed below and the payments exceed interest earnings. A
Fixed Interest Allocation may not participate in both the systematic
withdrawal option and the dollar cost averaging program at the same
time.
You may choose an option available under our systematic withdrawal
program that will allow you to receive systematic payments in fixed
amounts. Under this option, you choose the amount of the fixed
systematic withdrawal which may total up to 10% of your cumulative
premium payments, or in amounts determined to satisfy Section 72(q)
or 72(t) of the Tax Code. Since the amount of the systematic fixed
payment under this option may exceed the Free Withdrawal Amount, (i)
a surrender charge would apply to the extent the systematic payment
exceeds the Free Withdrawal Amount, and (ii) a Market Value
Adjustment would apply to the extent the systematic payment exceeds
interest earnings on your Fixed Interest Allocations. Under this
option, we apply the surrender charge and any Market Value Adjustment
directly to your contract value (rather than the systematic payment)
so that the amount of your systematic withdrawals remain the amount
you requested.
Subject to the above, you may change the amount or percentage of your
systematic withdrawal once each contract year or cancel this option
at any time by sending satisfactory notice to our Customer Service
Center at least 7 days before the next scheduled withdrawal date.
You may elect to have this option commence in a contract year where a
regular withdrawal has been taken but you may not change the amount
or percentage of your withdrawals in any contract year during which
you have previously taken a regular withdrawal. You may not elect
this if you are taking IRA withdrawals.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2
during the current calendar year, you may elect to have distributions
made to you to satisfy requirements imposed by Federal tax law. IRA
withdrawals provide payout of amounts required to be distributed by
the Internal Revenue Service rules governing mandatory distributions
under qualified plans. We will send you a notice before your
distributions commence. You may elect to take IRA withdrawals at
that time, or at a later date. You may not elect IRA withdrawals and
participate in systematic withdrawals at the same time. If you do
not elect to take IRA withdrawals, and distributions are required by
Federal tax law, distributions adequate to satisfy the requirements
imposed by Federal tax law may be made. Thus, if you are
participating in systematic withdrawals, distributions under that
option must be adequate to satisfy the mandatory distribution rules
imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or
annual basis. Under this option, you may elect payments to start as
early as 28 days after the contract date. 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, we will make the
withdrawals on the same calendar day of the month as the contract
date.
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You may request that we calculate for you 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. When we determine the required IRA 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 IRA
withdrawal amount is greater than the contract value, we will cancel
the Contract and send you the amount of the cash surrender value.
You may change the payment frequency of your IRA withdrawals once
each contract year or cancel this option at any time by sending us
satisfactory notice to our Customer Service Center at least 7 days
before the next scheduled withdrawal date.
An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED
WITH TAKING WITHDRAWALS. You are responsible for determining that
withdrawals comply with applicable law. A withdrawal made before the
taxpayer reaches age 59 1/2 may result in a 10% penalty tax. See
"Federal Tax Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
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You may transfer your contract value among the subaccounts in which
you are invested and your Fixed Interest Allocations at the end of
the free look period until the annuity start date. We currently do
not charge you for transfers made during a contract year, but reserve
the right to charge $25 for each transfer after the twelfth transfer
in a contract year. We also reserve the right to limit the number of
transfers you may make and may otherwise modify or terminate transfer
privileges if required by our business judgement or in accordance
with applicable law. We will apply a Market Value Adjustment to
transfers from a Fixed Interest Allocation taken more than 30 days
before its maturity date, unless the transfer is made under the
dollar cost averaging program.
Transfers will be based on values at the end of the business day in
which the transfer request is received at our Customer Service
Center.
The minimum amount that you may transfer is $100 or, if less, your
entire contract value held in a subaccount or a Fixed Interest
Allocation.
To make a transfer, you must notify our Customer Service Center and
all other administrative requirements must be met. Any transfer
request received after 4:00 p.m. eastern time or the close of the New
York Stock Exchange will be effected on the next business day.
Account B and the Company will not be liable for following
instructions communicated by telephone that we reasonably believe to
be genuine. We require personal identifying information to process a
request for transfer made over the telephone.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if
you have at least $1,200 of contract value in the (i) Limited
Maturity Bond subaccount or the Liquid Asset subaccount, or (ii) a
Fixed Interest Allocation with either a 6-month or a 1-year
guaranteed interest period. These subaccounts or Fixed Interest
Allocations serve as the source accounts from which we will, on a
monthly basis, automatically transfer a set dollar amount of money to
other subaccounts selected by you. We also may offer DCA Fixed
Interest Allocations, which are 6-month and 1-year Fixed Interest
Allocations available exclusively for use with the dollar cost
averaging program. The DCA Fixed Interest Allocations require a
minimum premium payment of $1,200 directed into a DCA Fixed Interest
Allocation.
The dollar cost averaging program is designed to lessen the impact of
market fluctuation on your investment. Since we transfer the same
dollar amount to other subaccounts each month, more units of a
subaccount are
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purchased if the value of its unit is low and less
units are purchased if the value of its unit is high. Therefore, a
lower than average value per unit may be achieved over the long term.
However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities
regardless of fluctuating price levels. You should consider your
tolerance for investing through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar
amount you want transferred under this program. Each monthly
transfer must be at least $100. If your source account is the
Limited Maturity Bond subaccount, the Liquid Asset subaccount or a 1-
year Fixed Interest Allocation, the maximum amount that can be
transferred each month is your contract value in such source account
divided by 12. If your source account is a 6-month Fixed Interest
Allocation, the maximum amount that can be transferred each month is
your contract value in such source account divided by 6. You may
change the transfer amount once each contract year. If you have a
DCA Fixed Interest Allocation, there is no minimum or maximum
transfer amount; we will transfer all your money allocated to that
source account into the subaccount(s) in equal payments over the
selected 6-month or 1-year period. The last payment will include
earnings accrued over the course of the selected period.
Transfers from a Fixed Interest Allocation or a DCA Fixed Interest
Allocation under the dollar cost averaging program are not subject to
a Market Value Adjustment. However, if you terminate the dollar cost
averaging program for a DCA Fixed Interest Allocation and there is
money remaining in the DCA Fixed Interest Allocation, we will
transfer the remaining money to the Liquid Asset subaccount. Such
transfer will trigger a Market Value Adjustment if the transfer is
made more than 30 days before the maturity date of the DCA Fixed
Interest Allocation.
If you do not specify the subaccounts to which the dollar amount of
the source account is to be transferred, we will transfer the money
to the subaccounts in which you are invested on a proportional basis.
The transfer date is the same day each month as your contract date.
If, on any transfer date, your contract value in a source account is
equal or less than the amount you have elected to have transferred,
the entire amount will be transferred and the program will end. You
may terminate the dollar cost averaging program at any time by
sending satisfactory notice to our Customer Service Center at least 7
days before the next transfer date. A Fixed Interest Allocation or
DCA Fixed Interest Allocation may not participate in the dollar cost
averaging program and in systematic withdrawals at the same time.
We may in the future offer additional subaccounts or withdraw any
subaccount or Fixed Interest Allocation to or from the dollar cost
averaging program, stop offering DCA Fixed Interest Allocations or
otherwise modify, suspend or terminate this program. Of course, such
change will not affect any dollar cost averaging programs in
operation at the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the
subaccounts of Account B, you may elect to have your investments in
the subaccounts automatically rebalanced. We will transfer funds
under your Contract on a quarterly, semi-annual, or annual calendar
basis among the subaccounts to maintain the investment blend of your
selected subaccounts. The minimum size of any allocation 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 withdrawal option only if 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 send satisfactory notice to
our Customer Service Center. We will begin the program on the last
business day of the 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 contract value among the
subaccounts 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.
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DEATH BENEFIT
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either
the annuitant (when a contract owner is not an individual), the
contract owner or the first of joint owners dies. Assuming you are
the contract owner, your beneficiary will receive a death benefit
unless the beneficiary is your surviving spouse and elects to
continue the Contract. The death benefit value is calculated at the
close of the business day on which we receive proof of death at our
Customer Service Center. If your beneficiary elects to delay receipt
of the death benefit until a date after the time of death, the amount
of the benefit payable in the future may be affected. The proceeds
may be received in a single sum or applied to any of the annuity
options. If we do not receive a request to apply the death benefit
proceeds to an annuity option, we will make a single sum
distribution. We will generally pay death benefit proceeds within 7
days after our Customer Service Center has received sufficient
information to make the payment.
The Death Benefit under the Contract is the greatest of (i) your
contract value; (ii) total premium payments less any withdrawals; and
(iii) the cash surrender value.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start
date, the Company will pay the beneficiary any certain benefit
remaining under the annuity in effect at the time.
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CHARGES AND FEES
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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 distributing and administrating the
Contracts, for paying the benefits payable under the Contracts and
for bearing various risks associated with the Contracts. The amount
of a charge will not always correspond to the actual costs
associated. For example, the surrender charge collected may not
fully cover all of the distribution expenses incurred by us with the
service or benefits provided. In the event there are any profits
from fees and charges deducted under the Contract, we may use such
profits to finance the distribution of contracts.
CHARGE DEDUCTION SUBACCOUNT
You may elect to have all charges against your contract value
deducted directly from a single portfolio designated by the Company.
Currently we use the Liquid Asset subaccount for this purpose. If
you do not elect this option, or if the amount of the charges is
greater than the amount in the designated subaccount, the charges
will be deducted as discussed below. You may cancel this option at
any time by sending satisfactory notice to our Customer Service
Center.
CHARGES DEDUCTED FROM THE CONTRACT VALUE
We deduct the following charges from your contract value:
SURRENDER CHARGE. We will deduct a contingent deferred sales
charge (a "surrender charge") if you surrender your Contract or if
you take a withdrawal in excess of the Free Withdrawal Amount during
the 7-year period from the date we receive and accept a premium
payment. The surrender charge is based on a percentage of each
premium payment. This charge is intended to cover sales expenses
that we have incurred. We may in the future reduce or waive the
surrender charge in certain situations and will never charge more
than the maximum surrender charges. The percentage of premium
payments deducted at the time of surrender or excess withdrawal
depends on 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:
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COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
SINCE PREMIUM PAYMENT | | | | | | |
| | | | | | |
SURRENDER CHARGE 6% | 6% | 6% | 5% | 4% | 3% | 1% | 0%
We will waive the surrender charge in most states in the following
events: (i) you begin receiving qualified extended medical care on or
after the first contract anniversary for at least 45 days during a 60-
day period and your request for the surrender or withdrawal, together
with all required documentation is received at our Customer Service
Center during the term of your care or within 90 days after the last
day of your care; or (ii) you are first diagnosed by a qualifying
medical professional, on or after the first contract anniversary, as
having a qualifying terminal illness. We have the right to require
an examination by a physician of our choice. If we require such an
examination, we will pay for it. You are required to send us
satisfactory written proof of illness. See your Contract for more
information. The waiver of surrender charge may not be available in
all states.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any
contract year is the greater of (i) any earnings less previous free
withdrawals or (ii) 10% of premium payments paid within the past 7
years and not previously withdrawn, less any previous free
withdrawals taken in the same contract year.
SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a
surrender charge for excess withdrawals. We consider a withdrawal to
be an "excess withdrawal" when the amount you withdraw in any
contract year exceeds the Free Withdrawal Amount. Where you are
receiving systematic withdrawals, any combination of regular
withdrawals taken and any systematic withdrawals expected to be
received in a contract year will be included in determining the
amount of the excess 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. We will deduct such charges
from the contract value in proportion to the contract value in each
subaccount or Fixed Interest Allocation from which the excess
withdrawal was taken. In instances where the excess withdrawal
equals the entire contract value in such subaccounts or Fixed
Interest Allocations, we will deduct charges proportionately from all
other subaccounts and Fixed Interest Allocations in which you are
invested. ANY WITHDRAWAL FROM A FIXED INTEREST ALLOCATION MORE THAN
30 DAYS BEFORE ITS MATURITY DATE WILL TRIGGER A MARKET VALUE
ADJUSTMENT.
For the purpose of calculating the surrender charge for an excess
withdrawal: a) we treat premiums as being withdrawn on a first-in,
first-out basis; and b) amounts withdrawn which are not considered an
excess withdrawal are not considered a withdrawal of any premium
payments. We have included an example of how this works in Appendix
B. Although we treat premium payments as being withdrawn before
earnings for purpose of calculating the surrender charge for excess
withdrawals, the federal tax law treats earnings as withdrawn first.
PREMIUM TAXES. We may make a charge for state and local premium
taxes depending on the contract owner's state of residence. The tax
can range from 0% to 3.5% of the premium. We have the right to change
this amount to conform with changes in the law or if the contract
owner changes state of residence.
We deduct the premium tax from your contract value on the annuity
start date. However, some jurisdictions impose a premium tax at the
time that initial and additional premiums are paid, regardless of
when the annuity payments begin. In those states we may defer
collection of the premium taxes from your contract value and deduct
it on surrender of the Contract, on excess withdrawals or on the
annuity start date.
ADMINISTRATIVE CHARGE. We currently do not charge an annual
administrative charge but may in the future deduct an annual
administrative charge of $30 or 2% of the contract value, whichever
is smaller. Such charge, if any, will be made on each Contract
anniversary, or if you surrender your Contract prior to a Contract
anniversary, at the time we determine the cash surrender value
payable to you. We deduct the charge proportionately from all
subaccounts in which you are invested. If there is no contract value
in those subaccounts, we will deduct the charge from your Fixed
Interest Allocations starting with the guarantee interest periods
nearest their maturity dates until the charge has been paid.
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TRANSFER CHARGE. We currently do not deduct any charges for
transfers made during a contract year. We have the right, however,
to assess up to $25 for each transfer after the twelfth transfer in a
contract year. If such a charge is assessed, we would deduct the
charge from the subaccounts and the Fixed Interest Allocations from
which each such transfer is made in proportion to the amount being
transferred from each subaccount and Fixed Interest Allocation,
unless you have chosen to have all charges deducted from a single
subaccount. The charge will not apply to any transfers due to the
election of dollar cost averaging, automatic rebalancing and
transfers we make to and from any subaccount specially designated by
the Company for such purpose.
CHARGES DEDUCTED FROM THE SUBACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE. The amount of the mortality
and expense risk charge, on an annual basis, is equal to 0.75% of the
assets you have in each subaccount. The charge is deducted on each
business day at the rate of .002063% for each day since the previous
business day.
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily charge
from the assets in each subaccount, to compensate us for a portion of
the administrative expenses under the Contract. The daily charge is
at a rate of .000411% (equivalent to an annual rate of 0.15%) on the
assets in each subaccount.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of
the Trusts. Please read the respective Trust prospectus for details.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start
date, we will begin making payments to the contract owner under an
income plan. We will make these payments under the annuity option
chosen. You may change annuity option by making a written request to
us at least 30 days before the annuity start date. The amount of the
payments will be determined by applying your contract value adjusted
for any applicable Market Value Adjustment on the annuity start date
in accordance with the annuity option you chose.
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 start date. If, at the time of the
contract owner's death or the annuitant's death (if the contract
owner is not an individual), no option has been chosen for paying
death benefit proceeds, the beneficiary may choose an annuity 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 contract
value is less than $2,000 or if the calculated monthly annuity income
payment is less than $20.
For each annuity option we will issue a separate written agreement
putting the annuity option into effect. Before we pay any annuity
benefits, we require the return of your Contract. If your Contract
has been lost, we will require that you complete and return the
applicable lost Contract form. Various factors will affect the level
of annuity benefits, such as the annuity option chosen, the
applicable payment rate used and the investment performance of the
portfolios and interest credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed
annuity payments are regular payments, the amount of which is fixed
and guaranteed by us. Some fixed annuity options provide fixed
payments either for a specified period of time or for the life of the
annuitant. The amount of life income payments will depend on the
form and duration of payments you chose, the age of the annuitant or
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beneficiary (and gender, where appropriate), the total contract value
applied to purchase a Fixed Interest Allocation, and the applicable
payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other than the contract
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.
SELECTING THE ANNUITY START DATE
You select the date on which the annuity payments commence. The
annuity start date must be at least 5 years from the contract date
but before the month immediately following the annuitant's 90th
birthday, or 10 years from the contract date, if later. If, on the
annuity start date, a surrender charge remains, the elected annuity
option must include a period certain of at least 5 years.
If you do not select an annuity start date, it will automatically
begin in the month following the annuitant's 90th birthday, or 10
years from the contract date, if later.
If the annuity start 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" and the Statement of Additional Information. For a
Contract purchased in connection with a qualified plan, other than a
Roth IRA, distributions must commence not later than April 1st of the
calendar year following the calendar year in which you attain age 70
1/2 or, in some cases, retire. Distributions may be made through
annuitization or withdrawals. Consult your tax advisor.
FREQUENCY OF ANNUITY PAYMENTS
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, we will make the payments monthly. There
may be certain restrictions on minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options
1, 2 and 3 are fixed. Payments under Option 4 may be fixed or
variable. For a fixed annuity option, the contract value in the
subaccounts is transferred to the Company's general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make
monthly payments in equal installments for a fixed number of years
based on the contract value on the annuity start date. We guarantee
that each monthly payment will be at least the amount stated in your
Contract. If you prefer, you may request that payments be made in
annual, semi-annual or quarterly installments. We will provide you
with illustrations if you ask for them. If the cash surrender value
or contract value is applied under this option, a 10% penalty tax may
apply to the taxable portion of each income payment until the
contract owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Payment is made
for the life of the annuitant in equal monthly installments and
guaranteed for at least a period certain such as 10 or 20 years.
Other periods certain may be available to you on request. You may
choose a refund period 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 specified in the Contract corresponding to the person's age on
his or her last birthday before the annuity start date. Amounts for
ages not shown in the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there
are 2 persons named to determine annuity payments. At least one of
the persons named must be either the contract owner or beneficiary of
the Contract. We guarantee monthly payments will be made as long as
at least one of the named persons is
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living. There is no minimum
number of payments. Monthly payment amounts are available if you ask
for them.
OPTION 4. ANNUITY PLAN. The contract value can be applied to any
other annuitization plan that we choose to offer on the annuity start
date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any
amounts still due as provided in the annuity agreement between you
and Golden American. The amounts we will pay are determined as
follows:
(1) For Option 1, or any remaining guaranteed payments under
Option 2, we will continue payments. 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 option agreement will state the
amount we will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of
each calendar quarter. The report will show the contract value, cash
surrender value, and the death benefit as of the end of the calendar
quarter. The report will also show the allocation of your contract
value and reflects the amounts deducted from or added to the contract
value since the last report. We will also send you copies of any
shareholder reports of the investment portfolios in which Account B
invests, as well as any other reports, notices or documents we are
required by law to furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment or determination of values on any business day (1) when the
New York Stock Exchange is closed; (2) when trading on the New York
Stock Exchange is restricted; (3) when an emergency exists as
determined by the Securities and Exchange Commission so that the sale
of securities held in Account B may not reasonably occur or so that
the Company may not reasonably determine the value of Account B's net
assets; or (4) during any other period when the Securities and
Exchange Commission so permits for the protection of security
holders. We have the right to delay payment of amounts from a Fixed
Interest Allocation for up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
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.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a
loan but understand that your rights and any beneficiary's rights may
be subject to the terms of the assignment. An assignment may have
federal tax consequences. 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.
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CONTRACT CHANGES APPLICABLE TAX LAW
We have the right to make changes in the Contract to continue to
qualify the Contract as an annuity. You will be given advance notice
of such changes.
FREE LOOK
You may cancel your Contract within your 10-day free look period. We
deem the free look period to expire 15 days after we mail the
Contract to you. Some states may require a longer free look period.
To cancel, you need to send your Contract to our Customer Service
Center or to the agent from whom you purchased it. We will refund
the contract value. For purposes of the refund during the free look
period, your contract value includes a refund of any charges deducted
from your contract value. Because of the market risks associated
with investing in the portfolios, the contract value returned may be
greater or less than the premium payment you paid. Some states
require us to return to you the amount of the paid premium (rather
than the contract value) in which case you will not be subject to
investment risk during the free look period. In these states, your
premiums designated for investment in the subaccounts will be
allocated during the free look period to a subaccount specially
designated by the Company for this purpose (currently, the Liquid
Asset subaccount). We may, in our discretion, require that premiums
designated for investment in the subaccounts from all other states as
well as premiums designated for a Fixed Interest Allocation be
allocated to the specially designated subaccount during the free look
period. Your Contract is void as of the day we receive your Contract
and cancellation request. We determine your contract value at the
close of business on the day we receive your written request. If you
keep your Contract after the free look period, we will put your money
in the subaccount(s) chosen by you, based on the accumulation unit
value next computed for each subaccount, and/or in the Fixed Interest
Allocation chosen by you.
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 an alternative or reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. 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 Directed
Services for acting as principal underwriter under a distribution
agreement which in turn pays the writing agent. The principal
address of Directed Services is 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380-1478.
Directed Services enters into sales agreements with broker-dealers to
sell the Contracts through registered representatives who are
licensed to sell securities and variable insurance products. These
broker-dealers are registered with the SEC and are members of the
National Association of Securities Dealers, Inc. DSI receives a
maximum of 6.5% commission, and passes through 100% of the commission
to the broker-dealer whose registered representative sold the
contract:
[Shaded Table Header]
Underwriter Compensation
|----------------------------------------------------------------------------|
| NAME OF PRINCIPAL | AMOUNT OF | OTHER |
| UNDERWRITER | COMMISSION TO BE PAID | COMPENSATION |
| | | |
| Directed Services, Inc. | Maximum of 6.5% | Reimbursement of any |
| | of any initial | covered expenses incurred|
| | or additional | by registered |
| | premium payments | representatives in |
| | except when combined | connection with |
| | with some annual | the distribution |
| | trail commissions. | of the Contracts. |
|----------------------------------------------------------------------------|
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 6.5% of total premium
payments).
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OTHER INFORMATION
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VOTING RIGHTS
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 subaccount by
dividing the Contract's contract value in that subaccount by the net
asset value of one share of the portfolio in which a subaccount
invests. We count fractional votes. 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 receive your instructions in
time, we will vote the shares in the same proportion as the
instructions received from all Contracts in that subaccount. We will
also vote shares we hold in Account B which are not attributable to
contract owners in the same proportion.
YEAR 2000 PROBLEM
Like other business organizations and individuals around the world,
Golden American and Account B could be adversely affected if the
computer systems doing the accounts processing or on which Golden
American and/or Account B relies do not properly process and
calculate date-related information related to the end of the year
1999. This is commonly known as the Year 2000 (or Y2K) Problem.
Golden American is taking steps that it believes are reasonably
designed to address the Year 2000 Problem with respect to the
computer systems that it uses and to obtain satisfactory assurances
that comparable steps are being taken by its and Account B's major
service providers. At this time, however, we cannot guarantee that
these steps will be sufficient to avoid any adverse impact on Golden
American and Account B.
STATE REGULATION
We are regulated by the Insurance Department of the State of
Delaware. 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 where required by those
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, 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. We
believe that currently there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on the
Company or Account B.
LEGAL MATTERS
The legal validity of the Contracts was 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 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
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are included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
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The following summary provides a general description of the federal
income tax considerations associated with this Contract and does not
purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. You should consult your
counsel or other competent tax advisers for more complete
information. This discussion is based upon our understanding of the
present federal income tax laws. We do not make any representations
as to the likelihood of continuation of the present federal income
tax laws or as to how they may be interpreted by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or
purchased on a tax-qualified basis. Qualified Contracts are designed
for use by individuals whom premium payments are comprised solely of
proceeds from and/or contributions under retirement plans that are
intended to qualify as plans entitled to special income tax treatment
under Sections 401(a), 403(b), 408, or 408A of the Code. The
ultimate effect of federal income taxes on the amounts held under a
Contract, or annuity payments, depends on the type of retirement
plan, on the tax and employment status of the individual concerned,
and on our tax status. In addition, certain requirements must be
satisfied in purchasing a qualified Contract with proceeds from a tax-
qualified plan and receiving distributions from a qualified Contract
in order to continue receiving favorable tax treatment. Some
retirement plans are subject to distribution and other requirements
that are not incorporated into our Contract administration
procedures. Contract owners, participants and beneficiaries are
responsible for determining that contributions, distributions and
other transactions with respect to the Contract comply with
applicable law. Therefore, you should seek competent legal and tax
advice regarding the suitability of a Contract for your particular
situation. The following discussion assumes that qualified Contracts
are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special federal income
tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the
investments of a variable account be "adequately diversified" in
order for the Contracts to be treated as annuity contracts for
federal income tax purposes. It is intended that Account B, through
the subaccounts, will satisfy these diversification requirements.
In certain circumstances, owners of variable annuity contracts have
been considered for federal income tax purposes to be the owners of
the assets of the separate account supporting their contracts due to
their ability to exercise investment control over those assets. When
this is the case, the contract owners have been currently taxed on
income and gains attributable to the separate account assets. There
is little guidance in this area, and some features of the Contracts,
such as the flexibility of a contract owner to allocate premium
payments and transfer contract values, have not been explicitly
addressed in published rulings. While we believe that the Contracts
do not give contract owners investment control over Account B assets,
we reserve the right to modify the Contracts as necessary to prevent
a contract owner from being treated as the owner of the Account B
assets supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity
contract for federal income tax purposes, the Code requires any non-
qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of your
death. The non-qualified Contracts contain provisions that are
intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We
intend to review such provisions and modify them if necessary to
assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
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Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will
generally not be taxed on increases in the value of a Contract until
a distribution occurs or until annuity payments begin. (For these
purposes, the agreement to assign or pledge any portion of the
contract value, and, in the case of a qualified Contract, any portion
of an interest in the qualified plan, generally will be treated as a
distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not
a natural person generally must include in income any increase in the
excess of the contract value over the "investment in the contract"
(generally, the premiums or other consideration paid for the
contract) during the taxable year. There are some exceptions to this
rule and a prospective contract owner that is not a natural person
may wish to discuss these with a tax adviser. The following
discussion generally applies to Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract
occurs, the amount received will be treated as ordinary income
subject to tax up to an amount equal to the excess (if any) of the
contract value (unreduced by the amount of any surrender charge)
immediately before the distribution over the contract owner's
investment in the Contract at that time. The tax treatment of market
value adjustments is uncertain. You should consult a tax adviser if
you are considering taking a withdrawal from your Contract in
circumstances where a market value adjustment would apply.
In the case of a surrender under a non-qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the
contract owner's investment in the Contract.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution
from a non-qualified Contract, there may be imposed a federal tax
penalty equal to 10% of the amount treated as income. In general,
however, there is no penalty on distributions:
O made on or after the taxpayer reaches age 59 1/2;
O made on or after the death of a contract owner;
O attributable to the taxpayer's becoming disabled; or
O made as part of a series of substantially equal periodic
payments for the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions
enumerated above. A tax adviser should be consulted with regard to
exceptions from the penalty tax.
ANNUITY PAYMENTS. Although tax consequences may vary depending on
the payment option elected under an annuity contract, a portion of
each annuity payment is generally not taxed and the remainder is
taxed as ordinary income. The non-taxable portion of an annuity
payment is generally determined in a manner that is designed to allow
you to recover your investment in the Contract ratably on a tax-free
basis over the expected stream of annuity payments, as determined
when annuity payments start. Once your investment in the Contract
has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed
from a Contract because of your death or the death of the annuitant.
Generally, such amounts are includible in the income of recipient as
follows: (i) if distributed in a lump sum, they are taxed in the
same manner as a surrender of the Contract, or (ii) if distributed
under a payment option, they are taxed in the same way as annuity
payments.
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TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT.
A transfer or assignment of ownership of a Contract, the designation
of an annuitant, the selection of certain dates for commencement of
the annuity phase, or the exchange of a Contract may result in
certain tax consequences to you that are not discussed herein. A
contract owner contemplating any such transfer, assignment or
exchange, should consult a tax advisor as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to
withholding for the recipient's federal income tax liability.
Recipients can generally elect, however, not to have tax withheld
from distributions.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts
that are issued by us (or our affiliates) to the same contract owner
during any calendar year are treated as one annuity contract for
purposes of determining the amount includible in such contract
owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified
plans. The tax rules applicable to participants in these qualified
plans vary according to the type of plan and the terms and
contributions of the plan itself. Special favorable tax treatment
may be available for certain types of contributions and
distributions. Adverse tax consequences may result from:
contributions in excess of specified limits; distributions before age
59 1/2 (subject to certain exceptions); distributions that do not
conform to specified commencement and minimum distribution rules; and
in other specified circumstances. Therefore, no attempt is made to
provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract
owners, annuitants, and beneficiaries are cautioned that the rights
of any person to any benefits under these qualified retirement plans
may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract, but we shall
not be bound by the terms and conditions of such plans to the extent
such terms contradict the Contract, unless the Company consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same
manner as under a non-qualified Contract. When a withdrawal from a
qualified Contract occurs, a pro rata portion of the amount received
is taxable, generally based on the ratio of the contract owner's
investment in the Contract (generally, the premiums or other
consideration paid for the Contract) to the participant's total
accrued benefit balance under the retirement plan. For Qualified
Contracts, the investment in the Contract can be zero. For Roth
IRAs, distributions are generally not taxed, except as described
below.
For qualified plans under Section 401(a) and 403(b), the Code
requires that distributions generally must commence no later than the
later of April 1 of the calendar year following the calendar year in
which the contract owner (or plan participant) (i) reaches age 70 1/2
or (ii) retires, and must be made in a specified form or manner. If
the plan participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner
(or plan participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no later than
April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) reaches age 70 1/2. Roth IRAs
under Section 408A do not require distributions at any time before
the contract owner's death.
WITHHOLDING. Distributions from certain qualified plans generally
are subject to withholding for the contract owner's federal income
tax liability. The withholding rates vary according to the type of
distribution and the contract owner's tax status. The contract owner
may be provided the opportunity to elect not to have tax withheld
from distributions. "Eligible rollover distributions" from section
401(a) plans and section 403(b) tax-sheltered annuities are subject
to a mandatory federal income tax withholding of 20%. An eligible
rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions that are required by the
Code or distributions in a specified annuity form. The 20%
withholding does not apply, however, if the contract owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA.
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Brief descriptions of the various types of qualified retirement plans
in connection with a Contract follow. We will endorse the Contract
as necessary to conform it to the requirements of such plan.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under the Contract
which do not satisfy the requirements of Section 72(s) of the Code.
If any owner of a non-qualified Contract dies before the annuity
start date, the death benefit payable to the beneficiary will be
distributed as follows: (a) the death benefit must be completely
distributed within 5 years of the contract owner's date of death; or
(b) the beneficiary may elect, within the 1-year period after the
contract owner's date of death, to receive the death benefit in the
form of an annuity from us, provided that (i) such annuity is
distributed in substantially equal installments over the life of such
beneficiary or over a period not extending beyond the life expectancy
of such beneficiary; and (ii) such distributions begin not later than
1 year after the contract owner's date of death.
Notwithstanding (a) and (b) above, if the sole contract owner's
beneficiary is the deceased owner's surviving spouse, then such
spouse may elect to continue the Contract under the same terms as
before the contract owner's death. Upon receipt of such election
from the spouse at our Customer Service Center: (1) all rights of
the spouse as contract owner's beneficiary under the Contract in
effect prior to such election will cease; (2) the spouse will become
the owner of the Contract and will also be treated as the contingent
annuitant, if none has been named and only if the deceased owner was
the annuitant; and (3) all rights and privileges granted by the
Contract or allowed by Golden American will belong to the spouse as
contract owner of the Contract. This election will be deemed to have
been made by the spouse if such spouse makes a premium payment to the
Contract or fails to make a timely election as described in this
paragraph. If the owner's beneficiary is a nonspouse, the
distribution provisions described in subparagraphs (a) and (b) above,
will apply even if the annuitant and/or contingent annuitant are
alive at the time of the contract owner's death.
If we do not receive an election from a nonspouse owner's beneficiary
within the 1-year period after the contract owner's date of death,
then we will pay the death benefit to the owner's beneficiary in a
cash payment within five years from date of death. We will determine
the death benefit as of the date we receive proof of death. We will
make payment of the proceeds on or before the end of the 5-year
period starting on the owner's date of death. Such cash payment will
be in full settlement of all our liability under the Contract.
If the contract owner dies after the annuity start date, we will
continue to distribute any benefit payable at least as rapidly as
under the annuity option then in effect. All of the contract owner's
rights granted under the Contract or allowed by us will pass to the
contract owner's beneficiary.
If the Contract has joint owners we will consider the date of death
of the first joint owner as the death of the contract owner and the
surviving joint owner will become the contract owner of the Contract.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits corporate employers to establish
various types of retirement plans for employees, and permits self-
employed individuals to establish these plans for themselves and
their employees. These retirement plans may permit the purchase of
the Contracts to accumulate retirement savings under the plans.
Adverse tax or other legal consequences to the plan, to the
participant, or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments,
unless the plan complies with all legal requirements applicable to
such benefits before transfer of the Contract. Employers intending
to use the Contract with such plans should seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement
Annuity" or "IRA." These IRAs are subject to limits on the amount
that can be contributed, the deductible amount of the contribution,
the persons who may be eligible, and the time when distributions
commence. Also, distributions from certain other types of qualified
retirement plans may be
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"rolled over" or transferred on a tax-
deferred basis into an IRA. There are significant restrictions on
rollover or transfer contributions from Savings Incentive Match Plans
(SIMPLE), under which certain employers may provide contributions to
IRAs on behalf of their employees, subject to special restrictions.
Employers may establish Simplified Employee Pension (SEP) Plans to
provide IRA contributions on behalf of their employees. Sales of the
Contract for use with IRAs may be subject to special requirements of
the IRS.
ROTH IRAS
Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible, and must be made
in cash or as a rollover or transfer from another Roth IRA or other
IRA. A rollover from or conversion of an IRA to a Roth IRA may be
subject to tax, and other special rules may apply. Distributions
from a Roth IRA generally are not taxed, except that, once aggregate
distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is made to any
Roth IRA.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section
501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a
Contract that will provide an annuity for the employee's retirement.
These premium payments may be subject to FICA (social security) tax.
Distributions of (1) salary reduction contributions made in years
beginning after December 31, 1988; (2) earnings on those
contributions; and (3) earnings on amounts held as of the last year
beginning before January 1, 1989, are not allowed prior to age 59
1/2, separation from service, death or disability. Salary reduction
contributions may also be distributed upon hardship, but would
generally be subject to penalties.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax
consequences under the Contracts are not exhaustive, and special
rules are provided with respect to other tax situations not discussed
in this prospectus. Further, the federal income tax consequences
discussed herein reflect our understanding of current law, and the
law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of
distributions under a Contract depend on the individual circumstances
of each contract owner or recipient of the distribution. A competent
tax adviser should be consulted for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Contracts could
change by legislation or other means. It is also possible that any
change could be retroactive (that is, effective before the date of
the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Contract.
33
<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 Holdings, 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. (the "ING acquisition").
On August 13, 1996, Equitable of Iowa acquired all of the outstanding
capital stock of BT Variable, Inc., then the parent of Golden American
(the "Equitable acquisition"). For financial statement purposes, the
ING acquisition was accounted for as a purchase effective October 25,
1997 and the Equitable acquisition was accounted for as a
purchase effective August 14, 1996. As a result, the
financial data presented below for periods after 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, 1996 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 PRE-ACQUISITION
-----------------------------|-----------------------------| --------------------------------------
FOR THE PERIOD|FOR THE PERIOD FOR THE PERIOD|FOR THE PERIOD
FOR THE YEAR OCTOBER 25, | JANUARY 1, AUGUST 14, | JANUARY 1, FOR THE YEARS
ENDED 1997 THROUGH |1997 THROUGH 1996 THROUGH | 1996 THROUGH ENDED DECEMBER 31
DECEMBER 31, DECEMBER 31, | OCTOBER 24, DECEMBER 31, | AUGUST 13, -----------------------
1998 1997 | 1997 1996 | 1996 1995 1994
-------------- --------------|-------------- --------------|-------------- ------------ ------------
| |
<C> <C> <C> <C> <C> <C> <C> <C>
Annuity and Interest | |
Sensitive Life | |
Product Charges ............ $ 39,119 $ 3,834 | $18,288 $ 8,768 | $ 12,259 $ 18,388 $ 17,519
Net Income before | |
Federal Income Tax ......... $ 10,353 $ (279) | $ (608) $ 570 | $ 1,736 $ 3,364 $ 2,222
Net Income (Loss) ........... $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199 $ 3,364 $ 2,222
Total Assets ................ $ 4,752,533 $ 2,446,395 | N/A $ 1,677,899 | N/A $ 1,203,057 $ 1,044,760
Total Liabilities ........... $ 4,398,639 $ 2,219,082 | N/A $ 1,537,415 | N/A $ 1,104,932 $ 955,254
Total Stockholder's Equity .. $ 353,894 $ 227,313 | N/A $ 140,484 | N/A $ 98,125 $ 89,506
</TABLE>
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for
the insurance industry. The variable annuity competitive environment is
intense and 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 five 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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American") consolidated results of operations.
In addition, some analysis and information regarding financial condition and
liquidity and capital resources has also been provided. This analysis should
be read jointly with the consolidated financial statements, related notes and
the Cautionary Statement Regarding Forward-Looking Statements, which appear
elsewhere in this report. The Companies report financial results on a consol-
idated basis. The consolidated financial statements include the accounts of
Golden American and its wholly owned subsidiary, First Golden American Life
Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies").
RESULTS OF OPERATIONS
MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable")
shareholders approved an Agreement and Plan of Merger ("Merger Agreement")
dated July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI") and ING
Groep N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable according 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. In addition, Equitable owned
all the outstanding capital stock of Locust Street Securities, Inc.,
Equitable Investment Services, Inc. (subsequently dissolved), Directed
Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds Distributor, Inc.).
In exchange for the outstanding capital stock of Equitable, ING paid total
consideration of approximately $2.1 billion in cash and stock and assumed
approximately $400 million in debt. As a result of this transaction,
Equitable of Iowa Companies was merged into PFHI, which was simultaneously
renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware
corporation.
For financial statement purposes, the change in control of the Companies
through the ING merger was accounted for as a purchase effective October 25,
1997. This merger resulted in a new basis of accounting reflecting estimated
fair values of assets and liabilities at the merger date. As a result, the
Companies' financial statements for periods after October 24, 1997 are
presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with $227.6
million allocated to the Companies. 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 attributed to the Companies. 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 acquired
all of the outstanding capital stock of BT Variable, Inc. ("BT Variable")
and its wholly owned subsidiaries, Golden American and DSI. After 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, 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 values of assets and liabilities at the
acquisition date. As a result, the Companies' 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. The allocation of the purchase price to
Golden American was approximately $139.9 million. Goodwill of $41.1 million
was established for the excess of the acquisition cost over the fair value of
the assets and liabilities and attributed to Golden American. At June 30,
1997, goodwill was increased by $1.8 million due to the adjustment of the
value of a receivable existing at the acquisition date. Before the ING
merger, goodwill resulting from the acquisition was being amortized over 25
years on a straight-line basis.
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------- ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Variable annuity |
premiums: |
Separate account $1,513.3 $291.2 $111.0 | $180.2
Fixed account 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life premiums 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== ======
For the Companies' variable contracts, premiums collected are not reported as
revenues, but are reported as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment income and
product charges.
Variable annuity separate account premiums increased 419.7% in 1998 primarily
due to increased sales of the Premium Plus product introduced in October
of 1997 and the increased sales levels of the Companies' other products. The
fixed account portion of the Companies' variable annuity premiums increased
85.1% in 1998. Variable life premiums decreased 11.4% in 1998. Total premiums
increased 238.7% in 1998.
During 1998, the Companies' sales were further diversified among
broker/dealers. Premiums, net of reinsurance, for variable products from two
significant broker/dealers having at least ten percent of total sales for the
year ended December 31, 1998 totaled $580.7 million, or 27% of premiums
($328.2 million, or 53% from two significant broker/dealers for the year
ended December 31, 1997).
REVENUES
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------ ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Annuity and interest |
sensitive life |
product charges $39.1 $22.1 $3.8 | $18.3
Management fee revenue 4.8 2.8 0.5 | 2.3
Net investment income 42.5 26.8 5.1 | 21.7
Realized gains (losses) |
on investments (1.5) 0.1 -- | 0.1
Other income 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ===== =====
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in 1998.
Annuity and interest sensitive life product charges increased 76.8%, or $17.0
million, to $39.1 million in 1998 due to additional fees earned from the
increasing block of business under management in the separate accounts and an
increase in surrender charge revenues. This increase was partially offset by
the elimination of the unearned revenue reserve related to in force acquired
business 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 $4.8
million for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million in
1998 from $26.8 million in 1997 due to growth in invested assets. During
1998, the Company had net realized losses on investments of $1.5 million,
which includes a $1.0 million write down of two impaired bonds, compared to
gains of $0.1 million in 1997. Other income increased $4.9 million to $5.6
million in 1998 due primarily to income received under a modified coinsurance
agreement with an unaffiliated reinsurer as a result of increased sales.
EXPENSES
| POST-
POST-MERGER COMBINED POST-MERGER | ACQUISITION
------------ ------------ ------------| ------------
For the | For the
period | period
For the year For the year October 25,| January 1,
ended ended 1997 through| 1997 through
December 31, December 31, December 31,| October 24,
1998 1997 1997 | 1997
------------ ------------ ------------| ------------
(Dollars in millions)
Insurance benefits |
and expenses: |
Annuity and interest |
sensitive life benefits: |
Interest credited to |
account balances $94.9 $26.7 $7.4 | $19.3
Benefit claims incurred |
in excess of account |
balances 2.1 0.1 -- | 0.1
Underwriting, acquisition |
and insurance expenses: |
Commissions 121.2 36.3 9.4 | 26.9
General expenses 37.6 17.3 3.4 | 13.9
Insurance taxes 4.1 2.3 0.5 | 1.8
Policy acquisition costs |
deferred (197.8) (42.7) (13.7)| (29.0)
Amortization: |
Deferred policy |
acquisition costs 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance in force 4.7 6.1 0.9 | 5.2
Goodwill 3.8 2.0 0.6 | 1.4
----- ----- ---- | -----
$75.7 $50.7 $9.4 | $41.3
===== ===== ==== =====
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in
1998 from $50.7 million in 1997. Interest credited to account balances
increased 255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra
credit bonus on the Premium Plus product introduced in October of 1997
generated a $51.6 million increase in interest credited during 1998 compared
to 1997. The remaining increase in interest credited relates to higher
account balances associated with the Companies' fixed account option within
its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in
1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3
million in 1997. Changes 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 including the extra credit bonus have been deferred, thus having very
little impact on current earnings.
General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3
million in 1997. Management expects general expenses to continue to increase
in 1999 as a result of the emphasis on expanding the salaried wholesaler
distribution network. The Companies use a network of wholesalers to
distribute products and the salaries of these wholesalers are included in
general expenses. The portion of these salaries and related expenses that
varies with 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.
At the merger date, the Companies' deferred policy acquisition costs
("DPAC"), previous balance of value of purchased insurance in force ("VPIF")
and unearned revenue reserve were eliminated and a new asset of $44.3 million
representing VPIF was established for all policies in force at the merger
date. During 1998, VPIF was adjusted to reduce amortization by $0.2 million
to reflect changes in the assumptions related to the timing of future gross
profits. VPIF decreased $2.6 million in the second quarter of 1998 to adjust
the value of other receivables recorded at the time of merger and increased
$0.2 million in the first quarter of 1998 as the result of an adjustment to
the merger costs. The amortization of VPIF and DPAC increased $1.1 million,
or 13.0%, in 1998. During the second quarter of 1997, VPIF was adjusted by
$2.3 million to reflect narrower 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
relating to VPIF as of December 31, 1998 is $4.3 million in 1999, $4.0
million in 2000, $3.9 million in 2001, $3.7 million in 2002 and $3.3 million
in 2003. Actual amortization may vary based upon changes in assumptions and
experience.
Amortization of goodwill for the year ended December 31, 1998 totaled $3.8
million compared to $2.0 million for the year ended December 31, 1997.
Goodwill resulting from the merger is being amortized on a straight-line
basis over 40 years.
Interest expense on the $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1998,
unchanged from the same period of 1997. In addition, Golden American incurred
interest expense of $0.2 million in 1998 compared to $0.5 million in 1997 on
the line of credit with Equitable which was repaid with a capital
contribution. Golden American also paid $1.8 million in 1998 to ING America
Insurance Holdings, Inc. ("ING AIH") for interest on the reciprocal loan
agreement. Interest expense on the revolving note payable with SunTrust Bank,
Atlanta was $0.3 million for the year ended December 31, 1998.
INCOME. Net income for 1998 was $5.1 million, an increase of $4.8 million
from $0.3 million in 1997.
Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million
from $2.1 million in 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
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
----------------- | ----------------- | ----------------
(Dollars in millions)
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
====== ====== ======
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
----------------- | ----------------- | ---------------
(Dollars in millions)
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
====== ====== ======
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 two
significant broker/dealers having at least ten percent of total sales
for the year ended December 31, 1997, totaled $328.2 million, or 53% of
premiums ($298.0 million or 67% from two significant broker/dealers for
the year ended December 31, 1996).
REVENUES
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
- ---------------------------------------- | ----------------- | ----------------
(Dollars in millions)
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
==== ===== =====
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
----------------- | ----------------- | ---------------
(Dollars in millions)
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
===== ===== =====
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 collection of surrender charges.
Golden American provides certain managerial and supervisory services to
DSI. This fee, 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, which were the result of voluntary sales, of
$0.1 million compared to net realized losses of $0.4 million in 1996.
EXPENSES
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
-----------------| -----------------| ----------------
(Dollars in millions)
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
===== ===== =====
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
-----------------| -----------------| ----------------
(Dollars in millions)
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
===== ===== =====
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. Increases and decreases in commissions
and insurance taxes are generally related to changes in the level of
variable product sales. Insurance taxes are also impacted by several
other factors which include an increase in FICA taxes primarily due to
bonuses and an increase in state licenses and fees. Most costs incurred
as the result of new sales have been deferred, thus having very little
impact on earnings.
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. In addition, the Company uses a
network of wholesalers to distribute its products and the salaries of
these wholesalers are included in general expenses. The portion of
these salaries and related expenses which vary with sales production
levels are deferred, thus having little impact on earnings. 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. Based on current
conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization
for the next five years, relating to the PVIF as of December 31, 1997,
is $6.2 million in 1998, $6.0 million in 1999, $5.6 million in 2000,
$5.0 million in 2001 and $4.2 million in 2002. 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. The elimination of the unearned revenue
reserve related to in force acquired at the merger/acquisition dates
will result in lower annuity and interest sensitive life product
charges compared to pre-merger/pre-acquisition levels.
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. Goodwill resulting from the merger is being amortized on a
straight-line basis over 40 years and is expected to total
approximately $3.8 million annually.
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's
monthly average aggregate cost of short-term funds plus 1.00%.
During 1997, the Company paid $0.6 million to Equitable 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.
FINANCIAL CONDITION
RATINGS. During 1998, the Companies' ratings were upgraded by Standard &
Poor's Rating Services ("Standard & Poor's") from AA to AA+. During the
first quarter of 1999, the Companies' ratings were upgraded by Duff &
Phelps Credit Rating Company from AA+ to AAA.
INVESTMENTS. The financial statement carrying value and amortized cost
basis of the Companies' total investments increased 72.3% and 72.6%,
respectively, in 1998. All of the Companies' investments, other than
mortgage loans, are carried at fair value in the Companies' financial
statements. As such, growth in the carrying value of the Companies'
investment portfolio included changes in unrealized appreciation and
depreciation of fixed maturities as well as growth in the cost basis of
these securities. Growth in the cost basis of the Companies' investment
portfolio resulted from the investment of premiums from the sale of the
Companies' fixed account option. The Companies manage the growth of
insurance operations in order to maintain adequate capital ratios. To
support the fixed account option of the Companies' variable insurance
products, cash flow was invested primarily in fixed maturities, short-term
investments and mortgage loans.
At December 31, 1998, the Companies had no investment in default. At December
31, 1998, the Companies' investment portfolio had a yield of 6.4%. The
Companies estimate the total investment portfolio, excluding policy loans,
had a fair value approximately equal to 100.2% of its amortized cost value
for accounting purposes at December 31, 1998.
FIXED MATURITIES: At December 31, 1998, the Companies had fixed maturities
with an amortized cost of $739.8 million and an estimated fair value of
$742.0 million. The individual securities in the Companies' fixed maturities
portfolio (at amortized cost) include investment grade securities, which
include securities issued by the U.S. government, its agencies and
corporations that are rated at least A- by Standard & Poor's ($477.4 million
or 64.5%), that are rated BBB+ to BBB- by Standard & Poor's ($124.0 million
or 16.8%) and below investment grade securities which are securities issued
by corporations that are rated BB+ to B- by Standard & Poor's ($51.6 million
or 7.0%). Securities not rated by Standard & Poor's had a National
Association of Insurance Commissioners ("NAIC") rating of 1, 2 or 3 ($86.8
million or 11.7%). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.5% at December 31, 1998.
The Companies classify 100% of securities as available for sale. Net
unrealized appreciation of fixed maturities of $2.2 million was comprised of
gross appreciation of $6.7 million and gross depreciation of $4.5 million.
Net unrealized holding gains on these securities, net of adjustments to VPIF,
DPAC and deferred income taxes of $1.0 million was included in stockholder's
equity at December 31, 1998.
At December 31, 1998, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $52.7 million, or 5.9%, of the Companies' investment
portfolio. The Companies intend to purchase additional below investment grade
securities but do not expect the percentage of the portfolio invested in such
securities to exceed 10% of the investment portfolio. At December 31, 1998,
the yield at amortized cost on the Companies' below investment grade
portfolio was 7.9% compared to 6.4% for the Companies' investment grade
corporate bond portfolio. The Companies estimate the fair value of the below
investment grade portfolio was $51.7 million, or 98.1% of amortized cost
value, at December 31, 1998.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other
creditors of the issuer. Also, issuers of below investment grade securities
usually have higher levels of debt and are more sensitive to adverse economic
conditions, such as a recession or increasing interest rates, than are
investment grade issuers. The Companies attempt to reduce the overall risk in
the below investment grade portfolio, as in all investments, through careful
credit analysis, strict investment policy guidelines, and diversification by
company and by industry.
The Companies analyze the investment portfolio, including below investment
grade securities, at least quarterly in order to determine if the Companies'
ability to realize the 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 the Companies 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 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 Companies' portfolio. Significant write-downs in the
carrying value of investments could materially adversely affect the
Companies' net income in future periods.
In 1998, fixed maturities designated as available for sale with a combined
amortized cost of $145.3 million were called or repaid by their issuers. In
total, net pre-tax losses from sales, calls and repayments of fixed maturity
investments amounted to $0.5 million in 1998.
During the fourth quarter of 1998, Golden American determined that the
carrying value of two of its bonds exceeded their estimated net realizable
value. As a result, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to their
combined net realizable value of $2.9 million.
EQUITY SECURITIES: Equity securities represent 1.6% of the Companies'
investment portfolio. At December 31, 1998, the Companies owned equity
securities with a cost of $14.4 million and an estimated fair value of $11.5
million. Net unrealized depreciation of equity securities was comprised
entirely of gross depreciation of $2.9 million. Equity securities are
primarily comprised of the Companies' investment in shares of the mutual
funds underlying the Companies' registered separate accounts.
MORTGAGE LOANS: Mortgage loans represent 10.9% of the Companies' investment
portfolio. Mortgages outstanding were $97.3 million at December 31, 1998 with
an estimated fair value of $99.8 million. The Companies' mortgage loan
portfolio includes 57 loans with an average size of $1.7 million and average
seasoning of 0.9 years if weighted by the number of loans. The Companies'
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. Mortgage loans on real estate
have been analyzed by geographical location with concentrations by state
identified as California (12% in 1998 and 1997), Utah (11% in 1998, 13% in
1997) and Georgia (10% in 1998, 11% in 1997). There are no other
concentrations of mortgage loans in any state exceeding ten percent at
December 31, 1998 and 1997. Mortgage loans on real estate have also been
analyzed by collateral type with significant concentrations identified in
office buildings (36% in 1998, 43% in 1997), industrial buildings (32% in
1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997). At
December 31, 1998, the yield on the Companies' mortgage loan portfolio was
7.3%.
At December 31, 1998, no mortgage loan was delinquent by 90 days or more. The
Companies' loan investment strategy is consistent with other life insurance
subsidiaries of EIC. The insurance subsidiaries have experienced a
historically low default rate in their mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $3.2 million during 1998
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
Companies' variable products.
DPAC represents certain deferred costs of acquiring insurance business,
principally first year commissions and interest bonuses, extra credit bonuses
and other expenses related to the production of new business after the merger.
The Companies' DPAC and previous balance of VPIF were eliminated as of the
merger date, and an asset representing VPIF was established for all policies
in force at the merger date. VPIF is amortized into income in proportion to
the expected gross profits of in force acquired business in a manner similar
to DPAC amortization. Any expenses which vary directly with the sales of the
Companies' products are deferred and amortized. At December 31, 1998, the
Companies had DPAC and VPIF balances of $205.0 million and $36.0 million,
respectively. VPIF decreased $2.6 million in the second quarter of 1998 for
an adjustment to the value of other receivables recorded at the time of the
merger and increased $0.2 million in the first quarter of 1998 for an
adjustment made to the merger costs.
Property and equipment increased $5.8 million during 1998, due to
installation of a new policy administration system, introduction of an
imaging system as well as the growth in the business.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the
merger date. Accumulated amortization of goodwill through December 31, 1998
was $4.4 million.
Other assets increased $5.5 million during 1998 due mainly to an increase in
amounts due from an unaffiliated reinsurer under a modified coinsurance
agreement.
At December 31, 1998, the Companies had $3.4 billion of separate account
assets compared to $1.6 billion at December 31, 1997. The increase in
separate account assets resulted from market appreciation and growth in sales
of the Companies' variable annuity products, net of redemptions.
At December 31, 1998, the Companies had total assets of $4.8 billion, an
increase of 94.3% over total assets at December 31, 1997.
LIABILITIES. In conjunction with the volume of variable annuity sales, the
Companies' total liabilities increased $2.2 billion, or 98.2%, during 1998
and totaled $4.4 billion at December 31, 1998. Future policy benefits for
annuity and interest sensitive life products increased $375.8 million, or
74.4%, to $881.1 million reflecting premium growth in the Companies' fixed
account option of its variable products. Market appreciation and premium
growth, net of redemptions, accounted for the $1.7 billion, or 106.3%,
increase in separate account liabilities to $3.4 billion at December 31,
1998.
On December 30, 1998, Golden American issued a $60 million, 7.25% surplus
note to Equitable Life which matures on December 29, 2028.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus
note to Equitable which matures on December 17, 2026. As a result of the
Merger Agreement, the surplus note is now payable to EIC.
Golden American maintained a line of credit agreement with Equitable 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.
Other liabilities increased $15.3 million from $17.3 million at December 31,
1997, due primarily to increases in accounts payable, outstanding checks,
guaranty fund assessment liability and pension liability.
The effects of inflation and changing prices on the Companies' financial
position 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.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $122.6 million,
or 54.5%, from December 31, 1997 to $347.6 million at December 31, 1998
primarily due to capital contributions from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash flows
to meet the cash requirements of their operating, investing and financing
activities. The Companies' principal sources of cash are variable annuity
premiums and product charges, investment income, maturing investments,
proceeds from debt issuance and capital contributions made by the Parent.
Primary uses of these funds are payments of commissions and operating
expenses, interest and extra premium credits, investment purchases, repayment
of debt, as well as withdrawals and surrenders.
Net cash used in operating activities was $63.9 million in 1998 compared to
$4.8 million in 1997. Annually, the Companies have predominantly had negative
cash flows from operating activities since Golden American started issuing
variable insurance products in 1989. These negative operating cash flows
result primarily from the funding of commissions and other deferrable
expenses related to the continued growth in the variable annuity product line
of Golden American. The 1998 increase in net cash used in operating
activities resulted principally from the introduction of Golden American's
extra premium credit product in October 1997. In 1998, $54.4 million in extra
premium credits was added to contractholders' account values versus $2.8
million in 1997.
Net cash used in investing activities was $390.0 million during 1998 as
compared to $198.5 million in 1997. This increase is primarily due to greater
net purchases of fixed maturities resulting from an increase in funds
available from net fixed account deposits. Net purchases of fixed maturities
reached $331.3 million in 1998 versus $135.3 million in 1997. Net purchases
of mortgage loans on real estate, on the other hand, declined to $12.6
million from $51.2 million in the prior year. In 1998, net purchases of short-
term investments were unusually high due to the investment of the remaining
proceeds of Golden American's $60.0 million surplus note issued on
December 30, 1998.
Net cash provided by financing activities was $439.5 million during 1998 as
compared to $218.6 million during the prior year. In 1998, net cash provided
by financing activities was positively impacted by net fixed account deposits
of $520.8 million compared to $303.6 million in 1997. This increase was
partially offset by net reallocations to the Companies' separate accounts,
which increased to $239.7 million from $110.1 million during the prior year.
In 1998, other important sources of cash provided by financing activities
were $98.4 million of capital contributions from the Parent and $60.0 million
of proceeds from the issuance of a surplus note on December 30, 1998. The
Companies have used part of the proceeds of the surplus note to repay
outstanding short-term debt.
The Companies' liquidity position is managed by maintaining adequate levels
of liquid assets, such as cash or cash equivalents and short-term
investments. Additional sources of liquidity include borrowing facilities to
meet short-term cash requirements. Golden American maintains a $65.0 million
reciprocal loan agreement with ING AIH and the Companies have established an
$85.0 million revolving note facility with SunTrust Bank, Atlanta. Management
believes that these sources of liquidity are adequate to meet the Companies'
short-term cash obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities, given the continued growth of the variable annuity
product line. It is anticipated that a continuation of capital contributions
from the Parent and the issuance of additional surplus notes will cover these
net cash outflows. It is ING's policy to ensure that adequate capital and
surplus is provided for the Companies and additional funds will be
contributed to the Companies in 1999.
During the first quarter of 1999, Golden American's operations were moved to
a new site in West Chester, Pennsylvania. Golden American currently occupies
65,000 square feet of leased space and has made commitments for an additional
60,000 square feet to be added during 1999 to be occupied by itself and its
affiliates. Previously, Golden American's home office operations were housed in
leased locations in Wilmington, Delaware and various locations in Pennsylvania,
which are being leased on a short-term basis for use in the transition to the
new office building. Golden American's New York subsidiary is housed in leased
space in New York, New York. The Companies intend to spend approximately $7.0
million on capital needs for 1999.
The ability of Golden American to pay dividends to its Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 1999,
Golden American cannot pay dividends to its Parent without prior approval of
statutory authorities.
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 intent to declare a dividend and the amount of the dividend has been
filed at least thirty days in advance of the proposed declaration. If the
Superintendent finds the financial condition of First Golden does not warrant
the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing.
The management of First Golden does not anticipate paying any dividends to
Golden American during 1999.
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 monitor the
capitalization of insurance companies based upon the type and mixture of
risks inherent in a company's operations. The formula includes components for
asset risk, liability risk, interest rate exposure and other factors. The
Companies have complied with the NAIC's risk-based capital reporting
requirements. Amounts reported indicate that the Companies have total
adjusted capital well above all required capital levels.
REINSURANCE: At December 31, 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 READINESS DISCLOSURE: Based on and in conjunction with a 1997 study
and an ongoing analysis of computer software and hardware, the Companies have
assessed their exposure to the Year 2000 change of the century date issue.
Some of the Companies' 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 process
transactions. To a lesser extent, the Companies depend on various non-
information technology systems, which could also fail or misfunction as a
result of the Year 2000.
The Companies have 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 Actual/
as of Estimated
March 15, Completion
PHASES 1999 Dates
- -------------------------------------------------------------------------------
ASSESSMENT AND DEVELOPMENT of the steps to be taken to
address Year 2000 systems issues 100% 12/31/1997
REMEDIATION of business critical systems to address
Year 2000 issues 100% 2/28/1999
REMEDIATION of non-critical systems to address Year
2000 issues 76-99% 6/01/1999
TESTING of business critical systems 100% 3/05/1999
TESTING of non-critical systems and integrated testing
of hardware and infrastructure 25-50% 6/15/1999
POINT-TO-POINT TESTING of external interfaces with third
party computer systems that communicate with the
Companies' systems 50-75% 4/30/1999
IMPLEMENTATION of tested business critical software
addressing Year 2000 systems issues 100% 3/05/1999
IMPLEMENTATION of tested non-critical software
addressing Year 2000 systems issues 25-50% 6/30/1999
CONTINGENCY PLAN 76-99% 6/01/1999
The Companies' operations could be adversely affected if significant
customers, suppliers and other third parties, including underlying mutual
funds, would be unable to transact business in the Year 2000 and thereafter
as a result of the Year 2000 issue. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000, the Companies
have identified and contacted these third parties to obtain assurances that
necessary steps are being taken to prepare for the Year 2000. The Companies
will continue these communications and establish compliance checkpoints
through the Year 2000 transition.
Management believes the Companies' systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$335,000 during 1998 for the Year 2000 project. The Companies anticipate
charging to expense an additional $200,000 to $300,000 in 1999 which includes
upgrade and internal resources costs.
Despite the Companies' efforts to modify or replace "time sensitive" computer
and information systems, the Companies could experience a disruption to their
operations as a result of the Year 2000. The Companies are currently
developing a contingency plan to address the content of third party
compliance statements and any systems that may malfunction despite the
testing being performed. The contingency plan is anticipated to be completed
by June 1, 1999.
The Year 2000 project costs and completion dates 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.
It is the Companies' intention to make every reasonable effort to achieve
business continuity through appropriate planning, testing and establishing
contingency scenarios; however, the Companies do not make any representations
because of many unknown factors beyond the control of the Companies.
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development and crediting
rates determination. As part of the risk management process, different
economic scenarios are modeled, including cash flow testing required for
insurance regulatory purposes, to determine that existing assets are adequate
to meet projected liability cash flows. Key variables include contractholder
behavior and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable products. Therefore, the risks associated with the investments
supporting the variable separate accounts are assumed by contractholders, not
by the Companies (subject to, among other things, certain minimum
guarantees). The Companies' products also provide certain minimum death
benefits that depend on the performance of the variable separate accounts.
Currently the majority of death benefit risks are reinsured, which protects
the Companies from adverse mortality experience and prolonged capital market
decline.
A surrender, partial withdrawal, transfer or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material
amount of market risk volatility. The fixed account liabilities are supported
by a portfolio principally composed of fixed rate investments that can
generate predictable, steady rates of return. The portfolio management
strategy for the fixed account considers the assets available for sale. This
enables the Companies to respond to changes in market interest rates, changes
in prepayment risk, changes in relative values of asset sectors and
individual securities and loans, changes in credit quality outlook and other
relevant factors. The objective of portfolio management is to maximize
returns, taking into account interest rate and credit risks as well as other
risks. The Companies' asset/liability management discipline includes
strategies to minimize exposure to loss as interest rates and economic and
market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values
from year-end 1998 levels, variable separate account funds, which represent
80% of the in force, pass the risk in underlying fund performance to the
contractholder (except for certain minimum guarantees that are mostly
reinsured). With respect to interest rate movements up or down 100 basis
points from year-end 1998 levels, the remaining 20% of the in force are fixed
account funds and almost all of these have market value adjustments which
provide significant protection against changes in interest rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or
written statement by the Companies or any of their officers, directors or
employees is qualified by the fact that actual results of the Companies may
differ materially from such statement, among other risks and uncertainties
inherent in the Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which
may affect the ability of the Companies to sell their products, the
market value and liquidity of the Companies' investments and the lapse
rate of the Companies' policies, notwithstanding product design features
intended to enhance persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations which may
affect the relative tax advantages of the Companies' 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 Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation,
insurance industry insolvencies, availability of competitive reinsurance
on new business, investment performance of the underlying portfolios of
the variable products, variable product design and sales volume by
significant sellers of the Companies' variable products.
6. To the extent third parties are unable to transact business in the Year
2000 and thereafter, the Companies' 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. Two broker-dealers, including Locust Street
Securities, Inc., produce 10% or more of Golden American's product
sales.
REINSURANCE. Golden American reinsures its mortality risk associated
with the Contract's guaranteed death benefit with one or more
appropriately licensed insurance companies. Golden American also,
effective June 1, 1994, entered into a reinsurance agreement on a
modified coinsurance basis with an affiliate of a broker-dealer which
distributes Golden American's products with respect to 25% of the
business produced by that broker-dealer.
RESERVES. In accordance with the life insurance laws and regulations
under which Golden American operates, it is obligated to carry on its
books, as liabilities, actuarially determined reserves to meet its
obligations on outstanding Contracts. Reserves, based on valuation
mortality tables in general use in the United States, where applicable,
are computed to equal amounts which, together with interest on such
reserves computed annually at certain assumed rates, make adequate
provision according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual
obligations and related expenses of Golden American.
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. Equitable Life billed Golden American
and its subsifiary First Golden American Life Insurance Company of New
York ("First Golden"), $1.1 million in 1998 under this service agreement.
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 $4.8 million, $2.8 million and $2.3
million for the years of 1998, 1997 and 1996, respectively.
Since January 1, 1998, Golden American and First Golden have had an asset
management agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management services for a fee,
payable quarterly. For the year ended December 31, 1998, Golden American
and First Golden incurred fees of $1.5 million under this agreement. Prior
to 1998, Golden American and First Golden had a service agreement with
Equitable Investment Services, Inc. ("EISI"), an affiliate, in which EISI
provided investment management services. Golden American and First Golden
paid fees of $.9 million 1998 and $72,000 for the period from August 14,
1996 through December 31, 1996, respectively.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Fees for these services totaled $5.8
million for 1998 and $4.3 million for 1997.
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 which as of December 31,
1998, are sold primarily through two broker/dealer institutions. For
the years 1998, 1997 and 1996, commissions paid by Golden American to
DSI aggregated $117.5 million, $36.4 million and $27.1 million,
respectively.
EMPLOYEES. Golden American, as a result of its Service Agreement with
Bankers Trust (Delaware) and EIC Variable, had very few direct
employees. Instead, various management services were provided by
Bankers Trust (Delaware), EIC Variable and Bankers Trust New York
Corporation, as described above under "Service Agreement." The cost of
these services were allocated to Golden American. Since August 14,
1996, Golden American has hired individuals to perform various
management services and has looked to Equitable of Iowa and its
affiliates for certain other 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 1475
Dunwoody Drive, West Chester, Pennsylvania 19380, 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 intitiatives designed to
improve the surveillance and financial analysis regarding the solvency
of insurance companies in general. These inititatives 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 "Manangement's Discussion and Analysis Results of
Operations"
In addition, many states regulate affiliated groups of insurers, such
as Golden American, and its affilaites, 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 11 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 (49) President and Director
Myles R. Tashman (56) Director, Executive Vice President,
General Counsel and Secretary
R. Brock Armstrong (52) Director
Michael W. Cunningham (50) Director
Linda B. Emory (60) Director
Phillip R. Lowery (46) Director
James R. McInnis (51) Executive Vice President
Stephen J. Preston (41) Executive Vice President and Chief
Actuary
E. Robert Koster (40) Senior Vice President and Chief
Financial Officer
Patricia M. Corbett (34) Treasurer
David L. Jacobson (49) Senior Vice President and Assistant
Secretary
William B. Lowe (35) 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. He also serves as a
Director, Executive Vice President, General Counsel and Secretary of
First Golden. From 1986 through 1993, he was Senior Vice President
and General Counsel of United Pacific Life Insurance Company.
Mr. R. Brock Armstrong was appointed to serve as President and
Chairman of The GCG Trust in February 1999. He was also elected to
serve as Director of Golden American Life Insurance Company Director
and President of Equitable Life Insurance Company of Iowa in April
1999. He has served as Director and Chairman of the Board of First
Golden American Life Insurance Company of New York since December
1998, and as Group Executive of ING Group since October 1998. Mr.
Armstrong was Senior Vice President, The Prudential Insurance Company
of America, April 1997 to October 1998; Executive Vice President,
London Insurance Group, August 1994 to April 1997; President and Chief
Financial Officer of Security First Group, August 1991 to August 1994,
and Executive Vice President, London Insurance Group, November 1988 to
August 1991.
Mr. Michael W. Cunningham became a Director of Golden American and
First Golden in April 1999. Also, he has served as a Director of Life
of Georgia and Security Life of Denver since 1995. Currently, he
serves as Executive Vice President and Chief Financial Officer of ING
North America Insurance Corporation, and has worked for them since
1991. Mr. Cunningham served as Senior Vice President and Chief
Financial Officer from 1987 to 1991 and Vice President and Controller
from 1983 to 1987 for Integon Corporation. From 1973 through 1983, he
was a Manager and held various other positions with Ernst & Young.
Ms. Linda B. Emory became a Director of Golden American in April 1999.
Since September 1995, she has served as a Director for Life Insurance
Company of Georgia, Southland Life Insurance Company, Security Life of
Denver, Midwestern United Life Insurance Company, First ING of New
York and Columbine Insurance Company. Also, she is an Executive Vice
President of ING North America Insurance Corporation. From 1963 to
1993 she held the positions of Vice President, Senior Vice President,
Corporate Actuary and Director for Life Insurance Company of Georgia.
Also, she served as International Actuary and Manager of Nationale
Nederlanden from 1988 to 1990.
Mr. Phillip R. Lowery became a Director of Golden American in April
1999. Presently, he is Executive Vice President and Chief Actuary for
ING FSI North America. He served as Vice President of Sun Life of
America from 1986 to 1990 and as Vice President of Protective Life
Insurance Company from 1978 to 1986. From 1974 to 1978, he was an
actuary with Kennesaw Life and Accident Insurance Company.
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.
Ms. Patricia M. Corbett was elected Treasurer of Golden American in
December 1998. She joined Equitable Life Insurance Company of Iowa in
1987 and is currently Treasurer and Assistant Vice President of
Equitable Life and USG Annuity & Life Company.
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 became an
Executive Vice President and Chief Actuary in June 1998. 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. Steven G. Mandel joined Golden American in October 1988 and became
a 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
became a 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.
<PAGE>
<PAGE>
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief
Executive Officer of Golden American as well as the annual salary and
bonus for the next five highly compensated executive officers for the
fiscal year ended December 31, 1998. Certain executive officers of
Golden American are also officers of DSI. The salaries of such
individuals are allocated between Golden American and DSI. Executive
officers of Golden American are also officers of DSI. The salaries of
such individuals are allocated between Golden American and DSI pursuant
to an arrangement among these companies. Throughout 1995 and until
August 13, 1996, 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 Officers and the
five other most highly compensated executive officers for the fiscal
year ended December 31, 1998.
<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>
Barnett Chernow,....... 1998 $284,171 $105,375 8,000
President 1997 $234,167 $ 31,859 $ 277,576 4,000
1996 $207,526 $150,000 $ 7,755(/4/)
James R. McInnis,...... 1998 $250,004 $626,245 2,000
Executive Vice
President
Keith Glover,.......... 1998 $250,000 $145,120 3,900
Executive Vice
President
Myles R. Tashman,...... 1998 $189,337 $ 54,425 3,500
Executive Vice 1997 $181,417 $ 25,000 $ 165,512 5,000
President, General 1996 $176,138 $ 90,000 $ 5,127(/4/)
Counsel and Secretary
Stephen J. Preston,.... 1998 $173.870 $ 32,152 3,500
Executive Vice 1997 $160,758 $ 16,470
President and Chief 1996 $156,937 $ 58,326
Actuary
Paul R. Schlaack,..... 1998 $406,730 $210,600
Former Chairman 1997 $351,000 $249,185 $1,274,518 19,000 $ 15,000
and Vice President 1996 $327,875 $249,185 $ 245,875 19,000 $ 15,000
Terry L. Kendall,...... 1998 $145,237 $181,417
Former President and 1997 $362,833 $ 80,365 $ 644,844 16,000
CEO (/3/) 1996 $288,298 $400,000 $ 11,535(/4/)
</TABLE>
________________
(1) The amount shown relates to bonuses paid in 1998, 1997 and 1996.
(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) In 1996, 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 1996 to employees on
record as of December 31, 1996, after an employee completed 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.
Option Grants in Last Fiscal Year (1998)
<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 EXERCISE TERM (/4/)
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------
NAME GRANTED (/1/) YEAR PRICE (/2/) DATE 5% 10%
- ---- ------------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow......... 8,000 11.99 $60.518 5/26/2003 $164,016 $ 362,433
James R. McInnis........ 2,000 3.00 $60.518 5/26/2003 $ 41,004 $ 90,608
Keith Glover............ 3,900 5.85 $60.518 5/26/2003 $ 79,958 $ 176,686
Myles Tashman........... 3,500 5.25 $60.518 5/26/2003 $ 71,758 $ 158,564
Stephen J. Preston...... 3,500 5.25 $60.518 5/26/2003 $ 71,758 $ 158,564
</TABLE>
________________
(1) Stock appreciation rights granted on May 26, 1198 to the officers of
Golden American have a three-year vesting period and an expiration
date as shown.
(2) The base price was equal to the fair market value of ING's stock on
on the date of grant.
(3) Total dollar gains based on indicated rates of appreciation of share
price over a the five year term of the rights.
Directors of Golden American receive no additional compensation for serving
as a director.
<PAGE>
<PAGE>
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the years ended December 31, 1998 and 1997
[FS] 1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of Golden
American Life Insurance Company as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the year ended December 31, 1998 and 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. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golden American
Life Insurance Company at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the year ended December 31,
1998 and 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 in conformity with
generally accepted accounting principles.
s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
[FS] 2
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
--------------------------------------
December 31, 1998 December 31, 1997
------------------- -----------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (cost: 1998 - $739,772;
1997 - $413,288) $741,985 $414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 - $4,437) 11,514 3,904
Mortgage loans on real estate 97,322 85,093
Policy loans 11,772 8,832
Short-term investments 41,152 14,460
------------------ ----------------
Total investments 903,745 526,690
Cash and cash equivalents 6,679 21,039
Due from affiliates 2,983 827
Accrued investment income 9,645 6,423
Deferred policy acquisition costs 204,979 12,752
Value of purchased insurance in force 35,977 43,174
Current income taxes recoverable 628 272
Deferred income tax asset 31,477 36,230
Property and equipment, less allowances
for depreciation of $801 in 1998 and
$97 in 1997 7,348 1,567
Goodwill, less accumulated amortization
of $4,408 in 1998 and $630 in 1997 146,719 150,497
Other assets 6,239 755
Separate account assets 3,396,114 1,646,169
------------------ ----------------
Total assets $4,752,533 $2,446,395
================== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products $881,112 $505,304
Unearned revenue reserve 3,840 1,189
Other policy claims and benefits -- 10
------------------ ----------------
884,952 506,503
Line of credit with affiliate -- 24,059
Surplus notes 85,000 25,000
Due to affiliates -- 80
Other liabilities 32,573 17,271
Separate account liabilities 3,396,114 1,646,169
------------------- -----------------
4,398,639 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 347,640 224,997
Accumulated other comprehensive income
(loss) (895) 241
Retained earnings (deficit) 4,649 (425)
------------------ ----------------
Total stockholder's equity 353,894 227,313
------------------ ----------------
Total liabilities and stockholder's
equity $4,752,533 $2,446,395
================== ================
See accompanying notes.
[FS] 3
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
------------------------------------ ------------------------------------ ------------------
For the period| For the period For the period| For the period
October 25, 1997| January 1, 1997 August 14, 1996| January 1, 1996
For the year ended through| through through| through
December 31, 1998 December 31, 1997| October 24, 1997 December 31, 1996| August 13, 1996
------------------ -----------------|------------------ -----------------|------------------
| |
<S> <C> <C> <C> <C> <C>
Revenues: | |
Annuity and interest sensitive life | |
product charges $39,119 $3,834 | $18,288 $8,768 | $12,259
Management fee revenue 4,771 508 | 2,262 877 | 1,390
Net investment income 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments (1,491) 15 | 151 42 | (420)
Other income 5,569 236 | 426 486 | 70
----------------- ---------------- |----------------- ---------------- |-----------------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
Insurance benefits and expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in excess | |
of account balances 2,123 -- | 125 1,262 | 915
Underwriting, acquisition and | |
insurance expenses: | |
Commissions 121,171 9,437 | 26,818 9,866 | 16,549
General expenses 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization: | |
Deferred policy acquisition costs 5,148 892 | 1,674 244 | 2,436
Value of puchased insurance in force 4,724 948 | 5,225 2,745 | 951
Goodwill 3,778 630 | 1,398 589 | --
----------------- ---------------- |----------------- ---------------- |-----------------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense 4,390 557 | 2,082 85 | --
----------------- ---------------- |----------------- ---------------- |-----------------
80,100 9,999 | 43,391 15,398 | 16,553
----------------- ---------------- |----------------- ---------------- |-----------------
Income (loss) before income taxes 10,353 (279)| (608) 570 | 1,736
| |
Income taxes 5,279 146 | (1,337) 220 | (1,463)
----------------- ---------------- |----------------- ---------------- |-----------------
| |
Net income (loss) $5,074 ($425)| $729 $350 | $3,199
================= ================ |================= ================ |=================
</TABLE>
See accompanying notes.
[FS] 4
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
PRE-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500 $50,000 $45,030 $658 ($63) $98,125
Comprehensive income:
Net income -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses) -- -- -- (1,175) -- (1,175)
-----------
Comprehensive income 2,024
Preferred stock dividends -- -- -- -- (719) (719)
------------ ------------ ------------ ------------ ------------ -----------
Balance at August 13, 1996 $2,500 $50,000 $45,030 ($517) $2,417 $99,430
============ ============ ============ ============ ============ ===========
<CAPTION>
POST-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996 $2,500 $50,000 $87,372 -- -- $139,872
Comprehensive income:
Net income -- -- -- -- $350 350
Change in net unrealized
investment gains (losses) -- -- -- $262 -- 262
-----------
Comprehensive income 612
Contribution of preferred
stock to additional
paid-in capital -- (50,000) 50,000 -- -- --
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1996 $2,500 -- $137,372 $262 $350 $140,484
Comprehensive income:
Net income -- -- -- -- 729 729
Change in net unrealized
investment gains (losses) -- -- -- 1,543 -- 1,543
-----------
Comprehensive income 2,272
Contribution of capital -- -- 1,121 -- -- 1,121
------------ ------------ ------------ ------------ ------------ -----------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
[FS] 5
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997 $2,500 -- $224,997 -- -- $227,497
Comprehensive loss:
Net loss -- -- -- -- ($425) (425)
Change in net unrealized
investment gains (losses) -- -- -- $241 -- 241
-----------
Comprehensive loss (184)
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1997 $2,500 -- $224,997 $241 ($425) $227,313
Comprehensive income:
Net income -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses) -- -- -- (1,136) -- (1,136)
-----------
Comprehensive income 3,938
Contribution of capital -- -- 122,500 -- -- 122,500
Other -- -- 143 -- -- 143
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1998 $2,500 -- $347,640 ($895) $4,649 $353,894
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
[FS] 6
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES | |
Net income (loss) $5,074 ($425)| $729 $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: | |
Interest credited and other charges on | |
interest sensitive products 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned revenues 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in accrued | |
investment income (3,222) 1,205 | (3,489) (877)| (2,494)
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization of deferred policy | |
acquisition costs 5,148 892 | 1,674 244 | 2,436
Amortization of value of purchased | |
insurance in force 4,724 948 | 5,225 2,745 | 951
Change in other assets, other | |
liabilities and accrued income taxes 9,891 4,205 | (8,944) (96)| 4,672
Provision for depreciation and | |
amortization 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred income taxes 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on investments 1,491 (15)| (151) (42)| 420
------------- ------------- | ------------- ------------- | -----------
Net cash provided by (used in) | |
operating activities (63,923) 3,127 | (7,971) (757)| (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment of | |
investments: | |
Fixed maturities - available for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real estate 3,791 1,644 | 5,828 40 | --
Short-term investments - net -- -- | 11,415 2,629 | 354
------------- ------------- | ------------- ------------- | ------------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available for sale (476,523) (29,596)| (155,173) (147,170)| (184,589)
Equity securities (10,000) (1)| (4,865) (5)| --
Mortgage loans on real estate (16,390) (14,209)| (44,481) (31,499)| --
Policy loans - net (2,940) (328)| (3,870) (637)| (1,977)
Short-term investments - net (26,692) (13,244)| -- -- | --
------------- ------------- | ------------- ------------- | ------------
(532,545) (57,378)| (208,389) (179,311)| (186,566)
Purchase of property and equipment (6,485) (252)| (875) (137)| --
------------- ------------- | -------------- ------------- | ------------
Net cash used in investing activities (389,986) (46,115)| (152,399) (129,326)| (131,121)
</TABLE>
See accompanying notes.
[FS] 7
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of surplus note $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings (500,722) -- | -- -- | --
Proceeds from revolving note payable 108,495 -- | -- -- | --
Repayment from revolving note payable (108,495) -- | -- -- | --
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 account balances 593,428 62,306 | 261,549 116,819 | $ 149,750
Return of account balances | |
on annuity and interest sensitive | |
life policies (72,649) (6,350)| (13,931) (3,315)| (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017)| (93,069) (10,237)| (8,286)
Contributions of capital by parent 98,441 -- | 1,011 -- | --
Dividends paid on preferred stock -- -- | -- -- | (719)
------------- ------------- | -------------- ------------- | ------------
Net cash provided by financing | |
activities 439,549 46,851 | 171,707 128,267 | 138,050
------------- ------------- | -------------- ------------- | ------------
Increase (decrease) in cash and | |
cash equivalents (14,360) 3,863 | 11,337 (1,816)| 2,609
| |
Cash and cash equivalents at | |
beginning of period 21,039 17,176 | 5,839 7,655 | 5,046
------------- ------------- | -------------- ------------- | ------------
Cash and cash equivalents at end | |
of period $ 6,679 $ 21,039 | $ 17,176 $ 5,839 | $ 7,655
============= ============= | ============== ============= | =============
| |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW | |
INFORMATION | |
Cash paid during the period for: | |
Interest 4,305 295 | 1,912 -- | --
Income taxes 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to additional | |
paid-in capital for adjusted merger | |
costs 143 -- | -- -- | --
Contribution of property and equipment | |
from EIC Variable, Inc. net of $353 of | |
accumulated depreciation -- -- | 110 -- | --
Contribution of capital from parent to | |
repay line of credit borrowings 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
[FS] 8
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 "Companies"). 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 Companies'
products are marketed by broker/dealers, financial institutions and insurance
agents. The Companies' primary customers are consumers and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") according to the terms of an Agreement and Plan of Merger
("Merger Agreement") dated 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 this
transaction, Equitable was merged into PFHI, which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware
corporation. See Note 6 for additional information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its
wholly owned subsidiaries, Golden American and Directed Services, Inc.
("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for
additional information regarding the acquisition.
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 Companies' financial
statements for the periods after 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: The Companies account for their investments under the
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires fixed
maturities 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 value of purchased insurance in force ("VPIF"),
deferred policy acquisition costs ("DPAC") and deferred income taxes. At
December 31, 1998 and 1997, all of the Companies' fixed maturities are
designated as available for sale, although the Companies are not precluded
from designating fixed maturities 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 new cost basis by
a charge to realized losses in the Companies' Statements of Operations.
Premiums and discounts are amortized/accrued utilizing a method which results
in a constant yield over the securities' expected lives. Amortization/accrual
of premiums and discounts on mortgage and other asset-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 then becomes the new cost basis by a charge to
realized losses in the Companies' Statements of Operations.
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
Companies 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.
REALIZED GAINS AND LOSSES: Realized gains and losses are determined on the
basis of specific identification and average cost methods for manager
initiated and issuer initiated disposals, respectively.
FAIR VALUES: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market and
publicly traded fixed maturities 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
consist of the Companies' investment in its registered separate accounts are
based upon the quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the Companies
consider all demand deposits and interest-bearing accounts not related to the
investment function to be cash equivalents. All interest-bearing accounts
classified as cash equivalents have original maturities of three months or
less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally first year
commissions and interest bonuses, extra credit bonuses 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 adjusted
retrospectively when the Companies revise their 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
maturities the Companies have designated as "available for sale" under SFAS
No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the purchase
price related to each transaction was allocated to the right to receive
future cash flows from existing insurance contracts. This allocated cost
represents VPIF 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 VPIF is
charged to expense in proportion to expected gross profits of the underlying
business. This amortization is adjusted retrospectively when the Companies
revise the estimate of current or future gross profits to be realized from
the insurance contracts acquired. VPIF is adjusted to reflect the pro forma
impact of unrealized gains and losses on available for sale fixed maturities.
See Notes 6 and 7 for additional information on VPIF resulting from the
merger and acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, office
furniture, certain other equipment and capitalized computer software and are
not considered to be significant to the Companies' 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 and is being amortized
over 40 years on a straight-line basis. Goodwill established as a result of
the acquisition was being amortized over 25 years on a straight-line basis.
See Notes 6 and 7 for additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest guarantees 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 3.00% to 10.00% during 1998, 3.30% to
8.25% during 1997 and 4.00% to 7.25% during 1996. The unearned revenue
reserve represents unearned distribution fees. These distribution fees have
been deferred and are amortized over the life of the contracts in proportion
to expected gross profits.
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the accompanying
Balance Sheets represent funds separately administered principally for
variable annuity and variable life contracts. Contractholders, rather than
the Companies, bear the investment risk for the variable products. At the
direction of the contractholders, the separate accounts invest the premiums
from the sale of variable 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 Companies. The portion of
the separate account assets equal to the reserves and other liabilities of
variable annuity and variable life contracts cannot be charged with
liabilities arising out of any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the underlying
investments and 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; the fair value of these liabilities is
equal to their carrying amount. Net investment income and realized and
unrealized capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable 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 maturities the Companies have
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 Companies' Statements of Operations are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is restricted. Prior
approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 1999,
Golden American cannot pay dividends to its Parent without prior approval of
statutory authorities.
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 intent to declare a dividend and the amount of the dividend has been
filed at least thirty days in advance of the proposed declaration. If the
Superintendent finds the financial condition of First Golden does not warrant
the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing.
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires enterprises to report selected information about
operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
The Companies manage their business as one segment, the sale of variable
products designed to meet customer needs for tax-advantaged methods of saving
for retirement and protection from unexpected death. Variable products are
sold to consumers and corporations throughout the United States. The adoption
of SFAS No. 131 did not affect the results of operations or financial
position of the Companies.
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 value of purchased insurance in force, (4) fair values
of assets and liabilities recorded as a result of merger and acquisition
transactions, (5) asset valuation 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 proceeding are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could
materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended within the
years ended December 31, 1997 and 1996 have been reclassified to conform to
the December 31, 1998 financial statement presentation.
2. BASIS OF FINANCIAL REPORTING
- ------------------------------------------------------------------------------
The financial statements of the Companies 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
divisions with fixed interest guarantees 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 value of purchased insurance in force, deferred policy
acquisition costs and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized cost; (6)
the carrying value of fixed maturities is reduced to fair value by a charge
to realized losses in the Statements of Operations 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 products consist of policy
charges applicable to each contract 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.
The net loss for Golden American as determined in accordance with statutory
accounting practices was $68,002,000 in 1998, $428,000 in 1997 and $9,188,000
in 1996. Total statutory capital and surplus was $183,045,000 at December 31,
1998 and $76,914,000 at December 31, 1997.
<PAGE>
3. INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities $35,224 $4,443 | $18,488
Equity securities -- 3 | --
Mortgage loans on real |
estate 6,616 879 | 3,070
Policy loans 619 59 | 482
Short-term investments 1,311 129 | 443
Other, net 246 (154) | 24
Funds held in escrow -- -- | --
------- ------ | -------
Gross investment income 44,016 5,359 | 22,507
Less investment expenses (1,531) (232) | (851)
------- ------ | -------
Net investment income $42,485 $5,127 | $21,656
======= ====== | =======
<PAGE>
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
------------------ | ---------------
(Dollars in thousands)
Fixed maturities $5,083 | $4,507
Equity securities 103 | --
Mortgage loans on real |
estate 203 | --
Policy loans 78 | 73
Short-term investments 441 | 341
Other, net 2 | 22
Funds held in escrow -- | 145
------ | ------
Gross investment income 5,910 | 5,088
Less investment expenses (115) | (98)
------ | ------
Net investment income $5,795 | $4,990
====== | ======
Realized gains (losses) on investments are as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------|-----------------
(Dollars in thousands)
Fixed maturities, |
available for sale ($1,428) $25 | $151
Mortgage loans (63) (10) | --
------- --- | ----
Realized gains (losses) |
on investments ($1,491) $15 | $151
======= === ====
<PAGE>
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities, |
available for sale $42 | ($420)
Mortgage loans -- | --
--- | -----
Realized gains (losses) |
on investments $42 | ($420)
=== =====
The change in unrealized appreciation (depreciation) on securities at
fair value is as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| -----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $1,100 ($3,494) | $4,197
Held for investment -- -- | --
Equity securities (2,390) (68) | (462)
------- ------- | ------
Unrealized appreciation |
(depreciation) of |
securities ($1,290) ($3,562) | $3,735
======= ======= ======
<PAGE>
POST-ACQUISITION | PRE-ACQUISITION
----------------- | ----------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $2,497 | ($3,045)
Held for investment -- | (90)
Equity securities (4) | (2)
------ | -------
Unrealized appreciation |
(depreciation) of |
securities $2,493 | ($3,137)
====== =======
<PAGE>
At December 31, 1998 and December 31, 1997, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturities, all of which
are designated as available for sale, are as follows:
POST-MERGER
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
December 31, 1998
- ----------------------------
U.S. government and
governmental agencies
and authorities $ 13,568 $ 182 ($ 8) $ 13,742
Foreign governments 2,028 8 -- 2,036
Public utilities 67,710 546 (447) 67,809
Corporate securities 365,569 4,578 (2,658) 367,489
Other asset-backed securities 99,877 281 (1,046) 99,112
Mortgage-backed securities 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total $739,772 $6,742 ($4,529) $741,985
======== ====== ======= ========
December 31, 1997
- ----------------------------
U.S. government and
governmental agencies
and authorities $5,705 $5 ($1) $5,709
Foreign governments 2,062 -- (9) 2,053
Public utilities 26,983 55 (4) 27,034
Corporate securities 259,798 1,105 (242) 260,661
Other asset-backed securities 3,155 32 -- 3,187
Mortgage-backed securities 115,585 202 (30) 115,757
-----------------------------------------------
Total $413,288 $1,399 ($286) $414,401
===============================================
At December 31, 1998, net unrealized investment gains on fixed maturities
designated as available for sale totaled $2,213,000. Appreciation of
$1,005,000 was included in stockholder's equity at December 31, 1998 (net of
an adjustment of $203,000 to VPIF, an adjustment of $455,000 to DPAC and
deferred income taxes of $550,000). 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, 1998 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.
<PAGE>
POST-MERGER
-------------------------
Estimated
Amortized Fair
December 31, 1998 Cost Value
- ----------------- --------- ---------
(Dollars in thousands)
Due within one year $ 50,208 $ 50,361
Due after one year through five years 310,291 311,943
Due after five years through ten years 78,264 78,541
Due after ten years 10,112 10,231
-------- --------
448,875 451,076
Other asset-backed securities 99,877 99,112
Mortgage-backed securities 191,020 191,797
-------- --------
Total $739,772 $741,985
======== ========
<PAGE>
An analysis of sales, maturities and principal repayments of the Companies'
fixed maturities portfolio is as follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
For the year ended
December 31, 1998:
Scheduled principal
repayments, calls and
tenders $102,504 $ 60 ($ 3) $102,561
Sales 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total $145,708 $578 ($1,033) $145,253
======== ==== ======= ========
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
======== ==== ======= ========
POST-ACQUISITION:
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
======== ==== ======= ========
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRE-ACQUISITION:
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
======== ==== ======= ========
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio
at least quarterly in order to determine if the carrying value of any
investment 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 the year
ended December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no investments were
identified as having an other than temporary impairment.
INVESTMENTS ON DEPOSIT: At December 31, 1998 and 1997, affidavits of deposits
covering bonds with a par value of $6,470,000 and $6,605,000, respectively,
were on deposit with regulatory authorities pursuant to certain statutory
requirements.
INVESTMENT DIVERSIFICATIONS: The Companies' investment policies related to
the 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, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997), conventional
mortgage-backed securities (25% in 1998, 13% in 1997), financial companies
(19% in 1998, 24% in 1997), other asset-backed securities (11% in 1998) and
various government bonds and government or agency mortgage-backed securities
(5% in 1998, 17% in 1997). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997) and
Georgia (10% in 1998, 11% in 1997). There are no other concentrations of
mortgage loans in any state exceeding ten percent at December 31, 1998 and
1997. Mortgage loans on real estate have also been analyzed by collateral
type with significant concentrations identified in office buildings (36% in
1998, 43% in 1997), industrial buildings (32% in 1998, 33% in 1997) and
retail facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' 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, 1998.
4. COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------
As of January 1, 1998, the Companies adopted the 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 Companies' net income or stockholder's
equity. SFAS No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred income taxes)
to be included in other comprehensive income. Prior to the adoption of SFAS
No. 130, unrealized gains (losses) were reported separately in stockholder's
equity. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes $1,015,000 for
the year ended December 31, 1998 for First Golden ($159,000, $536,000 and
$(57,000), respectively, for the periods October 25, 1997 through December
31, 1997, October 1, 1997 through October 24, 1997 and December 17, 1996
through December 31, 1996). Other comprehensive income excludes net
investment gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These amounts total
$(2,133,000) in 1998. Such amounts, which have been measured through the date
of sale, are net of income taxes and adjustments to VPIF and DPAC totaling
$705,000 in 1998.
5. 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 Companies' investments, investment
contracts and debt fall within the standards' definition of a financial
instrument. Fair values for the Companies' 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 Companies' business or financial condition
based on the information presented herein.
The Companies closely monitor the composition and yield of 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 Companies' 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. These assumptions may not result in values consistent
with those obtained through an actuarial appraisal of the Companies' business
or values that might arise in a negotiated transaction.
<PAGE>
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
POST-MERGER
-----------------------------------------
December 31 1998 1997
- ----------- -------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- -----------
(Dollars in thousands)
ASSETS
Fixed maturities, available
for sale $741,985 $741,985 $414,401 $414,401
Equity securities 11,514 11,514 3,904 3,904
Mortgage loans on real estate 97,322 99,762 85,093 86,348
Policy loans 11,772 11,772 8,832 8,832
Short-term investments 41,152 41,152 14,460 14,460
Cash and cash equivalents 6,679 6,679 21,039 21,039
Separate account assets 3,396,114 3,396,114 1,646,169 1,646,169
LIABILITIES
Annuity products 869,009 827,597 493,181 469,714
Surplus notes 85,000 90,654 25,000 28,837
Line of credit with affiliate -- -- 24,059 24,059
Separate account liabilities 3,396,114 3,396,114 1,646,169 1,646,169
The following methods and assumptions were used by the Companies in
estimating fair values.
FIXED MATURITIES: Estimated fair values of conventional mortgage-backed
securities not actively traded in a liquid market and publicly traded
securities 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 Companies' investment in the portfolios underlying its separate
accounts, are based upon the quoted fair value of individual securities
comprising the individual portfolios. For equity securities not actively
traded, estimated fair values are based upon values of issues of comparable
returns 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.
<PAGE>
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
reported in the Companies' 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 reported at the quoted
fair values of the individual securities in the separate accounts.
ANNUITY PRODUCTS: Estimated fair values of the Companies' liabilities for
future policy benefits for the divisions of the variable annuity products
with fixed interest guarantees and for supplemental contracts without life
contingencies are stated at cash surrender value, the cost the Companies
would incur to extinguish the liability.
SURPLUS NOTES: Estimated fair value of the Companies' surplus notes were
based upon discounted future cash flows using a discount rate approximating
the Companies' return on invested assets.
LINE OF CREDIT WITH AFFILIATE: Carrying value reported in the Companies'
historical cost basis balance sheet approximates estimated fair value for
this instrument.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
full account value in the Companies' historical cost balance sheet. Estimated
fair values of separate account liabilities are equal to their carrying
amount.
6. MERGER
- ------------------------------------------------------------------------------
TRANSACTION: On October 23, 1997, Equitable's shareholders approved the
Merger Agreement dated 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 according 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.
In addition, Equitable owned all the outstanding capital stock of Locust
Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc.
(subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa Securities
Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange
for the outstanding capital stock of Equitable, ING paid total consideration
of approximately $2.1 billion in cash and stock and assumed approximately
$400 million in debt. As a result of this transaction, 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 with $227,497,000 allocated to the Companies. Goodwill was
established for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden American
and First Golden. The amount of goodwill allocated to the Companies 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
Companies' DPAC, previous balance of VPIF and unearned revenue reserve, as of
the merger date, were eliminated and a new asset of $44,297,000 representing
VPIF was established for all policies in force at the merger date.
VALUE OF PURCHASED INSURANCE IN FORCE: 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 Companies at the merger date. This
allocated cost represents VPIF reflecting the value of those purchased
policies calculated by discounting the actuarially determined expected future
cash flow at the discount rate determined by ING.
An analysis of the VPIF asset is as follows:
POST-MERGER
------------------ -----------------
For the period
October 25, 1997
For the year ended through
December 31, 1998 December 31, 1997
------------------ -----------------
(Dollars in thousands)
Beginning balance $43,174 $44,297
------- -------
Imputed interest 2,802 1,004
Amortization (7,753) (1,952)
Changes in assumptions of timing
of gross profits 227 --
------- -------
Net amortization (4,724) (948)
Adjustment for unrealized gains
on available for sale securities (28) (175)
Adjustment for other receivables
and merger costs (2,445) --
------- -------
Ending balance $35,977 $43,174
======= =======
Interest is imputed on the unamortized balance of VPIF at a rate of 7.38% for
the year ended December 31, 1998 and 7.03% for the period October 25, 1997
through December 31, 1997. The amortization of VPIF, net of imputed interest,
is charged to expense. VPIF decreased $2,664,000 in the second quarter of
1998 to adjust the value of other receivables at merger date and increased
$219,000 in the first quarter of 1998 as a result of an adjustment to the
merger costs. VPIF is 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
amortization relating to VPIF as of December 31, 1998 is $4,300,000 in 1999,
$4,000,000 in 2000, $3,900,000 in 2001, $3,700,000 in 2002 and $3,300,000 in
2003. Actual amortization may vary based upon changes in assumptions and
experience.
<PAGE>
7. 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"), according to the terms of the
Purchase Agreement dated 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. After 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, 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. The allocation of the purchase price to Golden American was
approximately $139,872,000. Goodwill was established for the excess of the
purchase price over the fair value of the net assets acquired and attributed
to Golden American. 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. Golden American's DPAC, previous
balance of VPIF and unearned revenue reserve, as of the acquisition date,
were eliminated and an asset of $85,796,000 representing VPIF was established
for all policies in force at the acquisition date.
VALUE OF PURCHASED INSURANCE IN FORCE: As part of the acquisition, a portion
of the acquisition cost was allocated to the right to receive future cash
flows from the insurance contracts existing with Golden American at the date
of acquisition. This allocated cost represents VPIF reflecting the value of
those purchased policies calculated by discounting the actuarially determined
expected future cash flows at the discount rate determined by Equitable.
<PAGE>
An analysis of the VPIF asset is as follows:
| PRE-
POST-ACQUISITION | ACQUISITION
-------------------- | -----------
For the For the | For the
period period | period
January August | January
1, 1997 14, 1996 | 1, 1996
through through | through
October December | August
24, 1997 31, 1996 | 13, 1996
------------------------ | -----------
(Dollars in thousands)
Beginning balance $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest 5,138 2,465 | 273
Amortization (12,656) (5,210) | (1,224)
Changes in assumption of |
timing of gross profits 2,293 -- | --
------- ------- | ------
Net amoritization (5,225) (2,745) | (951)
Adjustment for unrealized |
gains (losses) on available |
for sale securities (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= ======
Pre-Acquisition VPIF 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 VPIF at rates of 7.70% to
7.80% for the period August 14, 1996 through October 24, 1997. The
amortization of VPIF net of imputed interest was charged to expense. VPIF was
also adjusted for the unrealized gains (losses) on available for sale
securities; such changes were included directly in stockholder's equity.
8. INCOME TAXES
- ------------------------------------------------------------------------------
Golden American files a consolidated federal income tax return. Under the
nternal Revenue Code, a newly acquired insurance company cannot file as part
of its parent's consolidated tax return for 5 years.
At December 31, 1998, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $50,917,000.
Approximately $5,094,000, $3,354,000 and $42,469,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012 and 2013, respectively.
<PAGE>
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated financial
statements is as follows:
</TABLE>
<TABLE>
<CAPTION>
PRE-
POST-MERGER | POST-ACQUISITION | ACQUISITION
--------------------------| --------------------------| -------------
For the| For the For the| For the
period| period period| period
October 25,| January 1, August 14,| January 1,
For the year 1997| 1997 1996| 1996
ended through| through through| through
December 31, December 31,| October 24, December 31,| August 13,
1998 1997| 1997 1996| 1996
--------------------------| --------------------------| -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Current -- -- | $12 -- | --
Deferred $5,279 $146 | (1,349) $220 | ($1,463)
--------------------------| --------------------------| -------------
$5,279 $146 | ($1,337) $220 | ($1,463)
=====================================================================
</TABLE>
<PAGE>
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>
| | PRE-
| | ACQUISI-
POST-MERGER | POST-ACQUISITION | TION
----------------------| --------------------| ---------
For the| For the For the| For the
period| period period| period
October| January August| January
For the 25, 1997| 1, 1997 14, 1996| 1, 1996
year ended through| through through| through
December December| October December| August
31, 1998 31, 1997| 24, 1997 31, 1996| 13, 1996
----------------------| --------------------| ---------
(Dollars in thousands)
<S> <C> <C> | <C> <C> | <C>
Income (loss) | |
before income taxes $10,353 ($279)| ($608) $570 | $1,736
======================| ====================| =========
Income tax | |
(benefit) at federal | |
statutory rate $3,624 ($98)| ($213) $200 | $607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards -- -- | -- -- | (1,214)
Goodwill amortization 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense -- -- | (1,011) -- | --
Meals and | |
entertainment 157 23 | 53 20 |
Other items 176 1 | (166) -- | --
Change in valuation | |
allowance -- -- | -- -- | (856)
----------------------| --------------------| ---------
Income tax expense | |
(benefit) $5,279 $146 | ($1,337) $220 | ($1,463)
=======================================================
</TABLE>
<PAGE>
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies'
deferred income tax assets and liabilities at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------- ----------------
December 31 1998 1997
- ------------------------------------------------------------ ----------------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Net unrealized depreciation of
securities at fair value $691 --
Future policy benefits 66,273 $27,399
Deferred policy acquisition costs -- 4,558
Goodwill 16,323 17,620
Net operating loss carryforwards 17,821 3,044
Other 1,272 1,548
---------------- ----------------
102,380 54,169
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value -- (130)
Fixed maturity securities (1,034) (1,665)
Deferred policy acquisition costs (55,520) --
Mortgage loans on real estate (845) (845)
Value of purchased insurance in force (12,592) (15,172)
Other (912) (127)
---------------- ----------------
(70,903) (17,939)
---------------- ----------------
Deferred income tax asset $31,477 $36,230
================ ================
</TABLE>
The Companies are required to establish a "valuation allowance" for any
portion of the deferred tax assets management believes will not be realized.
In the opinion of management, it is more likely than not the Companies will
realize the benefit of the deferred tax assets; therefore, no such valuation
allowance has been established.
<PAGE>
9. RETIREMENT PLANS
- ------------------------------------------------------------------------------
DEFINED BENEFIT PLANS
In 1998 and 1997, the Companies were allocated their share of the pension
liability associated with their employees. The Companies' employees are
covered by the employee retirement plan of an affiliate, Equitable Life.
Further, Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The following tables
summarize the benefit obligations and the funded status for pension benefits
over the two-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $956 $192
Service cost 1,138 682
Interest cost 97 25
Actuarial loss 2,266 57
Benefit payments (3) --
------------------------
Benefit obligation at December 31 $4,454 $956
========================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Funded status:
Funded status at December 31 ($4,454) ($956)
Unrecognized net loss 2,266 --
------------------------
Net amount recognized ($2,188) ($956)
========================
</TABLE>
During 1998 and 1997, the Companies' plan assets were held by Equitable Life,
an affiliate.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation are as follows:
<TABLE>
<CAPTION>
December 31 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.75% 7.25%
Expected return on plan assets 9.50 9.00
Rate of compensation increase 4.00 5.00
</TABLE>
The following table provides the net periodic benefit cost for the fiscal
years 1998 and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-----------------------------------|----------------
For the period| For the period
For the year October 25, 1997| January 1, 1997
ended through| through
December 31, 1998 December 31, 1997|October 24, 1997
----------------- -----------------|----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost $1,138 $114 | $568
Interest cost 97 10 | 15
Amortization of net loss -- -- | 1
----------------- -----------------|----------------
Net periodic benefit cost $1,235 $124 | $584
====================================================
</TABLE>
There were no gains or losses resulting from curtailments or settlements
during 1998 or 1997.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $4,454,000, $3,142,000 and $0, respectively, as
of December 31, 1998 and $956,000, $579,000 and $0, respectively, as of
December 31, 1997.
10. RELATED PARTY TRANSACTIONS
- ------------------------------------------------------------------------------
OPERATING AGREEMENTS: DSI acts as the principal underwriter (as defined in
the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) and distributor of the variable insurance products issued by the
Companies. DSI is authorized to enter into agreements with broker/dealers to
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid commissions to
DSI totaling $117,470,000, $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).
Golden American provides certain managerial and supervisory services to DSI.
The fee paid by DSI for these services is calculated as a percentage of
average assets in the variable separate accounts. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $4,771,000, $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.
Effective January 1, 1998, the Companies have an asset management agreement
with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM
provides asset management services. Under the agreement, the Companies record
a fee based on the value of the assets under management. The fee is payable
quarterly. For the year ended December 31, 1998, the Companies incurred fees
of $1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with Equitable
Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided
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, an affiliate.
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 in 1998 or in 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 $5,833,000 for the year
ended December 31, 1998 ($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 Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $1,058,000 for the year ended
December 31, 1998 ($13,000 and $16,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
respectively).
First Golden provides resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies, totaled
$75,000 in 1998.
For the year ended December 31, 1998, the Companies 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 $122,900,000, $44,900,000, $13,600,000 and
$13,400,000, respectively. The Companies had premiums, net reinsurance, for
variable products from three affiliates, Locust Street Securities, Inc.,
Vestax Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through December 31,
1997 ($16,900,000, $1,200,000 and $400,000 for the period January 1, 1997
through October 24, 1997, respectively).
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware
corporation and affiliate, 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 $1,765,000 in 1998. At December 31, 1998, Golden American did not
have any borrowings or receivables from ING AIH under this agreement.
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, Golden American incurred interest expense of $211,000
for the year ended December 31, 1998 ($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). The outstanding balance was paid by a capital
contribution.
SURPLUS NOTES: On December 30, 1998, Golden American issued a 7.25% surplus
note in the amount of $60,000,000 to Equitable Life. The note matures on
December 29, 2028. The note and related accrued interest is subordinate to
payments due to policyholders, claimant and beneficiary claims, as well as
debts owed to all other classes of debtors, other than surplus note holders,
of Golden American. Any payment of principal and/or interest made is subject
to the prior approval of the Delaware Insurance Commissioner. Golden American
incurred no interest in 1998.
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 related accrued interest is 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 is
subject to the prior approval of the Delaware Insurance Commissioner. Golden
American incurred interest totaling $2,063,000 in 1998 ($344,000 and
$1,720,000 for the periods 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.
STOCKHOLDER'S EQUITY: On September 23, 1996, EIC Variable, Inc. contributed
$50,000,000 of Preferred Stock to the Companies' additional paid-in capital.
During 1998, Golden American received $122,500,000 of capital contributions
from its Parent.
11. 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 estimated
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, 1998, the Companies had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under variable contracts. The
Companies remain liable to the extent reinsurers do not meet their
obligations under the reinsurance agreements. Reinsurance ceded in force for
life mortality risks were $111,552,000 and $96,686,000 at December 31, 1998
and 1997, respectively. At December 31, 1998, the Companies have a net
receivable of $7,470,000 for reserve credits, reinsurance claims or other
receivables from these reinsurers comprised of $439,000 for claims
recoverable from reinsurers, $543,000 for a payable for reinsurance premiums
and $7,574,000 for a receivable from an unaffiliated reinsurer. Included in
the accompanying financial statements are net considerations to reinsurers of
$4,797,000, $326,000, $1,871,000, $875,000 and $600,000 and net policy
benefits recoveries of $2,170,000, $461,000, $1,021,000, $654,000 and
$1,267,000 for the year ended December 31, 1998 and 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.
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 $1,022,000, $265,000, $335,000, $10,000 and $56,000 for the year
ended December 31, 1998 and 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.
GUARANTY FUND ASSESSMENTS: Assessments are levied against the Companies by
life and health guaranty associations in most states in which the Companies
are 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 Companies 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
Companies have 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 Companies
accrued and charged to expense an additional $1,123,000 for the year ended
December 31, 1998, $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, 1998, the Companies have an undiscounted reserve of $2,446,000 to cover
estimated future assessments (net of related anticipated premium tax credits)
and has established an asset totaling $586,000 for assessments paid which may
be recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments,
based upon previous premiums, and known insolvencies at this time.
LITIGATION: The Companies, 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 Companies
currently believe no pending or threatened lawsuits exist that are reasonably
likely to have a material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations
in its investment portfolio (see Note 3 for further information). The
Companies' 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 cause a severe impact to the
Companies' financial condition. Two broker/dealers generated 27% of the
Companies' sales (53% by two broker/dealers during 1997).
LEASES: The Companies lease their home office space, certain other equipment
and capitalized computer software under operating leases which expire through
2018. During the year ended December 31, 1998 and 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, rent expense totaled $1,241,000, $39,000, $331,000, $147,000 and
$247,000, respectively. At December 31, 1998, minimum rental payments due
under all non-cancelable operating leases with initial terms of one year or
more are: 1999 - $1,528,000; 2000 - $1,429,000; 2001 - $1,240,000; 2002 -
$1,007,000; 2003 - $991,000 and 2004 and thereafter - $5,363,000.
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies have
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 the Boards of Directors of Golden American and First Golden on August 5,
1998 and September 29, 1998, respectively. The total amount the Companies 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 Companies for the advance. The
terms of the agreement require the Companies to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the Companies
incurred interest expense of $352,000. At December 31, 1998, the Companies
did not have any borrowings under this agreement.
<PAGE>
<PAGE>
[Shaded Section Header]
- ----------------------------------------------------------------------
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 1
Distribution of Contracts 1
Performance Information 2
IRA Withdrawal Option 5
Other Information 6
Financial Statements of Separate Account B 6
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 PROSPECTUS 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
G3770 Value 5/99
{xx}
<PAGE>
<PAGE>
<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 Interest Allocation with a
guarantee interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a full surrender is requested 3
years into the guaranteed interest period; that the then Index Rate for a
7 year guaranteed interest period ("J") is 8%; and that no prior transfers
or partial withdrawals affecting this Fixed Interest Allocation have been
made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest 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 Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a full surrender is
requested 3 years into the guaranteed interest period; that the then Index
Rate for a 7 year guaranteed interest period ("J") is 6%; and that no
prior transfers or partial withdrawals affecting this Fixed Interest
Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest 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: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE
ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate ("I") of 7%; that a partial withdrawal of
$112,695 is requested 3 years into the guaranteed interest period; that
the then Index Rate ("J") for a 7 year guaranteed interest period is 8%;
and that no prior transfers or partial withdrawals affecting this
Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed
Interest Allocation to provide the amount requested.
1. The contract value of the Fixed Interest 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
A1
<PAGE>
<PAGE>
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 withdrawal paid to you is
$112,695, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $112,695, and also reduced by the
Market Value Adjustment of $11,535, for a total reduction in the
Fixed Interest Allocation of $124,230.
EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE
ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%,
an initial Index Rate of 7%; that a partial withdrawal of $128,371
requested 3 years into the guaranteed interest period; that the then Index
Rate ("J") for a 7 year guaranteed interest period is 6%; and that no
prior transfers or withdrawals affecting this Fixed Interest
Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed
Interest Allocation to provide the amount requested.
1. The contract value of Fixed Interest 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 Interest Allocation will be reduced
by the amount of the partial withdrawal, $128,371, but increased by the
Market Value Adjustment of $4,141, for a total reduction in the
Fixed Interest Allocation of $124,230.
A2
<PAGE>
<PAGE>
APPENDIX B
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $25,000
and additional premium payments of $25,000 in each of the second and
third contract years, for total premium payments under the Contract of
$75,000. It also assumes a withdrawal at the beginning of the fifth
contract year of 30% of the contract value of $90,000.
In this example, $15,000 (maximum of $15,000 or $75,000 x .10) is the
maximum free withdrawal amount that you may withdraw during the
contract year without a surrender charge. The total withdrawal would
be $27,000 ($90,000 x .30). Therefore, $12,000 ($27,000 - $15,000) is
considered an excess withdrawal of a part of the initial premium
payment of $25,000 and would be subject to a 4% surrender charge of
$480 ($12,000 x .04). This example does not take into account any
Market Value Adjustment or deduction of any premium taxes.
B1
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled
in Delaware
G3770 VALUE PLUS 5/99
<PAGE>
<PAGE>
PART II
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the indemnification of
directors and officers of the Registrant are applicable:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS
Delaware General Corporation Law, Title 8, Section 145
provides that corporations incorporated in Delaware may
indemnify their officers, directors, employees or agents
for threatened, pending or past legal action by reason
of the fact he/she is or was a director, officer,
employee or agent. Such indemnification is provided for
under the Company's By-Laws under Article VI.
Indemnification includes all liability and loss suffered
and expenses (including attorneys' fees) reasonably
incurred by such indemnitee. Prepayment of expenses is
permitted, however, reimbursement is required if it is
ultimately determined that indemnification should not
have been given.
DIRECTORS' AND OFFICERS' INSURANCE
The directors, officers, and employees of the
registrant, in addition to the indemnifications
described above, are indemnified through the blanket
liability insurance policy of ING America Insurance Holdings,
an affiliate of the Registrant, for liabilities not covered
through the indemnification provided under the By-Laws.
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
<PAGE>
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
1 Distribution Agreement Between Golden American Life
Insurance Company and Directed Services, Inc. (1)
3 (a) Restated Certificate of Incorporation of Golden American
Life Insurance Company, as amended (1)
3 (a)(ii) Restated Certificate of Incorporation of Golden American
Life Insurance Company
3 (b) By-laws of Golden American Life Insurance Company, as
amended (1)
3 (c) Resolution of Board of Directors for Powers of Attorney
4 (a) Individual Deferred Combination Variable and
Fixed Annuity Contract
4 (b) Group Deferred Combination Variable and Fixed
Annuity Contract
4 (c) Individual Deferred Variable Annuity Contract
4 (d) Individual Retirement Annuity Rider Page (1)
4 (e) Individual Deferred Combination Variable and Fixed
Annuity Application
4 (f) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form
4 (g) Individual Deferred Variable Annuity Application
4 (h) Roth Individual Retirement Annuity Rider (1)
5 Opinion and Consent of Myles R. Tashman, Esq.
10(a) Participation Agreement between Golden American and
PIMCO Variable Insurance Trust
10(b) Administrative Services Agreement between Golden American
and Equitable Life Insurance Company of Iowa (1)
10(c) Service Agreement between Golden American and Directed
Services, Inc. (1)
10(d) Asset Management Agreement between Golden American and
ING Investment Management LLC
10(e) Reciprocal Loan Agreement between Golden American and
ING America Insurance Holdings, Inc.
10(f) Revolving Note Payable between Golden American and
SunTrust Bank
23(a) Consent of Sutherland Asbill & Brennan LLP
23(b) Consent of Independent Auditors
23(c) Consent of Myles R. Tashman, incorporated in Item 5 of this
Part II, together with the Opinion of Myles R. Tashman.
24 Powers of Attorney
27 Financial Data Schedule
___________________________________
(1) Incorporated herein by reference to amendment number 1 to a
registration statement on Form S-1 for Golden American Life
Insurance Company filed with the Securities and Exchange
Commission on or about December 18, 1998 (File Nos. 333-66757,
811-5626).
(b) FINANCIAL STATEMENT SCHEDULE.
(1) All financial statements are 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, 1998 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 $13,568 $13,742 $13,742
Foreign governments 2,028 2,036 2,036
Public utilities 67,710 67,809 67,809
Corporate securities 365,569 367,489 367,489
Other asset-backed securities 99,877 99,112 99,112
Mortgage-backed securities 191,020 191,797 191,797
___________ ___________ ___________
Total fixed maturities, available
for sale 739,772 741,985 741,985
Equity securities:
Common stocks: industrial, miscel-
laneous and all other 14,437 11,514 11,514
Mortgage loans on real estate 97,322 97,322
Policy loans 11,772 11,772
Short-term investments 41,152 41,152
___________ ___________
Total investments $904,455 $903,745
=========== ===========
<FN>
Note 1: Cost is defined as original cost for common stocks, amortized cost
for bonds and short-term investments, and unpaid principal for
policy loans and mortgage loans on real estate, adjusted for
amortization of premiums and accrual of discounts.
</TABLE>
<PAGE>
<PAGE>
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>
Year ended December 31, 1998:
Life insurance $204,979 $881,112 $3,840 -- $39,119
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
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
Column Column Column Column Column Column
A G H I J K
________________________________________________________________________________
Amorti-
Benefits zation
Claims, of
Losses Deferred
Net and Policy Other
Invest- Settle- Acqui- Opera-
ment ment sition ting Premiums
Segment Income Expenses Costs Expenses* Written
________________________________________________________________________________
POST-MERGER
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance $42,485 $96,968 $5,148 ($26,406) --
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 --
<FN>
*This includes policy acquisition costs deferred for first year
commissions and interest bonuses, extra credit bonuses and other
expenses related to the production of new business. The cost
related to first year interest bonuses and the extra credit bonus
are included in benefits claims, losses and settlement expenses.
</TABLE>
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
_______________________________________________________________________________
Percen-
Assumed tage of
Ceded to from Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
At December 31, 1998:
Life insurance in
force $181,456,000 $111,552,000 -- $69,904,000 --
============= ============== ========= ============ ========
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 --
============= ============== ========= ============ ========
</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 West Chester and Commonwealth of Pennsylvania, on the
23rd day of April, 1999.
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 April 23, 1999.
Signature Title
President and Director
- --------------------
Barnett Chernow*
Senior Vice President and
- -------------------- Chief Financial Officer
E. Robert Koster*
DIRECTORS OF DEPOSITOR
- ---------------------- -----------------------
Myles R. Tashman* Phillip R. Lowery*
- ---------------------- -----------------------
Linda B. Emory* Michael W. Cunningham*
- ----------------------
R. Brock Armstrong*
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 #
3(a)(ii) Certificate of Amendment of the Restated Articles of EX-3.AII
Incorporation of Golden American Life Insurance
Company
3(c) Resolution of Board of Directors for Powers of EX-3.C
Attorney
4(a) Individual Deferred Variable and Fixed Annuity
Contract. EX-4.A
4(b) Group Deferred Variable and Fixed Annuity Contract. EX-4.B
4(c) Individual Deferred Variable and Fixed Annuity
Contract. EX-4.C
4(e) Individual Deferred Combination Variable and Fixed
Annuity Application. EX-4.E
4(f) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form. EX-4.F
4(g) Individual Deferred Variable Annuity Application. EX-4.G
5 Opinion and Consent of Myles R. Tashman, Esq. EX-5
10(a) Participation Agreement between Golden American and EX-10.A
PIMCO Variable Insurance Trust
10(d) Asset Management Agreement between Golden American EX-10.D
and ING Investment Management LLC
10(e) Reciprocal Loan Agreement between Golden American EX-10.E
and ING America Insurance Holdings, Inc.
10(f) Revolving Note Payable between Golden American EX-10.F
and SunTrust Bank
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 (3)(a)(ii)
STATE OF DELAWARE
[GRAPHIC OF LIBERTY AND INDEPENDENCE SEAL WITH TWO MEN ON
OUTSIDE.]
DEPARTMENT OF INSURANCE
DOVER, DELAWARE
-------[GRAPHIC OF DIAMOND SYMBOL]-------
I, DONNA LEE H. WILLIAMS, INSURANCE COMMISSIONER OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THAT the attached Certificate of
Amendment of Restated Certificate of Incorporation of the
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
as filed with the Delaware Secretary of State on February 22,
1995, is a true and correct copy of the document on file with
this Department.
IN WITNESS WHEREOF, I HAVE HEREUNTO
SET MY HAND AND AFFIXED THE OFFICIAL
SEAL OF THIS DEPARTMENT AT THE CITY OF
DOVER, THIS 1ST DAY OF MARCH, 1995,
/S/ DONNA LEE H. WILLIAMS
--------------------------------------
Insurance Commissioner
--------------------------------------
Deputy Insurance Commissioner
<PAGE>
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "GOLDEN AMERICAN LIFE
INSURANCE COMPANY", FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY
OF FEBRUARY, A.D. 1995, AT 10:00 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[GRAPHIC OF SECRETARY OF STATE SEAL] /S/ EDWARD J. FREEL
--------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 7417173
2365510 8100 DATE:
<PAGE>
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 am 02/22/1995
950040023-2365510
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company, a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: that the Board of Directors of the Corporation, by
the unanimous written consent of its members filed with the
minutes of the Board, adopted a resolution declaring advisable
the following amendment to the Restated Certificate of
Incorporation of the Corporation:
RESOLVED, that Article IV of the Restated Certificate of
Incorporation of the Corporation be amended to read in full as
follows:
The total number of shares of stock which the
corporation shall have authority to issue is 300,000,
consisting of 50,000 shares of preferred stock, par
value $5,000 per share, and 250,000 shares of common
stock, par value $10.00 per share.
PART I
SERIES OF REDEEMABLE PREFERRED STOCK
Section 1. DESIGNATION AND NUMBER OF SHARES.
This series of Preferred Stock shall be designated
the "Series A Redeemable Preferred Stock" (the "Series
A Preferred Stock"). The number of authorized shares
of Series A Preferred Stock shall be ten thousand
(10,000).
Section 2. RANK.
The Series A Preferred Stock shall, as to the
distribution of assets upon the liquidation,
<PAGE>
<PAGE>
dissolution or winding up of the Corporation, rank (i)
prior to the common stock of the Corporation, par value
$10.00 per share of (the "Common Stock"), and any other
capital stock of the Corporation (other than any other
class or series of a class of capital stock of the
Corporation the terms of which expressly provide that
the shares thereof rank senior or on a parity as to the
payment of dividends and the distribution of assets
upon the liquidation, dissolution or winding up of the
Corporation with the shares of the Series A Preferred
Stock) (such securities, other than those described in
the immediately preceding parenthetical clause,
collectively referred to herein as the "Junior
Securities") and (ii) on a parity with any other class
or series of a class of capital stock of the
Corporation the terms of which expressly provide that
the shares thereof rank on a parity as to the payment
of dividends and the distribution of assets upon the
liquidation, dissolution or winding up of the
Corporation with the shares of the Series A Preferred
Stock (the "Parity Securities").
Section 3. DIVIDENDS.
(a) The holders of the Series A Preferred Stock shall
be entitled to receive, when as and if declared by the
Board of Directors of the Corporation (the "Board"),
out of funds legally available therefor, cash dividends
in an amount equal to the Applicable Dividend Rate (as
defined in Section 3(b) below) multiplied by the
Redemption Price (as defined in Section 4(a) below).
Such dividends shall be payable quarterly on the last
Business Day (as defined in Section 3(b) below) of
March, June, September, and December of each year (each
such date being referred to herein as a "Quarterly
Dividend Payment Date") commencing March 31, 1995.
Each such dividend shall be payable to holders of
record of shares of Series A Preferred Stock, as they
appear on the stock record books of the Corporation at
the close of business on the record date for such
dividend, which record date shall be fixed by the Board
and shall be not more than 60 days nor less than 10
days prior to the Quarterly Dividend Payment Date for
such dividend. Such dividends shall begin to accrue
and be cumulative from the date on which the first
shares of Series A Preferred Stock are issued, whether
or not there shall be funds legally available for the
payment thereof and whether or not the Board shall have
declared such dividends.
-2-
<PAGE>
<PAGE>
(b) For purposes of this Section 3, the term
"Applicable Dividend Rate" shall mean a percentage not
to exceed the sum of (i) 1.5% and (ii) the highest
"Prime Rate" as published under the "Money Rates"
subsection in THE WALL STREET JOURNAL on (A) December
30, 1994 for purposes of determining the Applicable
Dividend Rate for the dividend payable on March 31,
1995 or (B) the Quarterly Dividend Payment Date for the
immediately preceding quarterly period (whether or not
a dividend was actually declared and paid for such
period) for purposes of determining the Applicable
Dividend Rate for dividends payable after March 31,
1995. For purposes of this Section 3, the term
"Business Day" shall mean a day on which the New York
Stock Exchange is open for trading.
(c) When dividends are not paid in full upon the
Series A Preferred Stock, any dividends declared or
paid upon shares of Series A Preferred Stock and any
Parity Securities shall be declared or paid, as the
case may be, pro rata so that the amounts or dividends
declared or paid, as the case may be, per share on the
Series A Preferred Stock and such other Parity
Securities in all cases bear to each other the same
ratio that accumulated and unpaid dividends per share
on the shares of Series A Preferred Stock and such
other Parity Securities bear to each other. No
interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments
on the Series A Preferred Stock or any Parity
Securities which may be in arrears.
(d) Unless full cumulative dividends have been or
contemporaneously are declared by the Board and paid or
declared and a sum set apart sufficient for such
payment by the Corporation on the Series A Preferred
Stock for all quarterly periods ending on or prior
to the date of payment of dividends on any Junior
Securities, no dividends shall be declared or paid or
sum set apart for such payment or any other
distribution made on or with respect to such Junior
Securities for any period, other than dividends payable
or distributions made in shares of Junior Securities.
(e) Unless full cumulative dividends have been or
contemporaneously are declared by the Board and paid of
declared and a sum set apart sufficient for payment by
the Corporation on the Series A Preferred Stock for all
-3-
<PAGE>
<PAGE>
quarterly periods ending on or prior to the date of any
event described in clause (i) or (ii) of this Section
3(e), the Corporation shall not, and shall not permit
any subsidiary thereof to (i) redeem, purchase, retire
or otherwise acquire for any consideration any shares
of Series A Preferred Stock, unless (A) all shares of
Series A Preferred Stock outstanding shall be redeemed,
repurchased, retired or otherwise acquired or (B) the
shares of Series A Preferred Stock are redeemed,
purchased, retired or otherwise acquired pro rata from
among the holders of the shares then outstanding or
(ii) redeem, purchase, retire or otherwise acquire for
any consideration, or make any payment on account of a
sinking fund or other similar fund for redemption,
purchase retirement or acquisition of, any Junior
Securities or any Parity Securities, or any warrant,
right or option to purchase any thereof, or make any
distribution in respect thereof, directly or
indirectly, whether in cash, obligations or securities
of the Corporation or other property, except, (i) in
the case of Junior Securities, redemptions, purchases,
retirements, acquisitions or distributions made in
shares of Junior Securities or (ii) in the case of
Parity Securities, pro rata redemptions, purchase,
retirements or acquisitions so that the amounts
redeemed, purchased, retired or otherwise acquired or
paid or distributed in respect thereof, as the case may
be, per share on the Series A Preferred Stock and such
other Parity Securities in all cases bear to each other
the same ratio that accumulated and unpaid dividends
per share on the shares of Series A Preferred Stock and
such other Parity Securities bear to each other.
Section 4. REDEMPTION.
(a) To the extent the Corporation shall have funds
legally available therefor, the Corporation may redeem
at its option the Series A Preferred Stock in cash, at
the option of the Corporation, at any time or from time
to time, in whole or in part, at a redemption price in
cash of five thousand dollars ($5,000) per share (the
"Redemption Price"), together with accrued and unpaid
dividends thereon (whether or not declared) through the
date fixed by the Corporation for redemption (The
"Redemption Date"), without interest.
(b) At least 30 days but not more than 60 days
prior to the Redemption Date, a written notice of such
-4-
<PAGE>
<PAGE>
redemption (the "Redemption Notice") shall be given by
first class mail, postage prepaid, to each holder of
record of shares of Series A Preferred Stock. The
Redemption Notice shall be sent to such holder at such
holder's address as shown on the records of the
Corporation and shall state: (i) the Redemption Date;
(ii) the number of shares of Series A Preferred Stock
to be redeemed and, if less than all the shares held by
such holder are to be redeemed, the number of shares to
be redeemed from such holder; (iii) the Redemption
Price; and (iv) the place or places where such holder
is to surrender the certificate or certificates for
such holder's shares to the Corporation.
(c) On or after the Redemption Date, each holder
of shares of the Series A Preferred Stock which have
been redeemed shall present and surrender the
certificate or certificates for such holder's shares
to the Corporation at the place designated in the
Redemption Notice and thereupon the Redemption Price of
such shares shall be paid to or on the order of the
person whose name appears on such certificate or
certificates as the owner thereof and each surrendered
certificate shall be canceled. In case fewer than all
of the shares represented by any such certificate are
redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the
holder thereof.
(d) From and after the Redemption Date (unless default
shall be made by the Corporation in payment of the
Redemption Price), all rights of the holders of the
Series A Preferred Stock with respect to shares that
have been redeemed shall cease and terminate, except
the right to receive the Redemption Price thereof upon
the surrender of certificates representing the same,
and such shares shall not thereafter be transferred
(except with the consent of the Corporation) on the
books of the Corporation and such shares shall not be
deemed to be outstanding for any purpose whatsoever.
Section 5. LIQUIDATION.
(a) the share of Series A Preferred Stock shall
rank prior to the shares of Junior Securities upon
liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a
"Liquidation transaction"), so that in the event of any
-5-
<PAGE>
<PAGE>
Liquidation transaction, the holders of shares of
Series A Preferred Stock then outstanding shall be
entitled to receive out of the assets or surplus funds
of the Corporation available for distribution to its
stockholders, or proceeds thereof, whether from
capital, surplus or earnings before any distribution is
made to holders of any Junior Securities, a liquidation
preference in the amount per share of Series A
Preferred Stock equal to five thousand dollars
($5,000), plus an amount equal to all accrued and
unpaid dividends (whether or not declared) on the
shares of Series A Preferred Stock to the date of final
distribution.
(b) If, upon any Liquidation Transaction, the
assets or surplus funds of the Corporation, or proceeds
thereof whether from capital, surplus or earnings,
distributable among the holders of shares of Series A
Preferred Stock and any Parity Securities then
outstanding are insufficient to pay in full the
preferential liquidation payments due to such holders,
such assets, surplus funds or proceeds shall be
distributable among such holders pro rata in accordance
with the amounts that would be payable on such shares
of Series A Preferred Stock and Parity Securities if
all amounts payable thereon were payable in full. In
the event of a Liquidating Transaction, the Corporation
shall give written notice thereof to the holders of
shares of Series A Preferred Stock, by first class
mail, postage prepaid, to such holders' respective
addresses as shown on the stock books of the
Corporation.
(c) Neither the consolidation, merger, or other
business combination of the Corporation with or into
any other person or persons nor the sale of all or
substantially all of the assets of the Corporation
shall be deemed to be a Liquidation Transaction.
Section 6. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock
shall not be entitled to any voting rights except as
required by law.
SECOND: That in lieu of a meeting and vote of stockholders,
the sole stockholder of the Corporation has given its unanimous
written consent to said amendment in accordance with the
-6-
<PAGE>
<PAGE>
provisions of Section 228 and 242 of the General Corporation Law
of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 151, 228
and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Golden American Life Insurance
Company has caused this certificate to be signed by David L.
Jacobson, its Senior Vice President, this 22nd day of February,
1995.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: /s/ David L. Jacobson
--------------------------
David L. Jacobson
Senior Vice President
-7-
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (3)(c)
RESOLVED, the Board of Directors of Golden American Life
Insurance Company ("Golden American") hereby authorizes the use of
powers of attorney by each Golden American Director and Officer
granting to the General Counsel or any Associate General Counsel the
authority to sign as attorney-in-fact any and all of Golden
American's registration statements to be filed with the Security and
Exchange Commission and amendments thereto and any other documents
necessary or advisable in connection with Golden American's
registration statements or amendments thereto, each such power of
attorney becoming effective only upon its manual signature by the
Director and/or Officer granting said power of attorney.
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (4)(a)
________ GOLDEN
_________ AMERICAN DEFERRED COMBINATION
____________ LIFE INSURANCE VARIABLE AND FIXED
_______ COMPANY ANNUITY CONTRACT
Golden American is a stock company domiciled in Delaware.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
This is a legal Contract between its Owner and us. Please read it
carefully. In this Contract you or your refers to the Owner shown above.
We, our or us refers to Golden American Life Insurance Company. You may
allocate this Contract's Accumulation Value among the Variable Separate
Account, the General Account and the Fixed Account shown in the Schedule.
If this Contract is in force, we will make income payments to the Owner
starting on the Annuity Commencement Date as shown in the Schedule. If
the Owner dies prior to the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. The amount of such benefit is subject
to the terms of this Contract.
ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A
VARIABLE SEPARATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE, DEPENDING
ON THE CONTRACT'S INVESTMENT RESULTS. ALL PAYMENTS AND VALUES BASED ON
THE FIXED ACCOUNT MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT, THE
OPERATION OF WHICH MAY CAUSE SUCH PAYMENTS AND VALUES TO INCREASE OR
DECREASE.
RIGHT TO EXAMINE CONTRACT: YOU MAY RETURN THIS CONTRACT TO US OR THE
AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU RECEIVE IT.
IF SO RETURNED, WE WILL TREAT THE CONTRACT AS THOUGH IT WERE NEVER
ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE ACCUMULATION VALUE,
ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, PLUS ANY CHARGES WE HAVE
DEDUCTED AS OF THE DATE THE RETURNED CONTRACT IS RECEIVED BY US.
Customer Service Center Secretary: /s/ Myles R. Tashman
1475 Dunwoody Drive President: /s/ Ben Chernow
West Chester, PA 19380-1478
- -------------------------------------------------------------------------
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT - NO DIVIDENDS
Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
GA-IA-1042-01/98
<PAGE>
<PAGE>
CONTRACT CONTENTS
- -------------------------------------------------------------------------
THE SCHEDULE....................... 3 YOUR CONTRACT BENEFITS........... 14
Payment And Investment Information 3a Cash Value Benefit
The Variable Separate Accounts.... 3b Partial Withdrawal Option
The General Account............... 3c Proceeds Payable to the
Contract Facts.................... 3d Beneficiary
Charges and Fees.................. 3e
Income Plan Factors............... 3F CHOOSING AN INCOME PLAN.......... 15
IMPORTANT TERMS ................... 4 Annuity Benefits
Annuity Commencement Date Selection
INTRODUCTION TO THIS CONTRACT...... 6 Frequency Selection
The Income Plan
The Contract The Annuity Options
The Owner Payment When Named Person Dies
The Annuitant
The Beneficiary OTHER IMPORTANT INFORMATION...... 17
Change of Owner or Beneficiary Sending Notice to Us
Reports to Owner
PREMIUM PAYMENTS AND ALLOCATION Assignment - Using This Contract
ADDITIONAL PREMIUM PAYMENT OPTION As Collateral Security
CHANGES.......................... 8 Changing This Contract
Contract Changes - Applicable
Initial Premium Payment Tax Law
Your Right to Change Allocation of Misstatement of Age or Sex
Accumulation Value Non-participating
What Happens if a Variable Separate Payments We May Defer
Account Division is Not Available Authority to Make Agreements
Required Note on Our Computations
HOW WE MEASURE THE CONTRACT'S
ACCUMULATION VALUE............... 9
The Variable Separate Accounts
The General Account
Valuation Period
Accumulation Value
Accumulation Value in Each Division
and Fixed Allocation
Fixed Allocation
Measurement of Investment Experience
Charges Deducted From Accumulation
Value on Each Contract Processing
Date
Copies of any application and any additional Riders and Endorsements are at
the back of this Contract.
THE SCHEDULE
The Schedule gives specific facts about this Contract and its coverage.
Please refer to the Schedule while reading this Contract.
GA-IA-1042-01/98 2
<PAGE>
<PAGE>
THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [55] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Contract Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
INITIAL INVESTMENT
Initial Premium Payment received: [$25,000]
Your initial Accumulation Value has been invested as follows:
Percentage of
Divisions Accumulation Value
[Multiple Allocation 10%
Fully Managed 10%
Capital Appreciation 10%
Rising Dividends 10%
All-Growth 10%
Real Estate 10%
Hard Assets 5%
Total Return 5%
Limited Maturity 5%
Bond 5%
Liquid Asset 5%
Value Equity 5%
Strategic Equity 5%
Managed Global 5%]
Fixed Allocation - 1
Year
Total 100%
ADDITIONAL PREMIUM PAYMENT INFORMATION
[We will accept additional Premium Payments until either the Annuitant
or Owner reaches the Attained Age of 85. The minimum additional
payment which may be made is $1,000.00.]
[In no event may you contribute to your IRA for the taxable year in
which you attain age 70 1/2 and thereafter (except for rollover
contributions). The minimum additional payment which may be made is
[$1,000.00].]
GA-IA-1042-01/98 3A/1
<PAGE>
<PAGE>
THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [55] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Contract Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
ACCUMULATION VALUE ALLOCATION RULES
The maximum number of Divisions in which you may be invested at any
one time is [sixteen]. You are allowed unlimited allocation changes
per Contract Year without charge. We reserve the right to impose a
charge for any allocation change in excess of [twelve] per Contract
Year. The Excess Allocation Charge is shown in the Schedule.
Allocations into and out of the Guaranteed Interest Divisions are
subject to restrictions (see General Account).
ALLOCATION CHANGES BY TELEPHONE
You may request allocation changes by telephone during our telephone
request business hours. You may call our Customer Service Center at
1-800-366-0066 to make allocation changes by using the personal
identification number you will receive. You may also mail any notice
or request for allocation changes to our Customer Service Center at
the address shown on the cover page.
GA-IA-1042-01/98 3A/2
<PAGE>
<PAGE>
THE SCHEDULE
THE VARIABLE SEPARATE ACCOUNTS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND
Separate Account B (the "Account") is a unit investment trust Separate
Account, organized in and governed by the laws of the State of
Delaware, our state of domicile. The Account is divided into
Divisions. Each Division listed below invests in shares of the mutual
fund portfolio (the "Series") designated. Each portfolio is a part of
The GCG Trust managed by Directed Services, Inc.
SERIES SERIES
[Equity Income Real Estate
Fully Managed Hard Assets
Value Equity Limited Maturity Bond
Small Cap Liquid Asset
Capital Appreciation Strategic Equity
Rising Dividends Managed Global
All-Growth Research
Mid-Cap Growth Growth
Total Return Global Fixed Income
Growth & Income Growth Opportunities
Emerging Markets Developing World]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolio is a part of the Warburg Pincus Trust
managed by Warburg, Pincus Counselors, Inc.
PORTFOLIO
---------
[International Equity]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolios are a part of the PIMCO Trust
managed by Pacific Investment Management Company.
PORTFOLIO
---------
High Yield
StocksPLUS Growth and Income
GA-IA-1042-01/98 3B
<PAGE>
<PAGE>
THE SCHEDULE
THE GENERAL ACCOUNT
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
GENERAL ACCOUNT
[Guaranteed Interest Division
A Guaranteed Interest Division provides an annual minimum interest
rate of 3%. At our sole discretion, we may periodically declare
higher interest rates for specific Guarantee Periods. Such rates will
apply to periods following the date of declaration. Any declaration
will be by class and will be based on our future expectations.
Limitations of Allocations
We reserve the right to restrict allocations into and out of the
General Account. Such limits may be dollar restrictions on
allocations into the General Account or we may restrict reallocations
into the General Account.
Transfers from a Guaranteed Interest Division
We currently require that an amount allocated to a Guarantee Period
not be transferred until the Maturity Date, except pursuant to our
published rules. We reserve the right not to allow amounts previously
transferred from a Guaranteed Interest Division to the Variable
Separate Account Divisions or to a Fixed Allocation to be transferred
back to a Guaranteed Interest Division for a period of at least six
months from the date of transfer.]
GA-IA-1042-01/98 3C
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
Contract Processing Date
The Contract Processing Date for your Contract is [January 1] of each
year.
Specially Designated Divisions
When a distribution is made from an investment portfolio underlying a
Variable Separate Account Division in which reinvestment is not
available, we will allocate the amount of the distribution to the
[Liquid Asset Division] unless you specify otherwise.
PARTIAL WITHDRAWALS
The maximum amount that can be withdrawn each Contract Year without
being considered an Excess Partial Withdrawal is described below. We
will collect a Surrender Charge for Excess Partial Withdrawals and a
charge for any unrecovered Premium Tax. In no event may a Partial
Withdrawal exceed 90% of the Cash Surrender Value. After a Partial
Withdrawal, the remaining Accumulation Value must be at least $100 to
keep the Contract in force.
Maximum Partial Withdrawal not considered to be an Excess Partial
Withdrawal
The maximum amount that can be taken as a Partial Withdrawal each
Contract Year without being considered an Excess Partial Withdrawal is
the greater of the following:
(1) Earnings, less previous withdrawals not considered to be Excess
Partial Withdrawals, but not less than zero. Earnings are equal
to the Accumulation Value, less Premium Payments, plus prior
withdrawals.
(2) The Free Amount, equal to: a) 10% of Premium Payments not
previously withdrawn, which were received within seven years
prior to the date of withdrawal; less b) any withdrawals that
are made in the same Contract year, which are not considered to
be Excess Partial Withdrawals.
Withdrawals of Premium Payments are considered to be Excess Partial
Withdrawals.
Conventional Partial Withdrawals
Minimum Withdrawal Amount: [$100.00]
Any Conventional Partial Withdrawal from a Fixed Allocation is subject
to a Market Value Adjustment unless withdrawn from a Fixed Allocation
within 30 days prior to the Maturity Date.
Systematic Partial Withdrawals
Systematic Partial Withdrawals may be elected to commence after 28
days from the Contract Issue Date and may be taken on a monthly,
quarterly or annual basis. You select the day withdrawals will be
made, but no later than the 28th day of the month. If you do not
elect a day, the Contract Date will be used.
Minimum Withdrawal Amount: [$100.00]
Maximum Withdrawal Amount:
Variable Separate Account 0.833% of Premium Payments
Divisions: monthly, 2.50% of Premium Payments
quarterly or 10% of Premium Payments
annual frequency.
Fixed Allocations and Interest earned on a Fixed Allocation
or Guaranteed
Guaranteed Interest Interest Division for the prior month,
Divisions: quarter or year (depending on the
frequency selected).
GA-IA-1042-01/98 3D/1
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
Systematic Partial Withdrawals from Fixed Allocations are not subject
to a Market Value Adjustment. If the sum of Systematic Partial
Withdrawals in a Contract Year exceed the maximum withdrawal
not considered to be an Excess Partial Withdrawal, they may be subject
to a surrender charge.
[IRA Partial Withdrawals for Qualified Plans Only
IRA Partial Withdrawals may be taken on a monthly, quarterly or annual
basis. A minimum withdrawal of $100.00 is required. You select the
day the withdrawals will be made, but no later than the 28th day of
the month. If you do not elect a day, the Contract Date will be used.
Systematic Partial Withdrawals and Conventional Partial Withdrawals are
not allowed when IRA Partial Withdrawals are being taken. An IRA
Partial Withdrawal in excess of the maximum amount allowed under the
Systematic Partial Withdrawal option may be subject to a Market Value
Adjustment.]
DEATH BENEFITS
[IF DEATHBEN = "1": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Death Benefit is the greatest of (i) the Cash
Surrender Value, (ii) the Accumulation Value, (iii) the sum of the
premiums paid, less any Partial Withdrawals.]
Guaranteed Death Benefit
On the Contract Date, the Guaranteed Death Benefit is the initial
premium. On subsequent
Valuation Dates, the Guaranteed Death Benefit is calculated as
follows:
[IF DEATHBEN = "1": Option 1:
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Calculate interest on (1) for the current Valuation Period at
the Guaranteed Death Benefit Interest Rate;
(3) Add (1) and (2);
(4) Add any additional premiums paid during the current Valuation
Period to (3);
(5) Subtract Partial Withdrawals made during the current Valuation
Period from (4).
Each accumulated initial or additional Premium Payment, reduced by any
Partial Withdrawals (including any associated Market Value Adjustment
and Surrender Charge incurred) allocated to such premium, will
continue to grow at the Guaranteed Death Benefit Interest Rate. [IF
DEATHBEN = "1" AND % RATE = "7": In any event, the Guaranteed Death
Benefit will not exceed the Maximum Guaranteed Death Benefit.]
The Guaranteed Death Benefit is accumulated at a rate of [3, 4, 5 or
7%] compounded annually, except:
(1) Amounts in the Liquid Asset Division are accumulated at the net
rate of return for the Liquid Asset Division during the current
Valuation Period if less than [3, 4, 5, or 7%]; and
(2) Amounts in the Limited Maturity Bond Division are accumulated
at the net rate of return for the Limited Maturity Bond Division
during the current Valuation Period if less than [3, 4, 5, or 7%];
and
(3) Amounts in a Fixed Allocation or Guaranteed Interest Division
are accumulated at the interest rate being credited to such Fixed
Allocation or Guaranteed Interest Division during the current
Valuation Period if less than [3, 4, 5, or 7%].
GA-IA-1042-01/98 3D/2
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
[IF DEATHBEN = "1" AND % RATE = "7"
Maximum Guaranteed Death Benefit
The Maximum Guaranteed Death Benefit is initially equal to two times
the initial or additional premium paid. Thereafter, the Maximum
Guaranteed Death Benefit as of the effective date of a Partial
Withdrawal is reduced first by the amount of any Partial Withdrawal
representing earnings and second in proportion to the reduction in
Accumulation Value for any Partial Withdrawal representing premium (in
each case, including any associated Market Value Adjustment and
Surrender Charge incurred). If withdrawals do not exceed 7% of
premium paid in a Contract Year, and did not exceed 7% of premiums
paid in any Contract Year, reductions in the Maximum Guaranteed Death
Benefit will be treated as withdrawals of earnings. Once withdrawals
exceed 7% in any Contract Year, withdrawals will be treated as
proportional in relation to the amount of Accumulation Value for any
Partial Withdrawals ( including any associated Market Value Adjustment
or Surrender Charge incurred.]
[IF DEATHBEN = "2": Option 2:
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add to (1) any additional premium paid since the prior
Valuation Date and subtract from (1) any Partial Withdrawals
taken prior to the Valuation Date.
(3) On a Valuation Date that occurs on or prior to the Owner's
attained age 70, which is also a Contract Anniversary, we
set the Guaranteed Death Benefit equal to the greater of
(2) or the Accumulation Value as of such date.
On all other Valuation Dates, the Guaranteed Death Benefit is equal to (2).]
[IF DEATHBEN = "3": Option 3:
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add any additional premiums paid during the current
Valuation Periods;
(3) Subtract any Partial Withdrawals made during the current
Valuation Period from (2).]
CHANGE OF OWNER
A change of Owner will result in recalculation of the death benefit
and Guaranteed Death Benefit. As of the date of change, we will use
the Accumulation Value of the Contract, for the purpose of such
recalculation only, as the initial premium to determine a new
Guaranteed Death Benefit for this Contract. The new Owner's age at
the time of the change will be used as the basis for this
calculation. The new Owner's death will determine when a death
benefit is payable.
[IF DEATHBEN = "1": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value, and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Guaranteed Death Benefit Option after the
change of Owner will remain the same as before the change.]
GA-IA-1042-01/98 3D/3
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
CHOOSING AN INCOME PLAN
Required Date of Annuity Commencement
[Distributions from a Contract funding a qualified plan must commence
no later than [April 1st] of the calendar year following the calendar
year in which the Owner attains age 70 1/2.]
The Annuity Commencement Date is required to be the same date as the
Contract Processing Date in the month following the Annuitant's [90th]
birthday. If, on the Annuity Commencement Date, a Surrender Charge
remains, your elected Annuity Option must include a period certain of
at least five years duration. In applying the Accumulation Value,
we may first collect any Premium Taxes due us.
Minimum Annuity Income Payment
The minimum monthly annuity income payment that we will make is [$20].
Optional Benefit Riders - [None.]
ATTAINED AGE
The Issue Age of the Annuitant or Owner plus the number of full years
elapsed since the Contract Date.
FIXED ACCOUNT
Minimum Fixed Allocation
The minimum allocation to the Fixed Account in any one Fixed
Allocation is [$250.00].
Minimum Guaranteed Interest Rate - [3%.]
Guarantee Periods
We currently offer Guarantee Periods of [1,2,3,4,5,6,7,8,9 and 10]
year(s). We reserve the right to offer Guarantee Periods of durations
other than those available on the Contract Date. We also reserve the
right to cease offering a particular Guarantee Period or Periods.
We reserve the right to offer guarantee periods which require
systematic allocation to the General Account or to series of a
separate account elected by the Contractowner.
Index Rate
The Index Rate is the average of the Ask Yields for the U.S. Treasury
Strips as reported by a national quoting service for the applicable
maturity. The average is based on the period from the 22nd day of the
calendar month two months prior to the calendar month of Index Rate
determination to the 21st day of the calendar month immediately prior
to the month of determination. The applicable maturity date for these
U.S. Treasury Strips is 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.
We currently set the Index Rate once each calendar month. However, we
reserve the right to set the Index Rate more frequently than monthly,
but in no event will such Index Rate be based on a period less than 28
days.
GA-IA-1042-01/98 3D/4
<PAGE>
<PAGE>
THE SCHEDULE
CHARGES AND FEES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUMS
[None.]
DEDUCTIONS FROM ACCUMULATION VALUE
Initial Administrative Charge
[None.]
Administrative Charge
We charge [a maximum of $30 or 2% of Accumulation Value] to cover a
portion of our ongoing administrative expense for each Contract
Processing Period. The charge is incurred at the beginning of the
Contract Processing Period and deducted on the Contract Processing
Date at the end of the period.
Excess Allocation Charge
Currently none, however, we reserve the right to charge [$25] for a
change if you make more than [twelve] allocation changes per Contract
Year. Any charge will be deducted in proportion to the amount being
transferred from each Division.
Surrender Charge
A Surrender Charge is imposed as a percentage of premium if the
Contract is surrendered or an Excess Partial Withdrawal is taken.
The percentage imposed at time of surrender or Excess Partial Withdrawal
depends on the number of complete years that have elapsed since a Premium
Payment was made. The Surrender charge expressed as a percentage of each
Premium Payment is as follows:
Complete Years Surrender
Elapsed Charges
Since Premium
Payment
[0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 1%
7+ 0%]
For the purpose of calculating the Surrender Charge for an Excess
Partial Withdrawal: a) we treat premiums as being withdrawn on a
first-in, first-out basis; and b) amounts withdrawn which are not
considered an Excess Partial Withdrawal are not considered a
withdrawal of any Premium Payments.
GA-IA-1042-01/98 3E/1
<PAGE>
<PAGE>
THE SCHEDULE
CHARGES AND FEES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
[Premium Taxes
We deduct the amount of any premium or other state and local taxes
levied by any state or governmental entity when such taxes are
incurred.
We reserve the right to defer collection of Premium Taxes until
surrender or until application of Accumulation Value to an Annuity
Option. We reserve the right to change the amount we charge for
Premium Tax charges on future Premium Payments to conform with changes
in the law or if the Owner changes state of residence.]
Deductions from the Divisions
Mortality and Expense Risk Charge - We deduct up to a maximum of [IF
DEATHBEN = "1": [.002247%] IF DEATHBEN = "2": [.002615%] IF DEATHBEN =
"3": [.002063%]] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum rate of
[IF DEATHBEN = "1": [.90%] IF DEATHBEN = "2": [.95%] IF DEATHBEN = "3":
[.75%]) for mortality and expense risks. This charge is not deducted from
the Fixed Account or General Account values.
Asset Based Administrative Charge - We deduct up to a maximum of
[0.000411%] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum of
[0.15%]) to compensate us for a portion of our ongoing administrative
expenses. This charge is not deducted from the Fixed Account or
General Account values.
CHARGE DEDUCTION DIVISION
All charges against the Accumulation Value in this Contract will be
deducted from the Liquid Asset Division.
GA-IA-1042-01/98 3E/2
<PAGE>
<PAGE>
THE SCHEDULE
INCOME PLAN FACTORS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
Values for other payment periods, ages or joint life combinations are
available on request. Monthly payments are shown for each $1,000
applied.
TABLE FOR INCOME FOR A FIXED PERIOD
Fixed Fixed Fixed
Period Monthly Period Monthly Period Monthly
of Years Income of Years Income of Years Income
[5 17.95 14 7.28 23 5.00
6 15.18 15 6.89 24 4.85
7 13.20 16 6.54 25 4.72
8 11.71 17 6.24 26 4.60
9 10.56 18 5.98 27 4.49
10 9.64 19 5.74 28 4.38
11 8.88 20 5.53 29 4.28
12 8.26 21 5.33 30 4.19]
13 7.73 22 5.16
TABLE FOR INCOME FOR LIFE
Male/Female Male/Female Male/Female
Age 10 Years 20 Years Refund
Certain Certain Certain
[50 $4.06/3.83 $3.96/3.77 $3.93/3.75
55 4.43/4.14 4.25/4.05 4.25/4.03
60 4.90/4.56 4.57/4.37 4.66/4.40
65 5.51/5.10 4.90/4.73 5.12/4.83
70 6.26/5.81 5.18/5.07 5.76/5.42
75 7.11/6.70 5.38/5.33 6.58/6.19
80 7.99/7.70 5.48/5.46 7.69/7.21
85 8.72/8.59 5.52/5.51 8.72/8.59
90 9.23/9.18 5.53/5.53 10.63/10.53
]
GA-IA-1042-01/98 3F
<PAGE>
<PAGE>
IMPORTANT TERMS
- -------------------------------------------------------------------------
ACCUMULATION VALUE - The amount that a Contract provides for investment
at any time. Initially, this amount is equal to the premium paid.
ANNUITANT - The person designated by the Owner to be the measuring life
in determining Annuity Payments.
ANNUITY COMMENCEMENT DATE - For each Contract, 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 Annuitant or Owner 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.
BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for
trading, exclusive of federal holidays, or any day on which the
Securities and Exchange Commission ("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.
CONTRACT ANNIVERSARY - The anniversary of the Contract Date.
CONTRACT DATE - The date we received the initial premium and upon which
we begin determining the Contract values. It may not be the same as
the Contract Issue Date. This date is used to determine Contract
months, processing dates, years, and anniversaries.
CONTRACT ISSUE DATE - The date the Contract is issued at our Customer
Service Center.
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 Date will
be on the Contract Anniversary of each year.
CONTRACT PROCESSING PERIOD - The period between successive Contract
Processing Dates unless it is
the first Contract Processing Period. In that case, it is the period
from the Contract Date to the
first Contract Processing Date.
CONTRACT YEAR - The period between Contract Anniversaries.
CHARGE DEDUCTION DIVISION - The Division from which all charges are
deducted if so designated or elected by the Owner.
CONTINGENT ANNUITANT - The person designated by the Owner who, upon the
Annuitant's death prior to the Annuity Commencement Date, becomes the
Annuitant.
GA-IA-1042-01/98 4
<PAGE>
<PAGE>
IMPORTANT TERMS (continued)
- -------------------------------------------------------------------------
EXPERIENCE FACTOR - The factor which reflects the investment experience
of the portfolio in which a Variable Separate Account Division invests
and also reflects the charges assessed against the Division for a
Valuation Period.
FIXED ACCOUNT - This is the Separate Account established to support Fixed
Allocations.
FIXED ALLOCATION - An amount allocated to the Fixed Account that is
credited with a Guaranteed Interest Rate for a specified Guarantee
Period.
GUARANTEED DEATH BENEFIT INTEREST RATE - The annual rate at which the
Guaranteed Death Benefit is calculated.
GUARANTEE PERIOD - The period of years a rate of interest is guaranteed
to be credited to a Fixed Allocation or allocations to a Guaranteed
Interest Division.
GUARANTEED INTEREST DIVISION - An investment option available in the
General Account, an account which contains all of our assets other
than those held in our Separate Accounts.
GUARANTEED INTEREST RATE - The effective annual interest rate which we
will credit for a specified Guarantee Period.
GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can be
declared by us for Fixed Allocations or allocations to a Guaranteed
Interest Division.
INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance
of a Variable Separate Account Division.
INITIAL PREMIUM - The payment amount required to put each Contract in
effect.
ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or
before the Contract Date.
MARKET VALUE ADJUSTMENT - A positive or negative adjustment to a Fixed
Allocation. It may apply if all or part of a Fixed Allocation is
withdrawn, transferred, or applied to an Annuity Option prior to the
end of the Guarantee Period.
MATURITY DATE - The date on which a Guarantee Period matures.
OWNER - The person who owns a Contract and is entitled to exercise all
rights of the Contract. This person's death also initiates payment of
the death benefit.
RIDERS - Riders add provisions or change the terms of the Contract.
SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio underlying
a Division in which reinvestment is not available will be allocated to
this Division unless you specify otherwise.
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.
VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in
the Variable Separate Account shown in the Schedule.
GA-IA-1042-01/98 5
<PAGE>
<PAGE>
INTRODUCTION TO THIS CONTRACT
- -------------------------------------------------------------------------
THE CONTRACT
This is a legal Contract between you and us. We provide benefits as
stated in this Contract. In
return, you supply us with the Initial Premium Payment required to put
this Contract in effect.
This Contract, together with any Riders or Endorsements, constitutes
the entire Contract. Riders and Endorsements add provisions or change
the terms of the basic Contract.
THE OWNER
You are the Owner of this Contract. You are also the Annuitant unless
another Annuitant has been named by you and is shown in the Schedule.
You have the rights and options described in this Contract, including
but not limited to the right to receive the Annuity Benefits on the
Annuity Commencement Date.
One or more people may own this Contract. If there are multiple
Owners named, the age of the oldest Owner will be used to determine
the applicable death benefit. In the case of a sole Owner who dies
prior to the Annuity Commencement Date, we will pay the Beneficiary
the death benefit then due. If the sole Owner is not an individual,
we will treat the Annuitant as Owner for the purpose of determining
when the Owner dies under the death benefit provision (if there is
no Contingent Annuitant), and the Annuitant's age will determine the
applicable death benefit payable to the Beneficiary. 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, the surviving Owner(s) will be deemed as the Beneficiary(ies).
THE ANNUITANT
The Annuitant is the measuring life of the Annuity Benefits provided
under this Contract. You may name a Contingent Annuitant. The
Annuitant may not be changed during the Annuitant's lifetime.
If the Annuitant dies before the Annuity Commencement Date, the
Contingent Annuitant becomes the Annuitant. You will be the
Contingent Annuitant unless you name someone else. The Annuitant must
be a natural person. If the Annuitant dies and no Contingent
Annuitant has been named, we will allow you sixty days to designate
someone other than yourself as an Annuitant. If all Owners are not
individuals and, through the operation of this provision, an Owner
becomes Annuitant, we will pay the death proceeds to the Beneficiary.
If there are joint Owners, we will treat the youngest of the Owners as
the Contingent Annuitant designated, unless you elect otherwise.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death proceeds if any
Owner dies prior to the Annuity Commencement Date. See Proceeds
Payable to the Beneficiary for more information. We pay death
proceeds to the primary Beneficiary (unless there are joint Owners in
which case the death benefit proceeds are payable to the surviving
Owner). If the primary Beneficiary dies before the Owner, the death
proceeds are paid to the Contingent Beneficiary, if any. If there is
no surviving Beneficiary, we pay the death proceeds to the Owner's
estate.
GA-IA-1042-01/98 6
<PAGE>
<PAGE>
INTRODUCTION TO THIS CONTRACT (continued)
- -------------------------------------------------------------------------
One or more persons may be named as primary Beneficiary or contingent
Beneficiary. In the case of more than one Beneficiary, we will assume
any death proceeds are to be paid in equal shares to the surviving
Beneficiaries. You can specify other than equal shares.
You have the right to change Beneficiaries, unless you designate the
primary Beneficiary irrevocable. When an irrevocable Beneficiary has
been designated, you and the irrevocable Beneficiary may have to act
together to exercise the rights and options under this Contract.
CHANGE OF OWNER OR BENEFICIARY
During your lifetime and while this Contract is in effect you can
transfer ownership of this Contract or change the Beneficiary.
To make any of these changes, you must send us written notice of
the change in a form satisfactory to us. The change will take effect
as of the day the notice is signed. The change will not affect any
payment made or action taken by us before recording the change at our
Customer Service Center. A Change of Owner may affect the amount of
death benefit payable under this Contract. See Proceeds Payable to
Beneficiary.
GA-IA-1042-01/98 7
<PAGE>
<PAGE>
PREMIUM PAYMENTS AND ALLOCATION CHARGES
- -------------------------------------------------------------------------
INITIAL PREMIUM PAYMENT
The Initial Premium Payment is required to put this Contract in
effect. The amount of the Initial Premium Payment is shown in the
Schedule.
ADDITIONAL PREMIUM PAYMENT OPTION
You may make additional Premium Payments under this Contract after the
end of the Right to Examine period. Restrictions on additional
Premium Payments, such as the Attained Age of the Annuitant or Owner
and the timing and amount of each payment, are shown in the Schedule.
We reserve the right to defer acceptance of or to return any
additional Premium Payments.
As of the date we receive and accept your additional Premium Payment:
(1) The Accumulation Value will increase by the amount of the
Premium Payment less any premium deductions as shown in the
Schedule.
(2) The increase in the Accumulation Value will be allocated among
the Divisions of the Variable Separate Account and General Account
and allocations to the Fixed Account in accordance with your
instructions. If you do not provide such instructions, allocation
will be among the Divisions of the Variable Separate Account and
General Account and allocations to the Fixed Account in proportion
to the amount of Accumulation Value in each Division or Fixed
Allocation.
Where to Make Payments
Remit the Premium Payments to our Customer Service Center at the address
shown on the cover page. On request we will give you a receipt signed
by our treasurer.
YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE
You may change the allocation of the Accumulation Value among the
Divisions and Fixed Allocations after the end of the Right to Examine
period. The number of free allocation changes each year that we will
allow is shown in the Schedule. To make an allocation change, you
must provide us with satisfactory notice at our Customer Service
Center. The change will take effect when we receive the notice.
Restrictions for reallocation into and out of Divisions of the
Variable Separate Account and General Account and allocations to the
Fixed Account are shown in the Schedule. An allocation from the Fixed
Account may be subject to a Market Value Adjustment. See the
Schedule.
WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a
unit investment trust Separate Account Division in which reinvestment
is not available, we will allocate the distribution to the Specially
Designated Division shown in the Schedule unless you specify
otherwise.
Such a distribution may occur when an investment portfolio or Division
matures, when distribution from a portfolio or Division cannot be
reinvested in the portfolio or Division due to the unavailability of
securities, or for other reasons. When this occurs because of
maturity, we will send written notice to you thirty days in advance of
such date. To elect an allocation to other than the Specially
Designated Division shown in the Schedule, you must provide
satisfactory notice to us at least seven days prior to the date the
investment matures. Such allocations will not be counted as an
allocation change of the Accumulation Value for purposes of the number
of free allocations permitted.
GA-IA-1042-01/98 8
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HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE
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The variable Annuity Benefits under this Contract are provided through
investments which may be made in our Separate Accounts.
THE VARIABLE SEPARATE ACCOUNTS
These accounts, which are designated in the Schedule, are kept
separate from our General Account and any other Separate Accounts we
may have. They are used to support Variable Annuity Contracts and may
be used for other purposes permitted by applicable laws and
regulations. We own the assets in the Separate Accounts. Assets
equal to the reserves and other liabilities of the accounts will not
be charged with liabilities that arise from any other business we
conduct; but, we may transfer to our General Account assets which
exceed the reserves and other liabilities of the Variable Separate
Accounts. Income and realized and unrealized gains or losses from
assets in these Variable Separate Accounts are credited to or charged
against the account without regard to other income, gains or losses in
our other investment accounts.
The Variable Separate Account will invest in mutual funds, unit
investment trusts and other investment portfolios which we determine
to be suitable for this Contract's purposes. The Variable Separate
Account is treated as a unit investment trust under Federal securities
laws. It is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940. The Variable
Separate Account is also governed by state law as designated in the
Schedule. The trusts may offer non-registered series.
Variable Separate Account Divisions
A unit investment trust Separate Account includes Divisions, each
investing in a designated investment portfolio. The Divisions and the
investment portfolios designated may be managed by a separate
investment adviser. Such adviser may be registered under the
Investment Advisers Act of 1940.
Changes within the Variable Separate Accounts
We may, from time to time, make additional Variable Separate Account
Divisions available to you. These Divisions will invest in investment
portfolios we find suitable for this Contract. We also have the right
to eliminate Divisions from a Variable Separate Account, 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 or Division no longer suits
the purpose of this 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 or Division is no longer
available for investment, or for some other reason. We may get prior
approval from the insurance department of our state of domicile before
making such a substitution. We will also get any required approval
from the SEC and any other required approvals before making such a
substitution.
Subject to any required regulatory approvals, we reserve the right to
transfer assets of the Variable Separate Account which we determine to
be associated with the class of contracts to which this Contract
belongs, to another Variable Separate Account or Division.
When permitted by law, we reserve the right to:
(1) deregister a Variable Separate Account under the Investment
Company Act of 1940;
(2) operate a Variable Separate Account as a management company
under the Investment Company Act of 1940, if it is operating as
a unit investment trust;
(3) operate a Variable Separate Account as a unit investment
trust under the Investment Company Act of 1940, if it is
operating as a managed Variable Separate Account;
(4) restrict or eliminate any voting rights of Owners, or other
persons who have voting rights to a Variable Separate Account;
and,
(5) combine a Variable Separate Account with other Variable
Separate Accounts.
GA-IA-1042-01/98 9
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HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
THE GENERAL ACCOUNT
The General Account contains all assets of the Company other than
those in the Separate Accounts we establish. The Guaranteed Interest
Divisions available for investment are shown in the Schedule. We may,
from time to time, offer other Divisions where assets are held in our
General Account.
VALUATION PERIOD
Each Division and Fixed Allocation will be valued at the end of each
Valuation Period on a Valuation Date. A Valuation Period is each
Business Day together with any non-Business Days before it. A
Business Day is any day the New York Stock Exchange (NYSE) is open for
trading, and the SEC requires mutual funds, unit investment trusts, or
other investment portfolios to value their securities.
ACCUMULATION VALUE
The Accumulation Value of this Contract is the sum of the amounts in
each of the Divisions of the Variable Separate Account and General
Account and allocations to the Fixed Account. You select the
Divisions of the Variable Separate Account and General Account and
allocations to the Fixed Account to which to allocate the Accumulation
Value. The maximum number of Divisions and Fixed Allocations to which
the Accumulation Value may be allocated at any one time is shown in
the Schedule.
ACCUMULATION VALUE IN EACH DIVISION AND FIXED ALLOCATION
On the Contract Date
On the Contract Date, the Accumulation Value is allocated to each
Division and Fixed Allocation as elected by you, subject to certain
terms and conditions imposed by us. We reserve the right to allocate
premium to the Specially Designated Division during any Right to
Examine Contract period. After such time, allocation will be made
proportionately in accordance with the initial allocation(s) as
elected by you.
On each Valuation Date
At the end of each subsequent Valuation Period, the amount of
Accumulation Value in each Division and Fixed Allocation will be
calculated as follows:
(1) We take the Accumulation Value in the Division or Fixed
Allocation at the end of the preceding Valuation Period.
(2) We multiply (1) by the Variable Separate Account Division's
Net Rate of Return for the current Valuation Period or we
calculate the interest to be credited to a Fixed Allocation
or to a Guaranteed Interest Division for the current Valuation
Period.
(3) We add (1) and (2).
(4) We add to (3) any additional Premium Payments (less any
premium deductions as shown in the Schedule) allocated to the
Division or Fixed Allocation during the current Valuation
Period.
(5) We add or subtract allocations to or from that Division or
Fixed Allocation during the
current Valuation Period.
(6) We subtract from (5) any Partial Withdrawals which are
allocated to the Division or Fixed Allocation during the
current Valuation Period.
(7) We subtract from (6) the amounts allocated to that
Division or Fixed Allocation for:
(a) any charges due for the Optional Benefit Riders as
shown in the Schedule;
(b) any deductions from Accumulation Value as shown in the
Schedule.
All amounts in (7) are allocated to each Division or Fixed Allocation
in the proportion that (6) bears to the Accumulation Value unless the
Charge Deduction Division has been specified (see the Schedule).
GA-IA-1042-01/98 10
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HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
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FIXED ACCOUNT
The Fixed Account is a Separate Account under state insurance law and
is not required to be registered with the Securities and Exchange
Commission under the Investment Company Act of 1940. The Fixed
Account includes various Fixed Allocations which we credit with fixed
rates of interest for the Guarantee Period or Periods you select. We
reset the interest rates for new Fixed Allocations periodically based
on our sole discretion.
Guarantee Periods
Each Fixed Allocation is guaranteed an interest rate or rates for a
period, a Guarantee Period. The Guaranteed Interest Rates for a Fixed
Allocation are effective for the entire period. The Maturity Date of
a Guarantee Period will be on the last day of the calendar month in
which the Guarantee Period ends. Withdrawals and transfers made
during a Guarantee Period may be subject to a Market Value Adjustment
unless made within thirty days prior to the Maturity Date.
Upon the attainment of the Maturity Date of a Guarantee Period, we
will transfer the Accumulation Value of the expiring Fixed Allocation
to a Fixed Allocation with a Guarantee Period equal in length to the
expiring Guarantee Period, unless you select another period prior to a
Maturity Date. We will notify you at least thirty days prior to a
Maturity Date of your options for renewal. If the period remaining
from the Maturity Date of the previous Guarantee Period to the Annuity
Commencement Date is less than the period you have elected or the
period expiring, the next shortest period then available that will not
extend beyond the Annuity Commencement Date will be offered to you.
If a period is not available, the Accumulation Value will be
transferred to the Specially Designated Division.
We will declare Guaranteed Interest Rates for the then available Fixed
Allocation Guarantee Periods. These interest rates will be based on
our future expectations. Declared Guaranteed Interest Rates are
subject to change at any time prior to application to specific Fixed
Allocations, although in no event will the rates be less than the
Minimum Guaranteed Interest Rate (see the Schedule).
Market Value Adjustments
A Market Value Adjustment will be applied to a Fixed Allocation upon
withdrawal, transfer or application to an Income Plan if made more
than thirty days prior to such Fixed Allocation's Maturity Date,
except on Systematic Partial Withdrawals and IRA Partial Withdrawals.
The Market Value Adjustment is applied to each Fixed Allocation
separately.
The Market Value Adjustment is determined by multiplying the amount of
the Accumulation Value withdrawn, transferred or applied to an Income
Plan 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 the Index Rate for new Fixed
Allocation as of the time of calculation for a new Guarantee Period,
equal to the applicable Guarantee Period, reduced for the number of
complete years elapsed since the first day of the applicable Guarantee
Period; and N is the remaining number of days in the applicable
Guarantee Period at the time of calculation. (The Index Rate is
described in the Schedule.)
Market Value Adjustments will be applied as follows:
(1) The Market Value Adjustment will be applied to the amount
withdrawn before deduction of any applicable Surrender Charge.
(2) For a Partial Withdrawal, partial transfer or in the case
where a portion of an allocation is applied to an Income Plan,
the Market Value Adjustment will be calculated on the total
amount that must be withdrawn, transferred or applied to an
Income Plan in order to provide the amount requested.
GA-IA-1042-01/98 11
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HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
(3) If the Market Value Adjustment is negative, it will be
assessed first against any remaining Accumulation Value in the
particular Fixed Allocation. Any remaining Market Value
Adjustment will be applied against the amount withdrawn,
transferred or applied to an Income Plan.
(4) If the Market Value Adjustment is positive, it will be
credited to any remaining Accumulation Value in the particular
Fixed Allocation. If a cash surrender, full transfer or full
application to an Income Plan has been requested, the Market
Value Adjustment is added to the amount withdrawn, transferred or
applied to an Income Plan.
MEASUREMENT OF INVESTMENT EXPERIENCE
Index of Investment Experience
The Investment Experience of a Variable Separate Account Division is
determined on each Valuation Date. We use an Index to measure changes
in each Division's experience during a Valuation Period. We set the
Index at $10 when the first investments in a Division are made. The
Index for a current Valuation Period equals the Index for the
preceding Valuation Period multiplied by the Experience Factor for the
current Valuation Period.
How We Determine the Experience Factor
For Divisions of a unit investment trust Separate Account the
Experience Factor reflects the Investment Experience of the portfolio
in which the 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 daily Mortality and Expense Risk Charge for
each Division shown in the Schedule for each day in the Valuation
Period.
(5) We subtract the daily Asset Based Administrative Charge
shown in the Schedule for each day in the Valuation Period.
Calculations for Divisions investing in unit investment trusts are on
a per unit basis.
Net Rate of Return for a Variable Separate Account Division
The Net Rate of Return for a Variable Separate Account Division during
a Valuation Period is the Experience Factor for that Valuation Period
minus one.
Interest Credited to a Guaranteed Interest Division
Accumulation Value allocated to a Guaranteed Interest Division will be
credited with the Guaranteed Interest Rate for the Guarantee Period in
effect on the date the premium or reallocation is applied. Once
applied, such rate will be guaranteed until the Maturity Date of that
Guarantee Period. Interest will be credited daily at a rate to yield
the declared annual Guaranteed Interest Rate. No Guaranteed Interest
Rate will be less than the Minimum Interest Rate shown in the
Schedule.
Interest Credited to a Fixed Allocation
A Fixed Allocation will be credited with the Guaranteed Interest Rate
for the Guarantee Period in effect on the date the premium or
reallocation is applied. Once applied, such rate will be guaranteed
until that Fixed Allocation's Maturity Date. Interest will be
credited daily at a rate to yield the declared annual Guaranteed
Interest Rate.
We periodically declare Guaranteed Interest Rates for then available
Guarantee Periods. No Guaranteed Interest Rate will be less than the
Minimum Interest Rate shown in the Schedule.
GA-IA-1042-01/98 12
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HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CONTRACT PROCESSING DATE
Expense charges and fees are shown in the Schedule.
Charge Deduction Division Option
We will deduct all charges against the Accumulation Value of this
Contract from the Charge Deduction Division if you elected this option
on the application (see the Schedule). If you did not elect this
Option or if the charges are greater than the amount in the Charge
Deduction Division, the charges against the Accumulation Value will
be deducted as follows:
(1) If these charges are less than the Accumulation Value in the
Variable Separate Account Divisions, they will be deducted
proportionately from all Divisions.
(2) If these charges exceed the Accumulation Value in the
Variable Separate Account Divisions, any excess over such value
will be deducted proportionately from any Fixed Allocations and
Guaranteed Interest Divisions.
Any charges taken from the Fixed Account or the General Account will
be taken from the Fixed Allocations or Guaranteed Interest Divisions
starting with the Guarantee Period nearest its Maturity Date until
such charges have been paid.
At any time while this Contract is in effect, you may change your
election of this Option. To do this you must send us a written request
to our Customer Service Center. Any change will take effect within seven
days of the date we receive your request.
GA-IA-1042-01/98 13
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<PAGE>
YOUR CONTRACT BENEFITS
- -------------------------------------------------------------------------
While this Contract is in effect, there are important rights and
benefits that are available to you. We discuss these rights and
benefits in this section.
CASH VALUE BENEFIT
Cash Surrender Value
The Cash Surrender Value, while the Annuitant is living and before the
Annuity Commencement Date, is determined as follows:
(1) We take the Contract's Accumulation Value;
(2) We adjust for any applicable Market Value Adjustment;
(3) We deduct any Surrender Charge;
(4) We deduct any charges shown in the Schedule that have been
incurred but not yet deducted, including;
(a) any administrative fee that has not yet been deducted;
(b) the pro rata part of any charges for Optional Benefit
Riders; and
(c) any applicable premium or other tax.
Cancelling to Receive the Cash Surrender Value
At any time while the Annuitant is living and before the Annuity
Commencement Date, you may surrender this Contract to us. To do this,
you must return this Contract with a signed request for cancellation
to our Customer Service Center.
The Cash Surrender Value will vary daily. We will determine the Cash
Surrender Value as of the date we receive the Contract and your signed
request in our Customer Service Center. All benefits under this
Contract will then end.
We will usually pay the Cash Surrender Value within seven days; but,
we may delay payment as described in the Payments We May Defer
provision.
PARTIAL WITHDRAWAL OPTION
After the Contract Date, you may make Partial Withdrawals. The
minimum amount that may be withdrawn is shown in the Schedule. For
purposes of calculating any Surrender Charge, any Partial Withdrawal
you take will not be considered premium, unless it is an Excess
Partial Withdrawal. To take a Partial Withdrawal, you must provide us
satisfactory notice at our Customer Service Center.
PROCEEDS PAYABLE TO THE BENEFICIARY
Prior to the Annuity Commencement Date
If the sole Owner dies prior to the Annuity Commencement Date, we will
pay the Beneficiary the death benefit. If there are joint Owners and
any Owner dies, we will pay the surviving Owners the death benefit.
We will pay the amount on receipt of due proof of the Owner's death at
our Customer Service Center. Such amount may be received in a single
lump sum or applied to any of the Annuity Options (see Choosing an
Income Plan). When the Owner (or all Owners where there are joint
Owners) is not an individual, the death benefit will become payable on
the death of the Annuitant prior to the Annuity Commencement Date
(unless a Contingent Annuitant survived the Annuitant). Only one
death benefit is payable under this Contract. In all events,
distributions under the Contract must be made as required by
applicable law.
How to Claim Payments to Beneficiary
We must receive proof of the Owner's (or the Annuitant's) death 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.
GA-IA-1042-01/98 14
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<PAGE>
CHOOSING AN INCOME PLAN
- -------------------------------------------------------------------------
ANNUITY BENEFITS
If the Annuitant and Owner are living on the Annuity Commencement
Date, we will begin making payments to the Owner. We will make these
payments under the Annuity Option (or Options) as chosen in the
application or as subsequently selected. You may choose or change an
Annuity Option by making a written request at least 30 days prior to the
Annuity Commencement Date. Unless you have chosen otherwise, Option 2
on a 10-year period certain basis will become effective. The amounts
of the payments will be determined by applying the Accumulation Value on
the Annuity Commencement Date in accordance with the Annuity Options
section below (see Payments We Defer). Before we pay any Annuity
Benefits, we require the return of this Contract. If this Contract
has been lost, we require the applicable lost Contract form.
ANNUITY COMMENCEMENT DATE SELECTION
You select the Annuity Commencement Date. You may select any date
following the fifth Contract Anniversary but before the required date
of Annuity Commencement as shown in the Schedule. If you do not
select a date, the Annuity Commencement Date will be in the month
following the required date of Annuity Commencement.
FREQUENCY SELECTION
You may 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.
THE INCOME PLAN
While this Contract is in effect and before the Annuity Commencement
Date, you may chose one or more Annuity Options for the payment of
death benefits proceeds. If, at the time of the Owner's death, no
Option has been chosen for paying the death benefit proceeds, the
Beneficiary may choose an Option within one year. You may also elect
an Annuity Option on surrender of the Contract for its Cash Surrender
Value. For each Option we will issue a separate written agreement
putting the Option into effect.
Our approval is needed for any Option where:
(1) the person named to receive payment is other than the Owner
or Beneficiary; or
(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 shown in the Schedule.
THE ANNUITY OPTIONS
There are four Options to choose from. They are:
Option 1. Income for a Fixed Period
Payment is made in equal installments for a fixed number of years. We
guarantee each monthly payment will be at least the Income for Fixed
Period amount shown in the Schedule. Values for annual, semiannual or
quarterly payments are available on request.
GA-IA-1042-01/98 15
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<PAGE>
CHOOSING AN INCOME PLAN (continued)
- -------------------------------------------------------------------------
Option 2. Income for Life
Payment is made to the person named in equal monthly installments and
guaranteed for at least a period certain. The period certain can be
10 or 20 years. Other periods certain are 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 each payment will be at least the amount shown in the
Schedule. By age, we mean the named person's age on his or her last
birthday before the Option's effective date. Amounts for ages not
shown are available on 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
of Beneficiary of this Contract. Monthly payments are guaranteed and
are made as long as at least one of the named persons is living. The
monthly payment amounts are available upon request. Such amounts are
guaranteed and will be calculated on the same basis as the Table for
Income for Life, however, the amounts will be based on two lives.
Option 4. Annuity Plan
An amount can be applied under any other settlement option we choose
to offer for the Contract form on the Option's effective date.
The minimum rates for Option 1 are based on 3% interest, compounded
annually. The minimum rates for Options 2 and 3 are based on 3%
interest, compounded annually, and the Annuity 2000 Mortality Table.
We may pay a higher rate at our discretion.
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 for any remaining guaranteed payments in
Option 2, payments will be continued.
(2) For Option 3, no amounts are payable after both named
persons have died.
(3) For Option 4, the annuity agreement will state the amount
due, if any.
GA-IA-1042-01/98 16
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OTHER IMPORTANT INFORMATION
- -------------------------------------------------------------------------
SENDING NOTICE TO US
Whenever written notice is required, send it to our Customer Service
Center. The address of our Customer Service Center is shown on the
cover page. Please include your Contract number in all correspondence.
REPORTS TO OWNER
We will send you a report at least once during each Contract Year.
The report will show the Accumulation Value and the Cash Surrender
Value as of the end of the Contract Processing Period. The report
will also show the allocation of the 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 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 in which the Divisions of the Variable Separate Account
invest, as well as any other reports, notices or documents required by
law to be furnished to Owners.
ASSIGNMENT - USING THIS CONTRACT AS COLLATERAL SECURITY
You can assign this Contract as collateral security for a loan or
other obligation. This does not
change the ownership. Your rights and any Beneficiary's right are
subject to the terms of the assignment. To make or release an
assignment, we must receive written notice satisfactory to us, at our
Customer Service Center. We are not responsible for the validity of
any assignment.
CHANGING THIS CONTRACT
This Contract or any additional benefit riders may be changed to
another annuity plan according to our rules at the time of the change.
CONTRACT CHANGES - APPLICABLE TAX LAW
We reserve the right to make changes in this Contract or its Riders to
the extent we deem it necessary to continue to qualify this 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.
MISSTATEMENT OF AGE OR SEX
If an age or sex has been misstated, the amounts payable or benefits
provided by this Contract will be those that the Premium Payment made
would have bought at the correct age or sex.
NON-PARTICIPATING
This Contract does not participate in the divisible surplus of Golden
American Life Insurance Company.
GA-IA-1042-01/98 17
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OTHER IMPORTANT INFORMATION (continued)
- -------------------------------------------------------------------------
PAYMENTS WE MAY DEFER
We may not be able to determine the value of the assets of the
Variable Separate Account Divisions 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 of the
Variable Separate Account, we may delay;
(1) determination and payment of the Cash Surrender Value;
(2) determination and payment of any death benefit if death
occurs before the Annuity Commencement Date;
(3) allocation changes of the Accumulation Value; or,
(4) application of the Accumulation Value under an income plan.
As to the amounts allocated to a Guaranteed Interest Division of the
General Account and as to amounts allocated to Fixed Allocations of
the Fixed Account, we may, at any time, defer payment of the Cash
Surrender Value for up to six months after we receive a request for
it. We will allow interest of at least 3.00% a year on any Cash
Surrender Value payment derived from the Fixed Allocations or the
Guaranteed Interest Divisions that we defer 30 days or more.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by one of our officers. No
other person, including an insurance agent or broker, can:
(1) change any of this Contract's terms;
(2) extend the time for Premium Payments; or
(3) make any agreement binding on us.
REQUIRED NOTE ON OUR COMPUTATIONS
We have filed a detailed statement of our computations with the
insurance supervisory official in the jurisdiction where this Contract
is delivered. The values are not less than those required by the law
of that state or jurisdiction. Any benefit provided by an attached
Optional Benefit Rider will not increase these values unless otherwise
stated in that Rider.
GA-IA-1042-01/98 18
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<PAGE>
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT - NO DIVIDENDS
- -------------------------------------------------------------------------
Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (4)(b)
________ GOLDEN
_________ AMERICAN DEFERRED COMBINATION
____________ LIFE INSURANCE VARIABLE AND FIXED
_______ COMPANY ANNUITY CERTIFICATE
Golden American is a stock company domiciled in Delaware.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Contractholder Group Contract Number |
| GOLDEN INVESTORS TRUST G000012-OE |
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
In this Certificate you or your refers to the Owner shown above. We,
our or us refers to Golden American Life Insurance Company. You may
allocate this Certificate's Accumulation Value among the Variable
Separate Account, the General Account and the Fixed Account shown in
the Schedule.
This Certificate describes the benefits and provisions of the group
contract. The group contract, as issued to the Contractholder by us
with any Riders or Endorsements, alone makes up the agreement under
which benefits are paid. The group contract may be inspected at the
office of the Contractholder. In consideration of any application for
this Certificate and the payment of premiums, we agree, subject to the
terms and conditions of the group contract, to provide the benefits
described in this Certificate to the Owner. The Annuitant under this
Certificate must be eligible under the terms of the group contract. If
the group contract and this Certificate are in force, we will make
income payments to the Owner starting on the Annuity Commencement Date
as shown in the Schedule. If the Owner dies prior to the Annuity
Commencement Date, we will pay a death benefit to the Beneficiary. The
amount of such benefit is subject to the terms of this Certificate.
The benefits of the Certificate will be paid according to the provisions
of the Certificate and group contract.
RIGHT TO EXAMINE CERTIFICATE: YOU MAY RETURN THIS CERTIFICATE TO US OR
THE AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU
RECEIVE IT. IF SO RETURNED, WE WILL TREAT THE CERTIFICATE AS THOUGH IT
WERE NEVER ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE
ACCUMULATION VALUE, ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, PLUS ANY
CHARGES WE HAVE DEDUCTED AS OF THE DATE THE RETURNED CERTIFICATE IS
RECEIVED BY US.
ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A
VARIABLE SEPARATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE, DEPENDING
ON THE CERTIFICATE'S INVESTMENT RESULTS. ALL PAYMENTS AND VALUES BASED
ON THE FIXED ACCOUNT MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT, THE
OPERATION OF WHICH MAY CAUSE SUCH PAYMENTS AND VALUES TO INCREASE OR
DECREASE.
Customer Service Center Secretary: /s/ Myles R. Tashman
1475 Dunwoody Drive President: /s/ Ben Chernow
West Chester, PA 19380-1478
- -------------------------------------------------------------------------
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CERTIFICATE - NO DIVIDENDS
Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
GA-CA-1042-01/98
<PAGE>
<PAGE>
CERTIFICATE CONTENTS
- -------------------------------------------------------------------------
THE SCHEDULE....................... 3 YOUR CERTIFICATE BENEFITS........ 14
Payment And Investment Information 3A Cash Value Benefit
The Variable Separate Accounts.... 3B Partial Withdrawal Option
The General Account............... 3C Proceeds Payable to the
Certificate Facts................. 3D Beneficiary
Charges and Fees.................. 3E
Income Plan Factors............... 3F CHOOSING AN INCOME PLAN.......... 15
IMPORTANT TERMS ................... 4 Annuity Benefits
Annuity Commencement Date Selection
INTRODUCTION TO THIS CERTIFICATE... 6 Frequency Selection
The Income Plan
The Certificate The Annuity Options
The Owner Payment When Named Person Dies
The Annuitant
The Beneficiary OTHER IMPORTANT INFORMATION...... 17
Change of Owner or Beneficiary Sending Notice to Us
Reports to Owner
PREMIUM PAYMENTS AND ALLOCATION Assignment - Using This
CHANGES.......................... 8 Certificate As Collateral
Security
Initial Premium Payment Changing This Certificate
Additional Premium Payment Option Certificate Changes -
Your Right to Change Allocation of Applicable Tax Law
Accumulation Value Misstatement of Age or Sex
What Happens if a Variable Separate Non-participating
Account Division is Not Available Payments We May Defer
Authority to Make Agreements
Required Note on Our Computations
HOW WE MEASURE THE CERTIFICATE'S
ACCUMULATION VALUE............... 9
The Variable Separate Accounts
The General Account
Valuation Period
Accumulation Value
Accumulation Value in Each Division
and Fixed Allocation
Fixed Account
Measurement of Investment Experience
Charges Deducted From Accumulation
Value on Each Certificate
Processing Date
Copies of any application and any additional Riders and Endorsements
are at the back of this Certificate.
THE SCHEDULE
The Schedule gives specific facts about this Certificate and its
coverage. Please refer to the Schedule while reading this
Certificate.
GA-CA-1042-01/98 2
<PAGE>
<PAGE>
THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION
- -------------------------------------------------------------------------
| Contractholder Group Contract Number |
| GOLDEN INVESTORS TRUST G000012-OE |
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [55] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Certificate Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
INITIAL INVESTMENT
Initial Premium Payment received: [$25,000]
Your initial Accumulation Value has been invested as follows:
Percentage of
Divisions Accumulation Value
--------------------- ------------------------
[Multiple Allocation 10%
Fully Managed 10%
Capital Appreciation 10%
Rising Dividends 10%
All-Growth 10%
Real Estate 10%
Hard Assets 5%
Total Return 5%
Limited Maturity Bond 5%
Liquid Asset 5%
Value Equity 5%
Strategic Equity 5%
Managed Global 5%
Fixed Allocation - 1 Year 5%]
--------------------- ------------------------
Total 100%
===== ====
ADDITIONAL PREMIUM PAYMENT INFORMATION
[We will accept additional Premium Payments until either the Annuitant
or Owner reaches the Attained Age of 85. The minimum additional
payment which may be made is $1,000.00.]
[In no event may you contribute to your IRA for the taxable year in
which you attain age 70 1/2 and thereafter (except for rollover
contributions). The minimum additional payment which may be made is
[$1,000.00].]
GA-CA-1042-01/98 3A/1
<PAGE>
<PAGE>
THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [55] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| $[25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Certificate Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
ACCUMULATION VALUE ALLOCATION RULES
The maximum number of Divisions in which you may be invested at any
one time is [sixteen]. You are allowed unlimited allocation changes
per Certificate Year without charge. We reserve the right to impose a
charge for any allocation change in excess of [twelve] per Certificate
Year. The Excess Allocation Charge is shown in the Schedule.
Allocations into and out of the Guaranteed Interest Divisions are
subject to restrictions (see General Account).
ALLOCATION CHANGES BY TELEPHONE
You may request allocation changes by telephone during our telephone
request business hours. You may call our Customer Service Center at
1-800-366-0066 to make allocation changes by using the personal
identification number you will receive. You may also mail any notice
or request for allocation changes to our Customer Service Center at
the address shown on the cover page.
GA-CA-1042-01/98 3A/2
<PAGE>
<PAGE>
THE SCHEDULE
THE VARIABLE SEPARATE ACCOUNTS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND
Separate Account B (the "Account") is a unit investment trust Separate
Account, organized in and governed by the laws of the State of
Delaware, our state of domicile. The Account is divided into
Divisions. Each Division listed below invests in shares of the mutual
fund portfolio (the "Series") designated. Each portfolio is a part of
The GCG Trust managed by Directed Services, Inc.
SERIES SERIES
[Equity Income Real Estate
Fully Managed Hard Assets
Value Equity Limited Maturity Bond
Small Cap Liquid Asset
Capital Appreciation Strategic Equity
Rising Dividends Managed Global
All-Growth Research
Mid-Cap Growth Growth
Total Return Global Fixed Income
Growth & Income Growth Opportunities
Emerging Markets Developing World]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolio is a part of the Warburg Pincus Trust
managed by Warburg, Pincus Counselors, Inc.
PORTFOLIO
---------
[International Equity]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolios are a part of the PIMCO Trust
managed by Pacific Investment Management Company.
PORTFOLIO
---------
High Yield
StocksPLUS Growth and Income
GA-CA-1042-01/98 3B
<PAGE>
<PAGE>
THE SCHEDULE
THE GENERAL ACCOUNT
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
GENERAL ACCOUNT
[Guaranteed Interest Division
A Guaranteed Interest Division provides an annual minimum interest
rate of 3%. At our sole discretion, we may periodically declare
higher interest rates for specific Guarantee Periods. Such rates will
apply to periods following the date of declaration. Any declaration
will be by class and will be based on our future expectations.
Limitations of Allocations
We reserve the right to restrict allocations into and out of the
General Account. Such limits may be dollar restrictions on
allocations into the General Account or we may restrict reallocations
into the General Account.
Transfers from a Guaranteed Interest Division
We currently require that an amount allocated to a Guarantee Period
not be transferred until the Maturity Date, except pursuant to our
published rules. We reserve the right not to allow amounts previously
transferred from a Guaranteed Interest Division to the Variable
Separate Account Divisions or to a Fixed Allocation to be transferred
back to a Guaranteed Interest Division for a period of at least six
months from the date of transfer.]
GA-CA-1042-01/98 3C
<PAGE>
<PAGE>
THE SCHEDULE
CERTIFICATE FACTS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
CERTIFICATE FACTS
Certificate Processing Date
The Certificate Processing Date for your Certificate is [January 1] of
each year.
Specially Designated Divisions
When a distribution is made from an investment portfolio underlying a
Variable Separate Account Division in which reinvestment is not
available, we will allocate the amount of the distribution to the
[Liquid Asset Division] unless you specify otherwise.
PARTIAL WITHDRAWALS
The maximum amount that can be withdrawn each Certificate Year without
being considered an Excess Partial Withdrawal is described below. We
will collect a Surrender Charge for Excess Partial Withdrawals and a
charge for any unrecovered Premium Tax. In no event may a Partial
Withdrawal exceed 90% of the Cash Surrender Value. After a Partial
Withdrawal, the remaining Accumulation Value must be at least $100 to
keep the Certificate in force.
Maximum Partial Withdrawal not considered to be an Excess Partial
Withdrawal
The maximum amount that can be taken as a Partial Withdrawal each
Certificate Year without being considered an Excess Partial Withdrawal
is the greater of the following:
(1) Earnings, less previous withdrawals not considered to be Excess
Partial Withdrawals, but not less than zero. Earnings are equal
to the Accumulation Value, less Premium Payments, plus prior
withdrawals.
(2) The Free Amount, equal to: a) 10% of Premium Payments not
previously withdrawn, which were received within seven years
prior to the date of withdrawal; less b) any withdrawals that
are made in the same Certificate year, which are not considered
to be Excess Partial Withdrawals.
Withdrawals of Premium Payments are considered to be Excess Partial
Withdrawals.
Conventional Partial Withdrawals
Minimum Withdrawal Amount: [$100.00]
Any Conventional Partial Withdrawal from a Fixed Allocation is subject
to a Market Value Adjustment unless withdrawn from a Fixed Allocation
within 30 days prior to the Maturity Date.
Systematic Partial Withdrawals
Systematic Partial Withdrawals may be elected to commence after 28
days from the Certificate Issue Date and may be taken on a monthly,
quarterly or annual basis. You select the day withdrawals will be
made, but no later than the 28th day of the month. If you do not
elect a day, the Certificate Date will be used.
Minimum Withdrawal Amount: [$100.00]
Maximum Withdrawal Amount:
Variable Separate Account 0.833% of Premium Payments
Divisions: monthly, 2.50% of Premium Payments
quarterly or 10% Premium Payments
annual frequency.
Fixed Allocations and Interest earned on a Fixed Allocation
or Guaranteed
Guaranteed Interest Interest Division for the prior
Divisions: month, quarter or year (depending on
the frequency selected).
GA-CA-1042-01/98 3D/1
<PAGE>
<PAGE>
THE SCHEDULE
CERTIFICATE FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
Systematic Partial Withdrawals from Fixed Allocations are not subject
to a Market Value Adjustment. If the sum of Systematic Partial
Withdrawals in a Certificate Year exceed the maximum withdrawal
not considered to be an Excess Partial Withdrawal, they may be subject
to a surrender charge.
[IRA Partial Withdrawals for Qualified Plans Only
IRA Partial Withdrawals may be taken on a monthly, quarterly or annual
basis. A minimum withdrawal of $100.00 is required. You select the
day the withdrawals will be made, but no later than the 28th day of
the month. If you do not elect a day, the Certificate Date will be
used. Systematic Partial Withdrawals and Conventional Partial
Withdrawals are not allowed when IRA Partial Withdrawals are being
taken. An IRA Partial Withdrawal in excess of the maximum amount
allowed under the Systematic Partial Withdrawal option may be
subject to a Market Value Adjustment.]
DEATH BENEFITS
[IF DEATHBEN = "1": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Death Benefit is the greatest of (i) the Cash
Surrender Value, (ii) the Accumulation Value, (iii) the sum of the
premiums paid, less any Partial Withdrawals.]
Guaranteed Death Benefit
On the Certificate Date, the Guaranteed Death Benefit is the initial
premium. On subsequent Valuation Dates, the Guaranteed Death Benefit
is calculated as follows:
[IF DEATHBEN = "1": Option 1:
--------
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Calculate interest on (1) for the current Valuation Period at
the Guaranteed Death Benefit Interest Rate;
(3) Add (1) and (2);
(4) Add any additional premiums paid during the current Valuation
Period to (3);
(5) Subtract Partial Withdrawals made during the current Valuation
Period from (4).
Each accumulated initial or additional Premium Payment, reduced by any
Partial Withdrawals (including any associated Market Value Adjustment
and Surrender Charge incurred) allocated to such premium, will
continue to grow at the Guaranteed Death Benefit Interest Rate. [IF
DEATHBEN = "1" AND % RATE = "7": In any event, the Guaranteed Death
Benefit will not exceed the Maximum Guaranteed Death Benefit.]
The Guaranteed Death Benefit is accumulated at a rate of [3, 4, 5 or
7%] compounded annually, except:
(1) Amounts in the Liquid Asset Division are accumulated at the net
rate of return for the Liquid Asset Division during the current
Valuation Period if less than [3, 4, 5, or 7%]; and
(2) Amounts in the Limited Maturity Bond Division are accumulated
at the net rate of return for the Limited Maturity Bond Division
during the current Valuation Period if less than [3, 4, 5 or 7%];
and
(3) Amounts in a Fixed Allocation or Guaranteed Interest Division
are accumulated at the interest rate being credited to such Fixed
Allocation or Guaranteed Interest Division during the current
Valuation Period if less than [3, 4, 5 or 7%].
GA-CA-1042-01/98 3D/2
<PAGE>
<PAGE>
THE SCHEDULE
CERTIFICATE FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
[IF DEATHBEN = "1" AND % RATE = "7"
Maximum Guaranteed Death Benefit
The Maximum Guaranteed Death Benefit is initially equal to two times
the initial or additional premium paid. Thereafter, the Maximum
Guaranteed Death Benefit as of the effective date of a Partial
Withdrawal is reduced first by the amount of any Partial Withdrawal
representing earnings and second in proportion to the reduction in
Accumulation Value for any Partial Withdrawal representing premium (in
each case, including any associated Market Value Adjustment and
Surrender Charge incurred). If withdrawals do not exceed 7% of
premium paid in a Certificate Year, and did not exceed 7% of premiums
paid in any Certificate Year, reductions in the Maximum Guaranteed
Death Benefit will be treated as withdrawals of earnings. Once
withdrawals exceed 7% in any Certificate Year, withdrawals will be
treated as proportional in relation to the amount of Accumulation
Value for any Partial Withdrawals ( including any associated Market
Value Adjustment or Surrender Charge incurred.]
[IF DEATHBEN = "2": Option 2:
--------
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add to (1) any additional premium paid since the prior
Valuation Date and subtract from (1) any Partial Withdrawals
taken prior to the Valuation Date;
(3) On a Valuation Date that occurs on or prior to the Owner's
attained age 70, which is also a Certificate Anniversary,
we set the Guaranteed Death Benefit equal to the greater of
(2) or the Accumulation Value as of such date.
On all other Valuation Dates, the Guaranteed Death Benefit is equal
to(2).]
[IF DEATHBEN = "3": Option 3:
--------
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add any additional premiums paid during the current
Valuation Period;
(3) Subtract any Partial Withdrawals made during the current
Valuation Period from (2).]
CHANGE OF OWNER
A change of Owner will result in recalculation of the death benefit
and Guaranteed Death Benefit. As of the date of change, we will use
the Accumulation Value of the Certificate, for the purpose of such
recalculation only, as the initial premium to determine a new
Guaranteed Death Benefit for this Certificate. The new Owner's age at
the time of the change will be used as the basis for this
calculation. The new Owner's death will determine when a death
benefit is payable.
[IF DEATHBEN = "1": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Guaranteed Death Benefit Option after the
change of Owner will remain the same as before the change.]
GA-CA-1042-01/98 3D/3
<PAGE>
<PAGE>
THE SCHEDULE
CERTIFICATE FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
CHOOSING AN INCOME PLAN
Required Date of Annuity Commencement
[Distributions from a Certificate funding a qualified plan must
commence no later than [April 1st] of the calendar year following the
calendar year in which the Owner attains age 70 1/2.]
The Annuity Commencement Date is required to be the same date as the
Certificate Processing Date in the month following the Annuitant's
[90th] birthday. If, on the Annuity Commencement Date, a Surrender
Charge remains, your elected Annuity Option must include a period
certain of at least five years duration. In applying the
Accumulation Value, we may first collect any Premium Taxes due us.
Minimum Annuity Income Payment
The minimum monthly annuity income payment that we will make is [$20].
Optional Benefit Riders - [None.]
ATTAINED AGE
The Issue Age of the Annuitant or Owner plus the number of full years
elapsed since the Certificate Date.
FIXED ACCOUNT
Minimum Fixed Allocation
The minimum allocation to the Fixed Account in any one Fixed
Allocation is [$250.00].
Minimum Guaranteed Interest Rate - [3%.]
Guarantee Periods
We currently offer Guarantee Periods of [1,2,3,4,5,6,7,8,9 and 10]
year(s). We reserve the right to offer Guarantee Periods of durations
other than those available on the Certificate Date. We also reserve
the right to cease offering a particular Guarantee Period or Periods.
We reserve the right to offer guarantee periods which require
systematic allocation to the General Account or to series of a
separate account elected by the Certificateowner.
Index Rate
The Index Rate is the average of the Ask Yields for the U.S. Treasury
Strips as reported by a national quoting service for the applicable
maturity. The average is based on the period from the 22nd day of the
calendar month two months prior to the calendar month of Index Rate
determination to the 21st day of the calendar month immediately prior
to the month of determination. The applicable maturity date for these
U.S. Treasury Strips is 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.
We currently set the Index Rate once each calendar month. However, we
reserve the right to set the Index Rate more frequently than monthly,
but in no event will such Index Rate be based on a period less than 28
days.
GA-CA-1042-01/98 3D/4
<PAGE>
<PAGE>
THE SCHEDULE
CHARGES AND FEES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUMS
[None.]
DEDUCTIONS FROM ACCUMULATION VALUE
Initial Administrative Charge
[None.]
Administrative Charge
We charge [a maximum of $30 or 2% of Accumulation Value] to cover a
portion of our ongoing administrative expense for each Certificate
Processing Period. The charge is incurred at the beginning of the
Certificate Processing Period and deducted on the Certificate
Processing Date at the end of the period.
Excess Allocation Charge
Currently none, however, we reserve the right to charge [$25] for a
change if you make more than [twelve] allocation changes per
Certificate Year. Any charge will be deducted in proportion to the
amount being transferred from each Division.
Surrender Charge
A Surrender Charge is imposed as a percentage of premium if the
Certificate is surrendered or an Excess Partial Withdrawal is taken.
The percentage imposed at time of surrender or Excess Partial
Withdrawal depends on the number of complete years that have elapsed
since a Premium Payment was made. The Surrender charge expressed as a
percentage of each Premium Payment is as follows:
Complete Years Elapsed Surrender
Since Premium Payment Charges
---------------------- ---------
[0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 1%
7+ 0%]
For the purpose of calculating the Surrender Charge for an Excess
Partial Withdrawal: a) we treat premiums as being withdrawn on a
first-in, first-out basis; and b) amounts withdrawn which are not
considered an Excess Partial Withdrawal are not considered a
withdrawal of any Premium Payments.
GA-CA-1042-01/98 3E/1
<PAGE>
<PAGE>
THE SCHEDULE
CHARGES AND FEES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
[Premium Taxes
We deduct the amount of any premium or other state and local taxes
levied by any state or governmental entity when such taxes are
incurred.
We reserve the right to defer collection of Premium Taxes until
surrender or until application of Accumulation Value to an Annuity
Option. We reserve the right to change the amount we charge for
Premium Tax charges on future Premium Payments to conform with changes
in the law or if the Owner changes state of residence. ]
Deductions from the Divisions
Mortality and Expense Risk Charge - We deduct up to a maximum of [IF
DEATHBEN = "1": [.002247%] IF DEATHBEN = "2": [.002615%] IF DEATHBEN =
"3": [.002063%]] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum rate of
[IF DEATHBEN = "1": [.90%] IF DEATHBEN = "2": [.95%] IF DEATHBEN = "3":
[.75%]) for mortality and expense risks. This charge is not deducted from
the Fixed Account or General Account values.
Asset Based Administrative Charge - We deduct up to a maximum of
[0.000411%] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum of
[0.15%]) to compensate us for a portion of our ongoing administrative
expenses. This charge is not deducted from the Fixed Account or
General Account values.
CHARGE DEDUCTION DIVISION
All charges against the Accumulation Value in this Certificate will be
deducted from the [Liquid Asset Division].
GA-CA-1042-01/98 3E/2
<PAGE>
<PAGE>
THE SCHEDULE
INCOME PLAN FACTORS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Certificate Number |
| [SEPARATE ACCOUNT B AND THE FIXED [123456] |
| ACCOUNT] |
- -------------------------------------------------------------------------
Values for other payment periods, ages or joint life combinations are
available on request. Monthly payments are shown for each $1,000
applied.
TABLE FOR INCOME FOR A FIXED PERIOD
Fixed Fixed Fixed
Period Monthly Period Monthly Period Monthly
of Years Income of Years Income of Years Income
- -------- ------- -------- ------- -------- -------
[5 17.95 14 7.28 23 5.00
6 15.18 15 6.89 24 4.85
7 13.20 16 6.54 25 4.72
8 11.71 17 6.24 26 4.60
9 10.56 18 5.98 27 4.49
10 9.64 19 5.74 28 4.38
11 8.88 20 5.53 29 4.28
12 8.26 21 5.33 30 4.19]
13 7.73 22 5.16
TABLE FOR INCOME FOR LIFE
Male/Female Male/Female Male/Female
10 Years 20 Years Refund
Age Certain Certain Certain
--- ----------- ----------- -----------
[50 $4.06/3.83 $3.96/3.77 $3.93/3.75
55 4.43/4.14 4.25/4.05 4.25/4.03
60 4.90/4.56 4.57/4.37 4.66/4.40
65 5.51/5.10 4.90/4.73 5.12/4.83
70 6.26/5.81 5.18/5.07 5.76/5.42
75 7.11/6.70 5.38/5.33 6.58/6.19
80 7.99/7.70 5.48/5.46 7.69/7.21
85 8.72/8.59 5.52/5.51 8.72/8.59
90 9.23/9.18 5.53/5.53 10.63/10.53
]
GA-CA-1042-01/98 3F
<PAGE>
<PAGE>
IMPORTANT TERMS
- -------------------------------------------------------------------------
ACCUMULATION VALUE - The amount that a Certificate provides for
investment at any time. Initially, this amount is equal to the
premium paid.
ANNUITANT - The person designated by the Owner to be the measuring life
in determining Annuity Payments.
ANNUITY COMMENCEMENT DATE - For each Certificate, 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 Annuitant or Owner plus the number
of full years elapsed since the Certificate Date.
BENEFICIARY - The person designated to receive benefits in the case of
the death of the Owner.
BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for
trading, exclusive of federal holidays, or any day on which the
Securities and Exchange Commission ("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 Certificate.
CERTIFICATE ANNIVERSARY - The anniversary of the Certificate Date.
CERTIFICATE DATE - The date we received the initial premium and upon
which we begin determining the Certificate values. It may not be the
same as the Certificate Issue Date. This date is used to determine
Certificate months, processing dates, years, and anniversaries.
CERTIFICATE ISSUE DATE - The date the Certificate is issued at our
Customer Service Center.
CERTIFICATE PROCESSING DATES - The days when we deduct certain charges
from the Accumulation Value. If the Certificate Processing Date is
not a Valuation Date, it will be on the next succeeding Valuation
date. The Certificate Processing Date will be on the Certificate
Anniversary of each year.
CERTIFICATE PROCESSING PERIOD - The period between successive
Certificate Processing Dates unless it is the first Certificate
Processing Period. In that case, it is the period from the
Certificate Date to the first Certificate Processing Date.
CERTIFICATE YEAR - The period between Certificate Anniversaries.
CHARGE DEDUCTION DIVISION - The Division from which all charges are
deducted if so designated or elected by the Owner.
CONTINGENT ANNUITANT - The person designated by the Owner who, upon the
Annuitant's death prior to the Annuity Commencement Date, becomes the
Annuitant.
CONTRACT ISSUE DATE - The date the group contract is issued at our
Customer Service Center.
CONTRACTHOLDER - The entity to whom the certificates group contract is
issued.
GA-CA-1042-01/98 4
<PAGE>
<PAGE>
IMPORTANT TERMS (continued)
- -------------------------------------------------------------------------
EXPERIENCE FACTOR - The factor which reflects the investment experience
of the portfolio in which a Variable Separate Account Division invests
and also reflects the charges assessed against the Division for a
Valuation Period.
FIXED ACCOUNT - This is the Separate Account established to support
Fixed Allocations.
FIXED ALLOCATION - An amount allocated to the Fixed Account that is
credited with a Guaranteed Interest Rate for a specified Guarantee
Period.
GUARANTEED DEATH BENEFIT INTEREST RATE - The annual rate at which the
Guaranteed Death Benefit is calculated.
GUARANTEE PERIOD - The period of years a rate of interest is guaranteed
to be credited to a Fixed Allocation or allocations to a Guaranteed
Interest Division.
GUARANTEED INTEREST DIVISION - An investment option available in the
General Account, an account which contains all of our assets other
than those held in our Separate Accounts.
GUARANTEED INTEREST RATE - The effective annual interest rate which we
will credit for a specified Guarantee Period.
GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can
be declared by us for Fixed Allocations or allocations to a Guaranteed
Interest Division.
INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance
of a Variable Separate Account Division.
INITIAL PREMIUM - The payment amount required to put each Certificate in
effect.
ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or
before the Certificate Date.
MARKET VALUE ADJUSTMENT - A positive or negative adjustment to a Fixed
Allocation. It may apply if all or part of a Fixed Allocation is
withdrawn, transferred, or applied to an Annuity Option prior to the
end of the Guarantee Period.
MATURITY DATE - The date on which a Guarantee Period matures.
OWNER - The person who owns a Certificate and is entitled to exercise
all rights of the Certificate. This person's death also initiates
payment of the death benefit.
RIDERS - Riders add provisions or change the terms of the Certificate.
SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio
underlying a Division in which reinvestment is not available will be
allocated to this Division unless you specify otherwise.
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.
VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in
the Variable Separate Account shown in the Schedule.
GA-CA-1042-01/98 5
<PAGE>
<PAGE>
INTRODUCTION TO THIS CERTIFICATE
- -------------------------------------------------------------------------
THE CERTIFICATE
This is a legal Certificate between you and us. We provide benefits
as stated in this Certificate. In return, you supply us with the
Initial Premium Payment required to put this Certificate in effect.
This Certificate, together with any Riders or Endorsements,
constitutes the entire Certificate. Riders and Endorsements add
provisions or change the terms of the basic Certificate.
THE OWNER
You are the Owner of this Certificate. You are also the Annuitant
unless another Annuitant has been named by you and is shown in the
Schedule. You have the rights and options described in this
Certificate, including but not limited to the right to receive the
Annuity Benefits on the Annuity Commencement Date.
One or more people may own this Certificate. If there are multiple
Owners named, the age of the oldest Owner will be used to determine
the applicable death benefit. In the case of a sole Owner who dies
prior to the Annuity Commencement Date, we will pay the Beneficiary
the death benefit then due. If the sole Owner is not an individual,
we will treat the Annuitant as Owner for the purpose of determining
when the Owner dies under the death benefit provision (if there is
no Contingent Annuitant), and the Annuitant's age will determine the
applicable death benefit payable to the Beneficiary. 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 Certificate dying prior to the
Annuity Commencement Date, the surviving Owner(s) will be deemed as
the Beneficiary(ies).
THE ANNUITANT
The Annuitant is the measuring life of the Annuity Benefits provided
under this Certificate. You may name a Contingent Annuitant. The
Annuitant may not be changed during the Annuitant's lifetime.
If the Annuitant dies before the Annuity Commencement Date, the
Contingent Annuitant becomes the Annuitant. You will be the
Contingent Annuitant unless you name someone else. The Annuitant must
be a natural person. If the Annuitant dies and no Contingent
Annuitant has been named, we will allow you sixty days to designate
someone other than yourself as an Annuitant. If all Owners are not
individuals and, through the operation of this provision, an Owner
becomes Annuitant, we will pay the death proceeds to the Beneficiary.
If there are joint Owners, we will treat the youngest of the Owners as
the Contingent Annuitant designated, unless you elect otherwise.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death proceeds if any
Owner dies prior to the Annuity Commencement Date. See Proceeds
Payable to the Beneficiary for more information. We pay death
proceeds to the primary Beneficiary (unless there are joint Owners in
which case the death benefit proceeds are payable to the surviving
Owner). If the primary Beneficiary dies before the Owner, the death
proceeds are paid to the Contingent Beneficiary, if any. If there is
no surviving Beneficiary, we pay the death proceeds to the Owner's
estate.
GA-CA-1042-01/98 6
<PAGE>
<PAGE>
INTRODUCTION TO THIS CERTIFICATE (continued)
- -------------------------------------------------------------------------
One or more persons may be named as primary Beneficiary or contingent
Beneficiary. In the case of more than one Beneficiary, we will assume
any death proceeds are to be paid in equal shares to the surviving
Beneficiaries. You can specify other than equal shares.
You have the right to change Beneficiaries, unless you designate the
primary Beneficiary irrevocable. When an irrevocable Beneficiary has
been designated, you and the irrevocable Beneficiary may have to act
together to exercise the rights and options under this Certificate.
CHANGE OF OWNER OR BENEFICIARY
During your lifetime and while this Certificate is in effect you can
transfer ownership of this Certificate or change the Beneficiary.
To make any of these changes, you must send us written notice of
the change in a form satisfactory to us. The change will take effect
as of the day the notice is signed. The change will not affect any
payment made or action taken by us before recording the change at our
Customer Service Center. A Change of Owner may affect the amount of
death benefit payable under this Certificate. See Proceeds Payable to
Beneficiary.
GA-CA-1042-01/98 7
<PAGE>
<PAGE>
PREMIUM PAYMENTS AND ALLOCATION CHARGES
- -------------------------------------------------------------------------
INITIAL PREMIUM PAYMENT
The Initial Premium Payment is required to put this Certificate in
effect. The amount of the Initial Premium Payment is shown in the
Schedule.
ADDITIONAL PREMIUM PAYMENT OPTION
You may make additional Premium Payments under this Certificate after
the end of the Right to Examine period. Restrictions on additional
Premium Payments, such as the Attained Age of the Annuitant or Owner
and the timing and amount of each payment, are shown in the Schedule.
We reserve the right to defer acceptance of or to return any
additional Premium Payments.
As of the date we receive and accept your additional Premium Payment:
(1) The Accumulation Value will increase by the amount of the
Premium Payment less any premium deductions as shown in the
Schedule.
(2) The increase in the Accumulation Value will be allocated among
the Divisions of the Variable Separate Account and General Account
and allocations to the Fixed Account in accordance with your
instructions. If you do not provide such instructions, allocation
will be among the Divisions of the Variable Separate Account and
General Account and allocations to the Fixed Account in proportion
to the amount of Accumulation Value in each Division or Fixed
Allocation.
Where to Make Payments
Remit the Premium Payments to our Customer Service Center at the
address shown on the cover page. On request we will give you a
receipt signed by our treasurer.
YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE
You may change the allocation of the Accumulation Value among the
Divisions and Fixed Allocations after the end of the Right to Examine
period. The number of free allocation changes each year that we will
allow is shown in the Schedule. To make an allocation change, you
must provide us with satisfactory notice at our Customer Service
Center. The change will take effect when we receive the notice.
Restrictions for reallocation into and out of Divisions of the
Variable Separate Account and General Account and allocations to the
Fixed Account are shown in the Schedule. An allocation from the Fixed
Account may be subject to a Market Value Adjustment. See the
Schedule.
WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a
unit investment trust Separate Account Division in which reinvestment
is not available, we will allocate the distribution to the Specially
Designated Division shown in the Schedule unless you specify
otherwise.
Such a distribution may occur when an investment portfolio or Division
matures, when distribution from a portfolio or Division cannot be
reinvested in the portfolio or Division due to the unavailability of
securities, or for other reasons. When this occurs because of
maturity, we will send written notice to you thirty days in advance of
such date. To elect an allocation to other than the Specially
Designated Division shown in the Schedule, you must provide
satisfactory notice to us at least seven days prior to the date the
investment matures. Such allocations will not be counted as an
allocation change of the Accumulation Value for purposes of the number
of free allocations permitted.
GA-CA-1042-01/98 8
<PAGE>
<PAGE>
HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE
- -------------------------------------------------------------------------
The variable Annuity Benefits under this Certificate are provided
through investments which may be made in our Separate Accounts.
THE VARIABLE SEPARATE ACCOUNTS
These accounts, which are designated in the Schedule, are kept
separate from our General Account and any other Separate Accounts we
may have. They are used to support Variable Annuity Certificates and
may be used for other purposes permitted by applicable laws and
regulations. We own the assets in the Separate Accounts. Assets
equal to the reserves and other liabilities of the accounts will not
be charged with liabilities that arise from any other business we
conduct; but, we may transfer to our General Account assets which
exceed the reserves and other liabilities of the Variable Separate
Accounts. Income and realized and unrealized gains or losses from
assets in these Variable Separate Accounts are credited to or charged
against the account without regard to other income, gains or losses in
our other investment accounts.
The Variable Separate Account will invest in mutual funds, unit
investment trusts and other investment portfolios which we determine
to be suitable for this Certificate's purposes. The Variable Separate
Account is treated as a unit investment trust under Federal securities
laws. It is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940. The Variable
Separate Account is also governed by state law as designated in the
Schedule. The trusts may offer non-registered series.
Variable Separate Account Divisions
A unit investment trust Separate Account includes Divisions, each
investing in a designated investment portfolio. The Divisions and the
investment portfolios designated may be managed by a separate
investment adviser. Such adviser may be registered under the
Investment Advisers Act of 1940.
Changes within the Variable Separate Accounts
We may, from time to time, make additional Variable Separate Account
Divisions available to you. These Divisions will invest in investment
portfolios we find suitable for the group contract. We also have the
right to eliminate Divisions from a Variable Separate Account, 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 or Division no longer suits
the purpose of the group 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 or Division is no
longer available for investment, or for some other reason. We may get
prior approval from the insurance department of our state of domicile
before making such a substitution. We will also get any required
approval from the SEC and any other required approvals before making
such a substitution.
Subject to any required regulatory approvals, we reserve the right to
transfer assets of the Variable Separate Account which we determine to
be associated with the class of contracts to which the group contract
belongs, to another Variable Separate Account or Division.
When permitted by law, we reserve the right to:
(1) deregister a Variable Separate Account under the Investment
Company Act of 1940;
(2) operate a Variable Separate Account as a management company
under the Investment Company Act of 1940, if it is operating as
a unit investment trust;
(3) operate a Variable Separate Account as a unit investment
trust under the Investment Company Act of 1940, if it is
operating as a managed Variable Separate Account;
(4) restrict or eliminate any voting rights of Owners, or other
persons who have voting rights to a Variable Separate Account;
and
(5) combine a Variable Separate Account with other Variable
Separate Accounts.
GA-CA-1042-01/98 9
<PAGE>
<PAGE>
HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
THE GENERAL ACCOUNT
The General Account contains all assets of the Company other than
those in the Separate Accounts we establish. The Guaranteed Interest
Divisions available for investment are shown in the Schedule. We may,
from time to time, offer other Divisions where assets are held in our
General Account.
VALUATION PERIOD
Each Division and Fixed Allocation will be valued at the end of each
Valuation Period on a Valuation Date. A Valuation Period is each
Business Day together with any non-Business Days before it. A
Business Day is any day the New York Stock Exchange (NYSE) is open for
trading, and the SEC requires mutual funds, unit investment trusts, or
other investment portfolios to value their securities.
ACCUMULATION VALUE
The Accumulation Value of this Certificate is the sum of the amounts
in each of the Divisions of the Variable Separate Account and General
Account and allocations to the Fixed Account. You select the
Divisions of the Variable Separate Account and General Account and
allocations to the Fixed Account to which to allocate the Accumulation
Value. The maximum number of Divisions and Fixed Allocations to which
the Accumulation Value may be allocated at any one time is shown in
the Schedule.
ACCUMULATION VALUE IN EACH DIVISION AND FIXED ALLOCATION
On the Certificate Date
On the Certificate Date, the Accumulation Value is allocated to each
Division and Fixed Allocation as elected by you, subject to certain
terms and conditions imposed by us. We reserve the right to allocate
premium to the Specially Designated Division during any Right to
Examine Certificate period. After such time, allocation will be made
proportionately in accordance with the initial allocation(s) as
elected by you.
On each Valuation Date
At the end of each subsequent Valuation Period, the amount of
Accumulation Value in each Division and Fixed Allocation will be
calculated as follows:
(1) We take the Accumulation Value in the Division or Fixed
Allocation at the end of the preceding Valuation Period.
(2) We multiply (1) by the Variable Separate Account Division's
Net Rate of Return for the current Valuation Period or we
calculate the interest to be credited to a Fixed Allocation
or to a Guaranteed Interest Division for the current
Valuation Period.
(3) We add (1) and (2).
(4) We add to (3) any additional Premium Payments (less any
premium deductions as shown in the Schedule) allocated to the
Division or Fixed Allocation during the current Valuation
Period.
(5) We add or subtract allocations to or from that Division or
Fixed Allocation during the
current Valuation Period.
(6) We subtract from (5) any Partial Withdrawals which are
allocated to the Division or Fixed Allocation during the
current Valuation Period.
(7) We subtract from (6) the amounts allocated to that
Division or Fixed Allocation for:
(a) any charges due for the Optional Benefit Riders as
shown in the Schedule;
(b) any deductions from Accumulation Value as shown in the
Schedule.
All amounts in (7) are allocated to each Division or Fixed Allocation
in the proportion that (6) bears to the Accumulation Value unless the
Charge Deduction Division has been specified (see the Schedule).
GA-CA-1042-01/98 10
<PAGE>
<PAGE>
HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
FIXED ACCOUNT
The Fixed Account is a Separate Account under state insurance law and
is not required to be registered with the Securities and Exchange
Commission under the Investment Company Act of 1940. The Fixed
Account includes various Fixed Allocations which we credit with fixed
rates of interest for the Guarantee Period or Periods you select. We
reset the interest rates for new Fixed Allocations periodically based
on our sole discretion.
Guarantee Periods
Each Fixed Allocation is guaranteed an interest rate or rates for a
period, a Guarantee Period. The Guaranteed Interest Rates for a Fixed
Allocation are effective for the entire period. The Maturity Date of
a Guarantee Period will be on the last day of the calendar month in
which the Guarantee Period ends. Withdrawals and transfers made
during a Guarantee Period may be subject to a Market Value Adjustment
unless made within thirty days prior to the Maturity Date.
Upon the attainment of the Maturity Date of a Guarantee Period, we
will transfer the Accumulation Value of the expiring Fixed Allocation
to a Fixed Allocation with a Guarantee Period equal in length to the
expiring Guarantee Period, unless you select another period prior to a
Maturity Date. We will notify you at least thirty days prior to a
Maturity Date of your options for renewal. If the period remaining
from the Maturity Date of the previous Guarantee Period to the Annuity
Commencement Date is less than the period you have elected or the
period expiring, the next shortest period then available that will not
extend beyond the Annuity Commencement Date will be offered to you.
If a period is not available, the Accumulation Value will be
transferred to the Specially Designated Division.
We will declare Guaranteed Interest Rates for the then available Fixed
Allocation Guarantee Periods. These interest rates will be based on
our future expectations. Declared Guaranteed Interest Rates are
subject to change at any time prior to application to specific Fixed
Allocations, although in no event will the rates be less than the
Minimum Guaranteed Interest Rate (see the Schedule).
Market Value Adjustments
A Market Value Adjustment will be applied to a Fixed Allocation upon
withdrawal, transfer or application to an Income Plan if made more
than thirty days prior to such Fixed Allocation's Maturity Date,
except on Systematic Partial Withdrawals and IRA Partial Withdrawals.
The Market Value Adjustment is applied to each Fixed Allocation
separately.
The Market Value Adjustment is determined by multiplying the amount of
the Accumulation Value withdrawn, transferred or applied to an Income
Plan 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 the Index Rate for a new
Fixed Allocation as of the time of calculation for a new Guarantee
Period, equal to the applicable Guarantee Period, reduced for the
number of complete years elapsed since the first day of the
applicable Guarantee Period; and N is the remaining number of days in
the applicable Guarantee Period at the time of calculation. (The
Index Rate is described in the Schedule).
Market Value Adjustments will be applied as follows:
(1) The Market Value Adjustment will be applied to the amount
withdrawn before deduction of any applicable Surrender Charge.
(2) For a Partial Withdrawal, partial transfer or in the case
where a portion of an allocation is applied to an Income Plan,
the Market Value Adjustment will be calculated on the total
amount that must be withdrawn, transferred or applied to an
Income Plan in order to provide the amount requested.
GA-CA-1042-01/98 11
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<PAGE>
HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
(3) If the Market Value Adjustment is negative, it will be
assessed first against any remaining Accumulation Value in the
particular Fixed Allocation. Any remaining Market Value
Adjustment will be applied against the amount withdrawn,
transferred or applied to an Income Plan.
(4) If the Market Value Adjustment is positive, it will be
credited to any remaining Accumulation Value in the particular
Fixed Allocation. If a cash surrender, full transfer or full
application to an Income Plan has been requested, the Market
Value Adjustment is added to the amount withdrawn, transferred
or applied to an Income Plan.
MEASUREMENT OF INVESTMENT EXPERIENCE
Index of Investment Experience
The Investment Experience of a Variable Separate Account Division is
determined on each Valuation Date. We use an Index to measure changes
in each Division's experience during a Valuation Period. We set the
Index at $10 when the first investments in a Division are made. The
Index for a current Valuation Period equals the Index for the
preceding Valuation Period multiplied by the Experience Factor for the
current Valuation Period.
How We Determine the Experience Factor
For Divisions of a unit investment trust Separate Account the
Experience Factor reflects the Investment Experience of the portfolio
in which the 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 daily Mortality and Expense Risk Charge for
each Division shown in the Schedule for each day in the Valuation
Period.
(5) We subtract the daily Asset Based Administrative Charge
shown in the Schedule for each day in the Valuation Period.
Calculations for Divisions investing in unit investment trusts are on
a per unit basis.
Net Rate of Return for a Variable Separate Account Division
The Net Rate of Return for a Variable Separate Account Division during
a Valuation Period is the Experience Factor for that Valuation Period
minus one.
Interest Credited to a Guaranteed Interest Division
Accumulation Value allocated to a Guaranteed Interest Division will be
credited with the Guaranteed Interest Rate for the Guarantee Period in
effect on the date the premium or reallocation is applied. Once
applied, such rate will be guaranteed until the Maturity Date of that
Guarantee Period. Interest will be credited daily at a rate to yield
the declared annual effective Guaranteed Interest Rate. No Guaranteed
Interest Rate will be less than the Minimum Interest Rate shown in the
Schedule.
Interest Credited to a Fixed Allocation
A Fixed Allocation will be credited with the Guaranteed Interest Rate
for the Guarantee Period in effect on the date the premium or
reallocation is applied. Once applied, such rate will be guaranteed
until that Fixed Allocation's Maturity Date. Interest will be
credited daily at a rate to yield the declared annual effective
Guaranteed Interest Rate.
We periodically declare Guaranteed Interest Rates for then available
Guarantee Periods. No Guaranteed Interest Rate will be less than the
Minimum Interest Rate shown in the Schedule.
GA-CA-1042-01/98 12
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<PAGE>
HOW WE MEASURE THE CERTIFICATE'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CERTIFICATE PROCESSING
DATE
Expense charges and fees are shown in the Schedule.
Charge Deduction Division Option
We will deduct all charges against the Accumulation Value of this
Certificate from the Charge Deduction Division if you elected this
option on the application (see the Schedule). If you did not elect
this Option or if the charges are greater than the amount in the
Charge Deduction Division, the charges against the Accumulation Value
will be deducted as follows:
(1) If these charges are less than the Accumulation Value in the
Variable Separate Account Divisions, they will be deducted
proportionately from all Divisions.
(2) If these charges exceed the Accumulation Value in the
Variable Separate Account Divisions, any excess over such value
will be deducted proportionately from any Fixed Allocations and
Guaranteed Interest Divisions.
Any charges taken from the Fixed Account or the General Account will
be taken from the Fixed Allocations or Guaranteed Interest Divisions
starting with the Guarantee Period nearest its Maturity Date until
such charges have been paid.
At any time while this Certificate is in effect, you may change your
election of this Option. To do this you must send us a written request
to our Customer Service Center. Any change will take effect within
seven days of the date we receive your request.
GA-CA-1042-01/98 13
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YOUR CERTIFICATE BENEFITS
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While this Certificate is in effect, there are important rights and
benefits that are available to you. We discuss these rights and
benefits in this section.
CASH VALUE BENEFIT
Cash Surrender Value
The Cash Surrender Value, while the Annuitant is living and before the
Annuity Commencement Date, is determined as follows:
(1) We take the Certificate's Accumulation Value;
(2) We adjust for any applicable Market Value Adjustment;
(3) We deduct any Surrender Charge;
(4) We deduct any charges shown in the Schedule that have been
incurred but not yet deducted, including;
(a) any administrative fee that has not yet been deducted;
(b) the pro rata part of any charges for Optional Benefit
Riders; and
(c) any applicable premium or other tax.
Cancelling to Receive the Cash Surrender Value
At any time while the Annuitant is living and before the Annuity
Commencement Date, you may surrender this Certificate to us. To do
this, you must return this Certificate with a signed request for
cancellation to our Customer Service Center.
The Cash Surrender Value will vary daily. We will determine the Cash
Surrender Value as of the date we receive the Certificate and your
signed request in our Customer Service Center. All benefits under
this Certificate will then end.
We will usually pay the Cash Surrender Value within seven days; but,
we may delay payment as described in the Payments We May Defer
provision.
PARTIAL WITHDRAWAL OPTION
After the Certificate Date, you may make Partial Withdrawals. The
minimum amount that may be withdrawn is shown in the Schedule. For
purposes of calculating any Surrender Charge, any Partial Withdrawal
you take will not be considered premium, unless it is an Excess
Partial Withdrawal. To take a Partial Withdrawal, you must provide us
satisfactory notice at our Customer Service Center.
PROCEEDS PAYABLE TO THE BENEFICIARY
Prior to the Annuity Commencement Date
If the sole Owner dies prior to the Annuity Commencement Date, we will
pay the Beneficiary the death benefit. If there are joint Owners and
any Owner dies, we will pay the surviving Owners the death benefit.
We will pay the amount on receipt of due proof of the Owner's death at
our Customer Service Center. Such amount may be received in a single
lump sum or applied to any of the Annuity Options (see Choosing an
Income Plan). When the Owner (or all Owners where there are joint
Owners) is not an individual, the death benefit will become payable on
the death of the Annuitant prior to the Annuity Commencement Date
(unless a Contingent Annuitant survived the Annuitant). Only one
death benefit is payable under this Certificate. In all events,
distributions under the Certificate must be made as required by
applicable law.
How to Claim Payments to Beneficiary
We must receive proof of the Owner's (or the Annuitant's) death 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.
GA-CA-1042-01/98 14
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CHOOSING AN INCOME PLAN
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ANNUITY BENEFITS
If the Annuitant and Owner are living on the Annuity Commencement
Date, we will begin making payments to the Owner. We will make these
payments under the Annuity Option (or Options) as chosen in the
application or as subsequently selected. You may choose or change an
Annuity Option by making a written request at least 30 days prior to
the Annuity Commencement Date. Unless you have chosen otherwise,
Option 2 on a 10-year period certain basis will become effective. The
amounts of the payments will be determined by applying the
Accumulation Value on the Annuity Commencement Date in accordance with
the Annuity Options section below (see Payments We Defer). Before we
pay any Annuity Benefits, we require the return of this Certificate.
If this Certificate has been lost, we require the applicable lost
Certificate form.
ANNUITY COMMENCEMENT DATE SELECTION
You select the Annuity Commencement Date. You may select any date
following the fifth Certificate Anniversary but before the required
date of Annuity Commencement as shown in the Schedule. If you do not
select a date, the Annuity Commencement Date will be in the month
following the required date of Annuity Commencement.
FREQUENCY SELECTION
You may 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.
THE INCOME PLAN
While this Certificate is in effect and before the Annuity
Commencement Date, you may chose one or more Annuity Options for the
payment of death benefits proceeds. If, at the time of the Owner's
death, no Option has been chosen for paying the death benefit
proceeds, the Beneficiary may choose an Option within one year. You
may also elect an Annuity Option on surrender of the Certificate for
its Cash Surrender Value. For each Option we will issue a separate
written agreement putting the Option into effect.
Our approval is needed for any Option where:
(1) the person named to receive payment is other than the Owner
or Beneficiary; or
(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 shown in the Schedule.
THE ANNUITY OPTIONS
There are four Options to choose from. They are:
Option 1. Income for a Fixed Period
Payment is made in equal installments for a fixed number of years. We
guarantee each monthly payment will be at least the Income for Fixed
Period amount shown in the Schedule. Values for annual, semiannual or
quarterly payments are available on request.
GA-CA-1042-01/98 15
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CHOOSING AN INCOME PLAN (continued)
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Option 2. Income for Life
Payment is made to the person named in equal monthly installments and
guaranteed for at least a period certain. The period certain can be
10 or 20 years. Other periods certain are 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 each payment will be at least the amount shown in the
Schedule. By age, we mean the named person's age on his or her last
birthday before the Option's effective date. Amounts for ages not
shown are available on 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
of Beneficiary of this Certificate. Monthly payments are guaranteed
and are made as long as at least one of the named persons is living.
The monthly payment amounts are available upon request. Such amounts
are guaranteed and will be calculated on the same basis as the Table
for Income for Life, however, the amounts will be based on two lives.
Option 4. Annuity Plan
An amount can be applied under any other settlement option we choose
to offer for the Certificate form on the Option's effective date.
The minimum rates for Option 1 are based on 3% interest, compounded
annually. The minimum rates for Options 2 and 3 are based on 3%
interest, compounded annually, and the Annuity 2000 Mortality Table.
We may pay a higher rate at our discretion.
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 for any remaining guaranteed payments in
Option 2, payments will be continued.
(2) For Option 3, no amounts are payable after both named
persons have died.
(3) For Option 4, the annuity agreement will state the amount
due, if any.
GA-CA-1042-01/98 16
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OTHER IMPORTANT INFORMATION
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ENTIRE CONTRACT
The group contract, including any attached Rider, endorsement,
amendment and the application of the Contractholder, constitute the
entire contract between the Contractholder and us. All statements
made by the Contractholder, any Owner or any Annuitant will be deemed
representations and not warranties. No such statement will be used in
any contest unless it is contained in the application signed by the
Owner, a copy of which has been furnished to the Owner, the
Beneficiary or to the Contractholder.
SENDING NOTICE TO US
Whenever written notice is required, send it to our Customer Service
Center. The address of our Customer Service Center is shown on the
cover page. Please include your Certificate number in all
correspondence.
REPORTS TO OWNER
We will send you a report at least once during each Certificate Year.
The report will show the Accumulation Value and the Cash Surrender
Value as of the end of the Certificate Processing Period. The report
will also show the allocation of the 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 information
that may be currently required by the insurance supervisory official
of the jurisdiction in which the Certificate is delivered.
We will also send you copies of any shareholder reports of the
portfolios in which the Divisions of the Variable Separate Account
invest, as well as any other reports, notices or documents required by
law to be furnished to Owners.
ASSIGNMENT - USING THIS CERTIFICATE AS COLLATERAL SECURITY
You can assign this Certificate as collateral security for a loan or
other obligation. This does not change the ownership. Your rights
and any Beneficiary's right are subject to the terms of the
assignment. To make or release an assignment, we must receive written
notice satisfactory to us, at our Customer Service Center. We are not
responsible for the validity of any assignment.
CHANGING THIS CERTIFICATE
This or any additional benefit riders may be changed to
another annuity plan according to our rules at the time of the change.
CERTIFICATE CHANGES - APPLICABLE TAX LAW
We reserve the right to make changes in this Certificate or its Riders
to the extent we deem it necessary to continue to qualify this
Certificate as an annuity. Any such changes will apply uniformly to
all Certificates that are affected. You will be given advance written
notice of such changes.
MISSTATEMENT OF AGE OR SEX
If an age or sex has been misstated, the amounts payable or benefits
provided by this Certificate will be those that the Premium Payment
made would have bought at the correct age or sex.
NON-PARTICIPATING
This Certificate does not participate in the divisible surplus of
Golden American Life Insurance Company.
GA-CA-1042-01/98 17
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OTHER IMPORTANT INFORMATION (continued)
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PAYMENTS WE MAY DEFER
We may not be able to determine the value of the assets of the
Variable Separate Account Divisions 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 of the
Variable Separate Account, we may delay;
(1) determination and payment of the Cash Surrender Value;
(2) determination and payment of any death benefit if death
occurs before the Annuity Commencement Date;
(3) allocation changes of the Accumulation Value; or,
(4) application of the Accumulation Value under an income plan.
As to the amounts allocated to a Guaranteed Interest Division of the
General Account and as to amounts allocated to Fixed Allocations of
the Fixed Account, we may, at any time, defer payment of the Cash
Surrender Value for up to six months after we receive a request for
it. We will allow interest of at least 3.00% a year on any Cash
Surrender Value payment derived from the Fixed Allocations or the
Guaranteed Interest Divisions that we defer 30 days or more.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by one of our officers. No
other person, including an insurance agent or broker, can:
(1) change any of this Certificate's terms;
(2) extend the time for Premium Payments; or
(3) make any agreement binding on us.
REQUIRED NOTE ON OUR COMPUTATIONS
We have filed a detailed statement of our computations with the
insurance supervisory official in the jurisdiction where this
Certificate is delivered. The values are not less than those
required by the law of that state or jurisdiction. Any benefit
provided by an attached Optional Benefit Rider will not increase these
values unless otherwise stated in that Rider.
GA-CA-1042-01/98 18
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DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CERTIFICATE - NO DIVIDENDS
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Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
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EXHIBIT (4)(c)
________ GOLDEN
_________ AMERICAN DEFERRED VARIABLE
____________ LIFE INSURANCE ANNUITY CONTRACT
_______ COMPANY
Golden American is a stock company domiciled in Delaware.
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
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| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
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| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
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This is a legal Contract between its Owner and us. Please read it
carefully. In this Contract you or your refers to the Owner shown above.
We, our or us refers to Golden American Life Insurance Company. You may
allocate this Contract's Accumulation Value among the Divisions of the
Variable Separate Account and the General Account shown in the Schedule.
If this Contract is in force, we will make income payments to you
starting on the Annuity Commencement Date. If the Owner dies prior to
the Annuity Commencement Date, we will pay a death benefit to the
Beneficiary. The amount of such benefits is subject to the terms of this
Contract.
ALL PAYMENTS AND VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A
VARIABLE SEPARATE ACCOUNT, MAY INCREASE OR DECREASE, DEPENDING ON THE
CONTRACT'S INVESTMENT RESULTS.
RIGHT TO EXAMINE THIS CONTRACT: YOU MAY RETURN THIS CONTRACT TO US OR
THE AGENT THROUGH WHOM YOU PURCHASED IT WITHIN 10 DAYS AFTER YOU RECEIVE
IT. IF SO RETURNED, WE WILL TREAT THE CONTRACT AS THOUGH IT WERE NEVER
ISSUED. UPON RECEIPT WE WILL PROMPTLY REFUND THE ACCUMULATION VALUE,
PLUS ANY CHARGES WE HAVE DEDUCTED AS OF THE DATE THE RETURNED CONTRACT
IS RECEIVED BY US.
Customer Service Center Secretary: /s/ Myles R. Tashman
1475 Dunwoody Drive President: /s/ Ben Chernow
West Chester, PA 19380-1478
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DEFERRED VARIABLE ANNUITY CONTRACT - NO DIVIDENDS
Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
GA-IA-1043-01/98
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CONTRACT CONTENTS
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THE SCHEDULE....................... 3 YOUR CONTRACT BENEFITS........... 12
Payment And Investment Information 3A Cash Value Benefit
The Variable Separate Accounts.... 3B Partial Withdrawal Option
The General Account............... 3C Proceeds Payable to the
Contract Facts.................... 3D Beneficiary
Charges and Fees.................. 3E
Income Plan Factors............... 3F CHOOSING AN INCOME PLAN.......... 13
IMPORTANT TERMS ................... 4 Annuity Benefits
Annuity Commencement Date Selection
INTRODUCTION TO THIS CONTRACT...... 6 Frequency Selection
The Income Plan
The Contract The Annuity Options
The Owner Payment When Named Person Dies
The Annuitant
The Beneficiary OTHER IMPORTANT INFORMATION...... 15
Change of Owner or Beneficiary Sending Notice to Us
Reports to Owner
PREMIUM PAYMENTS AND ALLOCATION Assignment - Using This Contract
ADDITIONAL PREMIUM PAYMENT OPTION As Collateral Security
CHANGES.......................... 8 Changing This Contract
Contract Changes - Applicable
Initial Premium Payment Tax Law
Additional Premium Payment Option Misstatement of Age or Sex
Your Right to Change Allocation of Non-participating
Accumulation Value Payments We May Defer
What Happens if a Variable Separate Authority to Make Agreements
Account Division is Not Available Required Note on Our Computations
HOW WE MEASURE THE CONTRACT'S
ACCUMULATION VALUE............... 9
The Variable Separate Accounts
The General Account
Valuation Period
Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Charges Deducted from Accumulation
Value on each Contract Processing
Date
Copies of any application and any additional Riders and Endorsements are at
the back of this Contract.
THE SCHEDULE
The Schedule gives specific facts about this Contract and its coverage.
Please refer to the Schedule while reading this Contract.
GA-IA-1043-01/98 2
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THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
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| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [35] |
| |
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| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
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| Contract Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
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| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
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INITIAL INVESTMENT
Initial Premium Payment received: [$25,000]
Your initial Accumulation Value has been invested as follows:
Percentage of
Divisions Accumulation Value
--------------------- ------------------------
[Multiple Allocation 10%
Fully Managed 10%
Capital Appreciation 10%
Rising Dividends 10%
All-Growth 10%
Real Estate 10%
Value Equity 10%
Hard Assets 5%
Total Return 5%
Limited Maturity Bond 5%
Liquid Asset 5%
Strategic Equity 5%
--------------------- ------------------------
Total 100%]
===== ======
ADDITIONAL PREMIUM PAYMENT INFORMATION
[We will accept additional Premium Payments until either the Annuitant
or Owner reaches the Attained Age of 85. The minimum additional
payment which may be added is $1,000.00.]
[In no event may you contribute to your IRA for the taxable year in
which you attain age 70 1/2 and thereafter (except for rollover
contributions). The minimum additional payment which may be made is
[$1,000.00].]
GA-IA-1043-01/98 3A/1
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THE SCHEDULE
PAYMENT AND INVESTMENT INFORMATION(continued)
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
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| Annuitant's Issue Age Annuitant's Sex Owner's Issue Age |
| [55] [MALE] [35] |
| |
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| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
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| Contract Date Issue Date Residence Status |
| [JANUARY 1, 1998] [JANUARY 1, 1998] [DELAWARE] |
| |
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| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
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ACCUMULATION VALUE ALLOCATION RULES
The maximum number of Divisions in which you may be invested at any
one time is [ sixteen]. You are allowed unlimited allocation changes
per Contract Year without charge. We reserve the right to impose a
charge for any allocation change in excess of [twelve] per Contract
Year. The Excess Allocation Charge is shown in the Schedule.
Allocations into and out of the Guaranteed Interest Divisions are
subject to restrictions (see General Account).
ALLOCATION CHANGES BY TELEPHONE
You may request allocation changes by telephone during our telephone
request business hours. You may call our Customer Service Center at
1-800-366-0066 to make allocation changes by using the personal
identification number you will receive. You may also mail any notice
or request for allocation changes to our Customer Service Center at
the address shown on the cover page.
GA-IA-1043-01/98 3A/2
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THE SCHEDULE
THE VARIABLE SEPARATE ACCOUNTS
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
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| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
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| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
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DIVISIONS INVESTING IN SHARES OF A MUTUAL FUND
Separate Account B (the "Account") is a unit investment trust Separate
Account, organized in and governed by the laws of the State of
Delaware, our state of domicile. The Account is divided into
Divisions. Each Division listed below invests in shares of the mutual
fund portfolio (the "Series") designated. Each portfolio is a part of
The GCG Trust managed by Directed Services, Inc.
SERIES SERIES
[Equity Income Real Estate
Fully Managed Hard Assets
Value Equity Limited Maturity Bond
Small Cap Liquid Asset
Capital Appreciation Strategic Equity
Rising Dividends Managed Global
All-Growth Research
Mid-Cap Growth Growth
Total Return Global Fixed Income
Growth & Income Growth Opportunities
Emerging Markets Developing World]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolio is a part of the Warburg Pincus Trust
managed by Warburg, Pincus Counselors, Inc.
PORTFOLIO
---------
[International Equity]
The Division listed below invests in shares of the mutual fund portfolio (the
"Portfolio") designated. The portfolios are a part of the PIMCO Trust
managed by Pacific Investment Management Company.
PORTFOLIO
---------
High Yield
StocksPLUS Growth and Income
GA-IA-1043-01/98 3B
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THE SCHEDULE
THE GENERAL ACCOUNT
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
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| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
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GENERAL ACCOUNT
[Guaranteed Interest Division
A Guaranteed Interest Division provides an annual minimum interest
rate of 3%. At our sole discretion, we may periodically declare
higher interest rates for specific Guarantee Periods. Such rates will
apply to periods following the date of declaration. Any declaration
will be by class and will be based on our future expectations.
Limitations of Allocations
We reserve the right to restrict allocations into and out of the
General Account. Such limits may be dollar restrictions on
allocations into the General Account or we may restrict reallocations
into the General Account.
Guarantee Periods
Each allocation to a Guaranteed Interest Division will be guaranteed
an interest rate for the entire Initial Guarantee Period elected. We
currently offer Initial Guarantee Periods of one, two, three, five,
seven and ten years. The Initial Guarantee Period starts on the day
an allocation is made to a Guaranteed Interest Division and ends on
the last day of the calendar month following one, two, three, five,
seven or ten year(s) as appropriate, the Maturity Date.
At the end of a Guarantee Period, you may transfer the Accumulation
Value in such Guarantee Period to the Variable Separate Account
Divisions or to a Guarantee Period we then offer. If we do not
receive notification by the Maturity Date, your Accumulation Value
in the maturing Guarantee Period will automatically be transferred
to a one-year Guarantee Period. Upon such automatic transfer you
will have thirty days to reallocate any of your Accumulation Value
to the Divisions.
Deduction for Charges
We do not deduct the Mortality and Expense Risk Charge and the Asset-
Based Administrative Charge with respect to the amount of the
Accumulation Value allocated to a Guaranteed Interest Division while
such Accumulation Value remains allocated to a Guaranteed Interest
Division.
Transfers from a Guaranteed Interest Division
On a Maturity Date, 100% of the Accumulation Value in the maturing
Guarantee Period may be transferred.
We currently require that an amount allocated to a Guarantee Period
not be transferred until the Maturity Date, except pursuant to our
published rules. We reserve the right not to allow amounts previously
transferred from a Guaranteed Interest Division to the Variable
Separate Account Divisions to be transferred back to the Guaranteed
Interest Division for a period of at least six months from the date of
transfer. We reserve the right to reduce the amount otherwise
available for transfer from a Guaranteed Interest Division by any
amounts previously withdrawn from that Guaranteed Interest Division.]
GA-IA-1043-01/98 3C
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THE SCHEDULE
CONTRACT FACTS
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| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
CONTRACT FACTS
Contract Processing Date
The Contract Processing Date for your Contract is [January 1] of each
year.
Specially Designated Divisions
When a distribution is made from an investment portfolio underlying a
Separate Account Division in which reinvestment is not available, we
will allocate the amount of the distribution to the [Liquid Asset
Division] unless you specify otherwise.
PARTIAL WITHDRAWALS
The maximum amount that can be withdrawn each Contract Year without
being considered an Excess Partial Withdrawal is described below. We
will collect a Surrender Charge for Excess Partial Withdrawals and a
charge for any unrecovered Premium Tax. In no event may a Partial
Withdrawal exceed 90% of the Cash Surrender Value. After a Partial
Withdrawal, the remaining Accumulation Value must be at least $100 to
keep the Contract in force.
Maximum Partial Withdrawal not considered to be an Excess Partial
Withdrawal
The maximum amount that can be taken as a Partial Withdrawal each
Contract Year without being considered an Excess Partial Withdrawal is
the greater of the following:
(1) Earnings, less previous withdrawals not considered to be Excess
Partial Withdrawals, but not less than zero. Earnings are equal
to the Accumulation Value, less Premium Payments, plus prior
withdrawals.
(2) The Free Amount, equal to: a) 10% of Premium Payments not
previously withdrawn, which were received within seven years
prior to the date of withdrawal; less b) any withdrawals that
are made in the same Contract Year, which are not considered to
be Excess Partial Withdrawals.
Withdrawals of Premium Payments are considered to be Excess Partial
Withdrawals.
Conventional Partial Withdrawals
Minimum Withdrawal Amount: [$100.00]
Systematic Partial Withdrawals
Systematic Partial Withdrawals may be elected to commence after 28
days from the Contract Issue Date and may be taken on a monthly,
quarterly or annual basis. You select the day withdrawals will be
made, but no later than the 28th day of the month. If you do not
elect a day, the Contract Date will be used.
Minimum Withdrawal Amount: [$100.00]
Maximum Withdrawal Amount:
Variable Separate Account 0.833% of Premium Payments
Divisions: monthly, 2.50% of Premium Payments
quarterly or 10% of Premium Payments
annual frequency.
Guaranteed Interest Interest earned on a Guaranteed
Divisions: Interest Division for the prior
month, quarter or year (depending
on the frequency selected).
GA-IA-1043-01/98 3D/1
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THE SCHEDULE
CONTRACT FACTS (continued)
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- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
[IRA Partial Withdrawals for Qualified Plans Only
IRA Partial Withdrawals may be taken on a monthly, quarterly or annual
basis. A minimum withdrawal of $100.00 is required. You select the
day the withdrawals will be made, but no later than the 28th day of
the month. If you do not elect a day, the Contract Date will be used.
Systematic Partial Withdrawals and Conventional Partial Withdrawals are
not allowed when IRA Partial Withdrawals are being taken.]
DEATH BENEFITS
[IF DEATHBEN = "1": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": The Death Benefit is the greatest of (i) the
Accumulation Value, (ii) the Guaranteed Death Benefit, (iii) the Cash
Surrender Value, and (iv) the sum of premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Death Benefit is the greatest of (i) the Cash
Surrender Value, (ii) the Accumulation Value, (iii) the sum of the
premiums paid, less any Partial Withdrawals.]
Guaranteed Death Benefit
On the Contract Date, the Guaranteed Death Benefit is the initial
premium. On subsequent Valuation Dates, the Guaranteed Death Benefit
is calculated as follows:
[IF DEATHBEN = "1": Option 1:
--------
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Calculate interest on (1) for the current Valuation Period at
the Guaranteed Death Benefit Interest Rate;
(3) Add (1) and (2);
(4) Add any additional premiums paid during the current Valuation
Period to (3);
(5) Subtract Partial Withdrawals made during the current Valuation
Period from (4).
Each accumulated initial or additional Premium Payment, reduced by any
Partial Withdrawals (including any Surrender Charge incurred)
allocated to such premium, will continue to grow at the Guaranteed
Death Benefit Interest Rate. [IF DEATHBEN = "1" AND % RATE = "7":
In any event, the Guaranteed Death Benefit will not exceed the Maximum
Guaranteed Death Benefit.]
The Guaranteed Death Benefit is accumulated at a rate of [3, 4, 5 or
7%] compounded annually, except:
(1) Amounts in the Liquid Asset Division are accumulated at the net
rate of return for the Liquid Asset Division during the current
Valuation Period if less than [3, 4, 5, or 7%]; and
(2) Amounts in the Limited Maturity Bond Division are accumulated
at the net rate of return for the Limited Maturity Bond Division
during the current Valuation Period if less than [3, 4, 5 or 7%];
and
(3) Amounts in a Guaranteed Interest Division of the General Account
are accumulated at the interest rate being credited to such
Guaranteed Interest Division during the current Valuation Period
if less than [3, 4, 5 or 7%].
GA-IA-1043-01/98 3D/2
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
[IF DEATHBEN = "1" AND % RATE = "7"
Maximum Guaranteed Death Benefit
The Maximum Guaranteed Death Benefit is initially equal to two times
the initial or additional premium paid. Thereafter, the Maximum
Guaranteed Death Benefit as of the effective date of a Partial
Withdrawal is reduced first by the amount of any Partial Withdrawal
representing earnings and second in proportion to the reduction in
Accumulation Value for any Partial Withdrawal representing premium (in
each case, including any Surrender Charge incurred). If withdrawals
do not exceed 7% of premium paid in a Contract Year, and did not
exceed 7% of premiums paid in any Contract Year, reductions in the
Maximum Guaranteed Death Benefit will be treated as withdrawals of
earnings. Once withdrawals exceed 7% in any Contract Year,
withdrawals will be treated as proportional in relation to the
amount of Accumulation Value for any Partial Withdrawals
( including any Surrender Charge incurred.)]
[IF DEATHBEN = "2": Option 2:
--------
(1) Start with Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add to (1) any additional premium paid since the prior
Valuation Date and subtract from (1) any Partial Withdrawals
taken prior to the Valuation Date;
(3) On Valuation Date that occurs on or prior to the Owner's
attained age 70, which is also a Contract Anniversary, we
set the Guaranteed Death Benefit equal to the greater of
(2) or the Accumulation Value as of such date.
On all other Valuation Dates, the Guaranteed Death Benefit is equal to (2).]
[IF DEATHBEN = "3": Option 3:
--------
(1) Start with the Guaranteed Death Benefit from the prior
Valuation Date;
(2) Add any additional premiums paid during the current
Valuation Period;
(3) Subtract any Partial Withdrawals made during the current
Valuation Period from (2).]
CHANGE OF OWNER
A change of Owner will result in recalculation of the death benefit
and Guaranteed Death Benefit. As of the date of change, we will use
the Accumulation Value of the Contract, for the purpose of such
recalculation only, as the initial premium to determine a new
Guaranteed Death Benefit for this Contract. The new Owner's age at
the time of the change will be used as the basis for this
calculation. The new Owner's death will determine when a death
benefit is payable.
[IF DEATHBEN = "1": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value, and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "2": If the new Owner's age is less than or equal to
70, the Guaranteed Death Benefit Option in effect prior to the
change of Owner will remain in effect. If the new Owner's age is
greater than 70, the Guaranteed Death Benefit will be zero and the
Death Benefit will be the greater of the Cash Surrender Value, the
Accumulation Value and the sum of the premiums paid, less any Partial
Withdrawals.
IF DEATHBEN = "3": The Guaranteed Death Benefit Option after the
change of Owner will remain the same as before the change.]
GA-IA-1043-01/98 3D/3
<PAGE>
<PAGE>
THE SCHEDULE
CONTRACT FACTS (continued)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
CHOOSING AN INCOME PLAN
Required Date of Annuity Commencement
[Distributions from a Contract funding a qualified plan must commence
no later than [April 1st] of the calendar year following the calendar
year in which the Owner attains age 70 1/2.]
The Annuity Commencement Date is required to be the same date as the
Contract Processing Date in the month following the Annuitant's [90th]
birthday. If, on the Annuity Commencement Date, a Surrender Charge
remains, your elected Annuity Option must include a period certain of
at least five years duration. In applying the Accumulation Value,
we may first collect any Premium Taxes due us.
Minimum Annuity Income Payment
The minimum monthly annuity income payment that we will make is [$20].
Optional Benefit Riders - [None.]
ATTAINED AGE
The Issue Age of the Annuitant or Owner plus the number of full years
elapsed since the Contract Date.
DEDUCTIONS FROM PREMIUMS
[None.]
DEDUCTIONS FROM ACCUMULATION VALUE
Initial Administrative Charge
[None.]
Administrative Charge
We charge [a maximum of $30 or 2% of Accumulation Value] to cover a
portion of our ongoing administrative expense for each Contract
Processing Period. The charge is incurred at the beginning of the
Contract Processing Period and deducted on the Contract Processing
Date at the end of the period.
Excess Allocation Charge
Currently none, however, we reserve the right to charge [$25] for a
change if you make more than [twelve] allocation changes per Contract
Year. Any charge will be deducted in proportion to the amount being
transferred from each Division.
xxx
GA-IA-1043-01/98 3D/4
<PAGE>
<PAGE>
THE SCHEDULE
CHARGES AND FEES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
Surrender Charge
A Surrender Charge is imposed as a percentage of premium if the
Contract is surrendered or an Excess Partial Withdrawal is taken.
The percentage imposed at time of surrender or Excess Partial Withdrawal
depends on the number of complete years that have elapsed since a Premium
Payment was made. The Surrender charge expressed as a percentage of each
Premium Payment is as follows:
Complete Years Elapsed Surrender
Since Premium Payment Charges
---------------------- ---------
[0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 1%
7+ 0%]
For the purpose of calculating the Surrender Charge for an Excess
Partial Withdrawal: a) we treat premiums as being withdrawn on a
first-in, first-out basis; and b) amounts withdrawn which are not
considered an Excess Partial Withdrawal are not considered a
withdrawal of any Premium Payments.
[Premium Taxes
We deduct the amount of any premium or other state and local taxes
levied by any state or governmental entity when such taxes are
incurred.
We reserve the right to defer collection of Premium Taxes until
surrender or until application of Accumulation Value to an Annuity
Option. We reserve the right to change the amount we charge for
Premium Tax charges on future Premium Payments to conform with changes
in the law or if the Owner changes state of residence.]
Deductions from the Divisions
Mortality and Expense Risk Charge - We deduct up to a maximum of [IF
DEATHBEN = "1": [.002247%] IF DEATHBEN = "2": [.002615%] IF DEATHBEN =
"3": [.002063%]] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum rate of
[IF DEATHBEN = "1": [.90%] IF DEATHBEN = "2": [.95%] IF DEATHBEN = "3":
[.75%]) for mortality and expense risks. This charge is not deducted from
the Fixed Account or General Account values.
Asset Based Administrative Charge - We deduct up to a maximum of
[0.000411%] of the assets in each Variable Separate Account Division
on a daily basis (equivalent to an annual rate up to a maximum of
[0.15%]) to compensate us for a portion of our ongoing administrative
expenses. This charge is not deducted from the Fixed Account or
General Account values.
CHARGE DEDUCTION DIVISION
All charges against the Accumulation Value in this Contract will be
deducted from the [Liquid Asset Division].
GA-IA-1043-01/98 3E/1
<PAGE>
<PAGE>
THE SCHEDULE
INCOME PLAN FACTORS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
| Annuitant Owner |
| [THOMAS J. DOE] [JOHN Q. DOE] |
| |
- -------------------------------------------------------------------------
| Initial Premium Annuity Option Annuity Commencement |
| Date |
| [$25,000] [LIFE 10-YEAR [JANUARY 1, 2028] |
| CERTAIN] |
- -------------------------------------------------------------------------
| Separate Account(s) Contract Number |
| [SEPARATE ACCOUNT B] [123456] |
- -------------------------------------------------------------------------
Values for other payment periods, ages or joint life combinations are
available on request. Monthly payments are shown for each $1,000
applied.
TABLE FOR INCOME FOR A FIXED PERIOD
Fixed Fixed Fixed
Period Monthly Period Monthly Period Monthly
of Years Income of Years Income of Years Income
- -------- ------- -------- ------- -------- -------
[5 17.95 14 7.28 23 5.00
6 15.18 15 6.89 24 4.85
7 13.20 16 6.54 25 4.72
8 11.71 17 6.24 26 4.60
9 10.56 18 5.98 27 4.49
10 9.64 19 5.74 28 4.38
11 8.88 20 5.53 29 4.28
12 8.26 21 5.33 30 4.19]
13 7.73 22 5.16
TABLE FOR INCOME FOR LIFE
Male/Female Male/Female Male/Female
10 Years 20 Years Refund
Age Certain Certain Certain
--- ----------- ----------- -----------
[50 $4.06/3.83 $3.96/3.77 $3.93/3.75
55 4.43/4.14 4.25/4.05 4.25/4.03
60 4.90/4.56 4.57/4.37 4.66/4.40
65 5.51/5.10 4.90/4.73 5.12/4.83
70 6.26/5.81 5.18/5.07 5.76/5.42
75 7.11/6.70 5.38/5.33 6.58/6.19
80 7.99/7.70 5.48/5.46 7.69/7.21
85 8.72/8.59 5.52/5.51 8.72/8.59
90 9.23/9.18 5.53/5.53 10.63/10.53
]
GA-IA-1043-01/98 3F
<PAGE>
<PAGE>
IMPORTANT TERMS
- -------------------------------------------------------------------------
ACCUMULATION VALUE - The amount that a Contract provides for investment
at any time. Initially, this amount is equal to the premium paid.
ANNUITANT - The person designated by the Owner to be the measuring life
in determining Annuity Payments.
ANNUITY COMMENCEMENT DATE - For each Contract, 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 Annuitant or Owner 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.
BUSINESS DAY - Any day the New York Stock Exchange ("NYSE") is open for
trading, exclusive of federal holidays, or any day on which the
Securities and Exchange Commission ("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.
CHARGE DEDUCTION DIVISION - The Division from which all charges are
deducted if so designated or elected by the Owner.
CONTINGENT ANNUITANT - The person designated by the Owner who, upon
the Annuitant's death prior to the Annuity Commencement Date,
becomes the Annuitant.
CONTRACT ANNIVERSARY - The anniversary of the Contract Date.
CONTRACT DATE - The date we received the initial premium and upon which
we begin determining the Contract values. It may not be the same as
the Contract Issue Date. This date is used to determine Contract
months, processing dates, years, and anniversaries.
CONTRACT ISSUE DATE - The date the Contract is issued at our Customer
Service Center.
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 Date will be on the Contract Anniversary of each
year.
CONTRACT PROCESSING PERIOD - The period between successive Contract
Processing Dates unless it is the first Contract Processing Period.
In that case, it is the period from the Contract Date to the first
Contract Processing Date.
CONTRACT YEAR - The period between Contract Anniversaries.
GA-IA-1043-01/98 4
<PAGE>
<PAGE>
IMPORTANT TERMS (continued)
- -------------------------------------------------------------------------
EXPERIENCE FACTOR - The factor which reflects the investment experience
of the portfolio in which a Variable Separate Account Division invests
and also reflects the charges assessed against the Division for a
Valuation Period.
GUARANTEE PERIOD - The period of years a rate of interest is guaranteed
to be credited to a Guaranteed Interest Division.
GUARANTEED DEATH BENEFIT INTEREST RATE - The annual rate at which the
Guaranteed Death Benefit is calculated.
GUARANTEED INTEREST DIVISION - An investment option available in the
General Account, an account which contains all of our assets other
than those held in our Variable Separate Accounts.
GUARANTEED INTEREST RATE - The effective annual interest rate which we
will credit for a specified Guarantee Period.
GUARANTEED MINIMUM INTEREST RATE - The minimum interest rate which can be
declared by us for allocations to a Guaranteed Interest Division.
INDEX OF INVESTMENT EXPERIENCE - The index that measures the performance
of a Variable Separate Account Division.
INITIAL PREMIUM - The payment amount required to put each Contract in
effect.
ISSUE AGE - The Annuitant's or Owner's age on the last birthday on or
before the Contract Date.
MATURITY DATE - The date on which a Guarantee Period matures.
OWNER - The person who owns a Contract and is entitled to exercise all
rights of the Contract. This person's death also initiates payment of
the death benefit.
RIDERS - Riders add provisions or change the terms of the Contract.
SPECIALLY DESIGNATED DIVISION - Distributions from a portfolio underlying
a Division in which reinvestment is not available will be allocated to
this Division unless you specify otherwise.
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.
VARIABLE SEPARATE ACCOUNT DIVISION - An investment option available in
the Variable Separate Account shown on the Schedule.
GA-IA-1043-01/98 5
<PAGE>
<PAGE>
INTRODUCTION TO THIS CONTRACT
- -------------------------------------------------------------------------
THE CONTRACT
This is a legal contract between you and us. We provide benefits as
stated in this Contract. In return, you supply us with the Initial
Premium Payment required to put this Contract in effect.
This Contract, together with any Riders or Endorsements, constitutes
the entire Contract. Riders and Endorsements add provisions or change
the terms of the basic Contract.
THE OWNER
You are the Owner of this Contract. You are also the Annuitant unless
another Annuitant has been named by you and is shown in the Schedule.
You have the rights and options described in this Contract, including
but not limited to the right to receive the Annuity Benefits on the
Annuity Commencement Date.
One or more people may own this Contract. If there are multiple
Owners named, the age of the oldest Owner will be used to determine
the applicable death benefit. In the case of a sole Owner who dies
prior to the Annuity Commencement Date, we will pay the Beneficiary
the death benefit then due. If the sole Owner is not an individual,
we will treat the Annuitant as Owner for the purpose of determining
when the Owner dies under the death benefit provision (if there is
no Contingent Annuitant), and the Annuitant's age will determine the
applicable death benefit payable to the Beneficiary. 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, the surviving Owner(s) will be deemed as the Beneficiary(ies).
THE ANNUITANT
The Annuitant is the measuring life of the Annuity Benefits provided
under this Contract. You may name a Contingent Annuitant. The
Annuitant may not be changed during the Annuitant's lifetime.
If the Annuitant dies before the Annuity Commencement Date, the
Contingent Annuitant becomes the Annuitant. You will be the
Contingent Annuitant unless you name someone else. The Annuitant must
be a natural person. If the Annuitant dies and no Contingent
Annuitant has been named, we will allow you sixty days to designate
someone other than yourself as an Annuitant. If all Owners are not
individuals and, through the operation of this provision, an Owner
becomes Annuitant, we will pay the death proceeds to the Beneficiary.
If there are joint Owners, we will treat the youngest of the Owners as
the Contingent Annuitant designated, unless you elect otherwise.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death proceeds if any
Owner dies prior to the Annuity Commencement Date. See Proceeds
Payable to the Beneficiary for more information. We pay death
proceeds to the primary Beneficiary (unless there are joint Owners in
which case the death benefit proceeds are payable to the surviving
Owner). If the primary Beneficiary dies before the Owner, the death
proceeds are paid to the Contingent Beneficiary, if any. If there is
no surviving Beneficiary, we pay the death proceeds to the Owner's
estate.
GA-IA-1043-01/98 6
<PAGE>
<PAGE>
INTRODUCTION TO THIS CONTRACT (continued)
- -------------------------------------------------------------------------
One or more persons may be named as primary Beneficiary or contingent
Beneficiary. In the case of more than one Beneficiary, we will assume
any death proceeds are to be paid in equal shares to the surviving
Beneficiaries. You can specify other than equal shares.
You have the right to change Beneficiaries, unless you designate the
primary Beneficiary irrevocable. When an irrevocable Beneficiary has
been designated, you and the irrevocable Beneficiary may have to act
together to exercise the rights and options under this Contract.
CHANGE OF OWNER OR BENEFICIARY
During your lifetime and while this Contract is in effect you can
transfer ownership of this Contract or change the Beneficiary.
To make any of these changes, you must send us written notice of
the change in a form satisfactory to us. The change will take effect
as of the day the notice is signed. The change will not affect any
payment made or action taken by us before recording the change at our
Customer Service Center. A Change of Owner may affect the amount of
death benefit payable under this Contract. See Proceeds Payable to
Beneficiary.
GA-IA-1043-01/98 7
<PAGE>
<PAGE>
PREMIUM PAYMENTS AND ALLOCATION CHARGES
- -------------------------------------------------------------------------
INITIAL PREMIUM PAYMENT
The Initial Premium Payment is required to put this Contract in
effect. The amount of the Initial Premium Payment is shown in the
Schedule.
ADDITIONAL PREMIUM PAYMENT OPTION
You may make additional Premium Payments under this Contract after the
end of the Right to Examine period. Restrictions on additional
Premium Payments, such as the Attained Age of the Annuitant or Owner
and the timing and amount of each payment, are shown in the Schedule.
We reserve the right to defer acceptance of or to return any
additional Premium Payments.
As of the date we receive and accept your additional Premium Payment:
(1) The Accumulation Value will increase by the amount of the
Premium Payment less any premium deductions as shown in the
Schedule.
(2) The increase in the Accumulation Value will be allocated among
the Divisions of the Variable Separate Account and General Account
in accordance with your instructions. If you do not provide such
instructions, allocation will be among the Divisions of the
Variable Separate Account and General Account in proportion to the
amount of Accumulation Value in each Division.
Where to Make Payments
Remit the Premium Payments to our Customer Service Center at the address
shown on the cover page. On request we will give you a receipt signed
by our treasurer.
YOUR RIGHT TO CHANGE ALLOCATION OF ACCUMULATION VALUE
You may change the allocation of the Accumulation Value among the
Divisions after the end of the Right to Examine period. The number
of free allocation changes each year that we will allow is shown in
the Schedule. To make an allocation change, you must provide us with
satisfactory notice at our Customer Service Center. The change will
take effect when we receive the notice. Restrictions for reallocation
into and out of Divisions of the Variable Separate Account and General
Account are shown in the Schedule.
WHAT HAPPENS IF A VARIABLE SEPARATE ACCOUNT DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a
unit investment trust Separate Account Division in which reinvestment
is not available, we will allocate the distribution to the Specially
Designated Division shown in the Schedule unless you specify
otherwise.
Such a distribution may occur when an investment portfolio or Division
matures, when distribution from a portfolio or Division cannot be
reinvested in the portfolio or Division due to the unavailability of
securities, or for other reasons. When this occurs because of
maturity, we will send written notice to you thirty days in advance of
such date. To elect an allocation to other than the Specially
Designated Division shown in the Schedule, you must provide
satisfactory notice to us at least seven days prior to the date the
investment matures. Such allocations will not be counted as an
allocation change of the Accumulation Value for purposes of the number
of free allocations permitted.
GA-IA-1043-01/98 8
<PAGE>
<PAGE>
HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE
- -------------------------------------------------------------------------
The variable Annuity Benefits under this Contract are provided through
investments which may be made in our Separate Accounts.
THE VARIABLE SEPARATE ACCOUNTS
These accounts, which are designated in the Schedule, are kept
separate from our General Account and any other Separate Accounts we
may have. They are used to support Variable Annuity Contracts and may
be used for other purposes permitted by applicable laws and
regulations. We own the assets in the Separate Accounts. Assets
equal to the reserves and other liabilities of the accounts will not
be charged with liabilities that arise from any other business we
conduct; but, we may transfer to our General Account assets which
exceed the reserves and other liabilities of the Variable Separate
Accounts. Income and realized and unrealized gains or losses from
assets in these Variable Separate Accounts are credited to or charged
against the account without regard to other income, gains or losses in
our other investment accounts.
The Variable Separate Account will invest in mutual funds, unit
investment trusts and other investment portfolios which we determine
to be suitable for this Contract's purposes. The Variable Separate
Account is treated as a unit investment trust under Federal securities
laws. It is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940. The Variable
Separate Account is also governed by state law as designated in the
Schedule. The trusts may offer non-registered series.
Variable Separate Account Divisions
A unit investment trust Separate Account includes Divisions, each
investing in a designated investment portfolio. The Divisions and the
investment portfolios designated may be managed by a separate
investment adviser. Such adviser may be registered under the
Investment Advisers Act of 1940.
Changes within the Variable Separate Accounts
We may, from time to time, make additional Variable Separate Account
Divisions available to you. These Divisions will invest in investment
portfolios we find suitable for this Contract. We also have the right
to eliminate Divisions from a Variable Separate Account, 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 or Division no longer suits
the purpose of this 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 or Division is no longer
available for investment, or for some other reason. We may get prior
approval from the insurance department of our state of domicile before
making such a substitution. We will also get any required approval
from the SEC and any other required approvals before making such a
substitution.
Subject to any required regulatory approvals, we reserve the right to
transfer assets of the Variable Separate Account which we determine to
be associated with the class of contracts to which this Contract
belongs, to another Variable Separate Account or Division.
When permitted by law, we reserve the right to:
(1) deregister a Variable Separate Account under the Investment
Company Act of 1940;
(2) operate a Variable Separate Account as a management company
under the Investment Company Act of 1940, if it is operating as
a unit investment trust;
(3) operate a Variable Separate Account as a unit investment
trust under the Investment Company Act of 1940, if it is
operating as a managed Variable Separate Account;
(4) restrict or eliminate any voting rights of Owners, or other
persons who have voting rights to a Variable Separate Account;
and
(5) combine a Variable Separate Account with other Variable
Separate Accounts.
GA-IA-1043-01/98 9
<PAGE>
<PAGE>
HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
THE GENERAL ACCOUNT
The General Account contains all assets of the Company other than
those in the Separate Accounts we establish. The Guaranteed Interest
Divisions available for investment are shown in the Schedule. We may,
from time to time, offer other Divisions where assets are held in our
General Account.
VALUATION PERIOD
Each Division will be valued at the end of each Valuation Period on a
Valuation Date. A Valuation Period is each Business Day together with
any non-Business Days before it. A Business Day is any day the New
York Stock Exchange (NYSE) is open for trading, and the SEC requires
mutual funds, unit investment trusts, or other investment portfolios
to value their securities.
ACCUMULATION VALUE
The Accumulation Value of this Contract is the sum of the amounts in
each of the Divisions of the Variable Separate Account and General
Account. You select the Divisions of the Variable Separate Account
and General Account to which to allocate the Accumulation Value. The
maximum number of Divisions to which the Accumulation Value may be
allocated at any one time is shown in the Schedule.
ACCUMULATION VALUE IN EACH DIVISION
On the Contract Date
On the Contract Date, the Accumulation Value is allocated to each
Division as elected by you, subject to certain terms and conditions
imposed by us. We reserve the right to allocate premium to the
Specially Designated Division during any Right to Examine Contract
Period. After such time, allocation will be made proportionately in
accordance with the initial allocation(s) as elected by you.
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 Variable Separate Account Division's
Net Rate of Return for the current Valuation Period or we
calculate interest to be credited to a Guaranteed Interest
Division for the current Valuation Period.
(3) We add (1) and (2).
(4) We add to (3) any additional Premium Payments (less any
premium deductions as shown in the Schedule) 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 which are
allocated to the Division during the current Valuation
Period.
(7) We subtract from (6) the amounts allocated to that
Division for:
(a) any charges due for the Optional Benefit Riders as
shown in the Schedule;
(b) any deductions from Accumulation Value as shown in the
Schedule.
All amounts in (7) are allocated to each Division in the proportion
that (6) bears to the Accumulation Value unless the Charge Deduction
Division has been specified (see the Schedule).
GA-IA-1043-01/98 10
<PAGE>
<PAGE>
HOW WE MEASURE THE CONTRACT'S ACCUMULATION VALUE (continued)
- -------------------------------------------------------------------------
MEASUREMENT OF INVESTMENT EXPERIENCE
Index of Investment Experience
The Investment Experience of a Variable Separate Account Division is
determined on each Valuation Date. We use an Index to measure changes
in each Division's experience during a Valuation Period. We set the
Index at $10 when the first investments in a Division are made. The
Index for a current Valuation Period equals the Index for the
preceding Valuation Period multiplied by the Experience Factor for the
current Valuation Period.
How We Determine the Experience Factor
For Divisions of a unit investment trust Separate Account the
Experience Factor reflects the Investment Experience of the portfolio
in which the 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 daily Mortality and Expense Risk Charge for
each Division shown in the Schedule for each day in the Valuation
Period.
(5) We subtract the daily Asset Based Administrative Charge
shown in the Schedule for each day in the Valuation Period.
Calculations for Divisions investing in unit investment trusts are on
a per unit basis.
Net Rate of Return for a Variable Separate Account Division
The Net Rate of Return for a Variable Separate Account Division during
a Valuation Period is the Experience Factor for that Valuation Period
minus one.
Interest Credited to a Guaranteed Interest Division
Accumulation Value allocated to a Guaranteed Interest Division will be
credited with the Guaranteed Interest Rate for the Guarantee Period in
effect on the date the premium or reallocation is applied. Once
applied, such rate will be guaranteed until the Maturity Date of that
Guarantee Period. Interest will be credited daily at a rate to yield
the declared annual effective Guaranteed Interest Rate. No Guaranteed
Interest Rate will be less than the Minimum Interest Rate shown in the
Schedule.
CHARGES DEDUCTED FROM ACCUMULATION VALUE ON EACH CONTRACT PROCESSING DATE
Expense charges and fees are shown in the Schedule.
Charge Deduction Division Option
We will deduct all charges against the Accumulation Value of this
Contract from the Charge Deduction Division if you elected this option
on the application (see the Schedule). If you did not elect this
Option or if the charges are greater than the amount in the Charge
Deduction Division, the charges against the Accumulation Value will
be deducted as follows:
(1) If these charges are less than the Accumulation Value in the
Variable Separate Account Divisions, they will be deducted
proportionately from all Divisions.
(2) If these charges exceed the Accumulation Value in the
Variable Separate Account Divisions, any excess over such value
will be deducted proportionately from Guaranteed Interest
Divisions.
Any charges taken from the General Account will be taken from the
Guaranteed Interest Divisions starting with the Guarantee Period
nearest its Maturity Date until such charges have been paid. At
any time while this Contract is in effect, you may change your
election of this Option. To do this you must send us a written request
to our Customer Service Center. Any change will take effect within seven
days of the date we receive your request.
GA-IA-1043-01/98 11
<PAGE>
<PAGE>
YOUR CONTRACT BENEFITS
- -------------------------------------------------------------------------
While this Contract is in effect, there are important rights and
benefits that are available to you. We discuss these rights and
benefits in this section.
CASH VALUE BENEFIT
Cash Surrender Value
The Cash Surrender Value, while the Annuitant is living and before the
Annuity Commencement Date, is determined as follows:
(1) We take the Contract's Accumulation Value;
(2) We deduct any Surrender Charge;
(3) We deduct any charges shown in the Schedule that have been
incurred but not yet deducted, including;
(a) any administrative fee that has not yet been deducted;
(b) the pro rata part of any charges for Optional Benefit
Riders; and
(c) any applicable premium or other tax.
Cancelling to Receive the Cash Surrender Value
At any time while the Annuitant is living and before the Annuity
Commencement Date, you may surrender this Contract to us. To do this,
you must return this Contract with a signed request for cancellation
to our Customer Service Center.
The Cash Surrender Value will vary daily. We will determine the Cash
Surrender Value as of the date we receive the Contract and your signed
request in our Customer Service Center. All benefits under this
Contract will then end.
We will usually pay the Cash Surrender Value within seven days; but,
we may delay payment as described in the Payments We May Defer
provision.
PARTIAL WITHDRAWAL OPTION
After the Contract Date, you may make Partial Withdrawals. The
minimum amount that may be withdrawn is shown in the Schedule. For
purposes of calculating any Surrender Charge, any Partial Withdrawal
you take will not be considered premium, unless it is an Excess
Partial Withdrawal. To take a Partial Withdrawal, you must provide us
satisfactory notice at our Customer Service Center.
PROCEEDS PAYABLE TO THE BENEFICIARY
Prior to the Annuity Commencement Date
If the sole Owner dies prior to the Annuity Commencement Date, we will
pay the Beneficiary the death benefit. If there are joint Owners and
any Owner dies, we will pay the surviving Owners the death benefit.
We will pay the amount on receipt of due proof of the Owner's death at
our Customer Service Center. Such amount may be received in a single
lump sum or applied to any of the Annuity Options (see Choosing an
Income Plan). When the Owner (or all Owners where there are joint
Owners) is not an individual, the death benefit will become payable on
the death of the Annuitant prior to the Annuity Commencement Date
(unless a Contingent Annuitant survived the Annuitant). Only one
death benefit is payable under this Contract. In all events,
distributions under the Contract must be made as required by
applicable law.
How to Claim Payments to Beneficiary
We must receive proof of the Owner's (or the Annuitant's) death 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.
GA-IA-1043-01/98 12
<PAGE>
<PAGE>
CHOOSING AN INCOME PLAN
- -------------------------------------------------------------------------
ANNUITY BENEFITS
If the Annuitant and Owner are living on the Annuity Commencement
Date, we will begin making payments to the Owner. We will make these
payments under the Annuity Option (or Options) as chosen in the
application or as subsequently selected. You may choose or change an
Annuity Option by making a written request at least 30 days prior to the
Annuity Commencement Date. Unless you have chosen otherwise, Option 2
on a 10-year period certain basis will become effective. The amounts
of the payments will be determined by applying the Accumulation Value on
the Annuity Commencement Date in accordance with the Annuity Options
section below (see Payments We Defer). Before we pay any Annuity
Benefits, we require the return of this Contract. If this Contract
has been lost, we require the applicable lost Contract form.
ANNUITY COMMENCEMENT DATE SELECTION
You select the Annuity Commencement Date. You may select any date
following the fifth Contract Anniversary but before the required date
of Annuity Commencement as shown in the Schedule. If you do not
select a date, the Annuity Commencement Date will be in the month
following the required date of Annuity Commencement.
FREQUENCY SELECTION
You may 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.
THE INCOME PLAN
While this Contract is in effect and before the Annuity Commencement
Date, you may chose one or more Annuity Options for the payment of
death benefits proceeds. If, at the time of the Owner's death, no
Option has been chosen for paying the death benefit proceeds, the
Beneficiary may choose an Option within one year. You may also elect
an Annuity Option on surrender of the Contract for its Cash Surrender
Value. For each Option we will issue a separate written agreement
putting the Option into effect.
Our approval is needed for any Option where:
(1) the person named to receive payment is other than the Owner
or Beneficiary; or
(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 shown in the Schedule.
THE ANNUITY OPTIONS
There are four Options to choose from. They are:
Option 1. Income for a Fixed Period
Payment is made in equal installments for a fixed number of years. We
guarantee each monthly payment will be at least the Income for Fixed
Period amount shown in the Schedule. Values for annual, semiannual or
quarterly payments are available on request.
GA-IA-1043-01/98 13
<PAGE>
<PAGE>
CHOOSING AN INCOME PLAN (continued)
- -------------------------------------------------------------------------
Option 2. Income for Life
Payment is made to the person named in equal monthly installments and
guaranteed for at least a period certain. The period certain can be
10 or 20 years. Other periods certain are 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 Guarantee Period, payments continue until his
or her death.
We guarantee each payment will be at least the amount shown in the
Schedule. By age, we mean the named person's age on his or her last
birthday before the Option's effective date. Amounts for ages not
shown are available on 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
of Beneficiary of this Contract. Monthly payments are guaranteed and
are made as long as at least one of the named persons is living. The
monthly payment amounts are available upon request. Such amounts are
guaranteed and will be calculated on the same basis as the Table for
Income for Life, however, the amounts will be based on two lives.
Option 4. Annuity Plan
An amount can be used to buy any single premium immediate annuity
we choose to offer for the Option's effective date.
The minimum rates for Option 1 are based on 3% interest, compounded
annually. The minimum rates for Options 2 and 3 are based on 3%
interest, compounded annually, and the Annuity 2000 Mortality Table.
We may pay a higher rate at our discretion.
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 for any remaining guaranteed payments in
Option 2, payments will be continued.
(2) For Option 3, no amounts are payable after both named
persons have died.
(3) For Option 4, the annuity agreement will state the amount
due, if any.
GA-IA-1043-01/98 14
<PAGE>
<PAGE>
OTHER IMPORTANT INFORMATION
- -------------------------------------------------------------------------
SENDING NOTICE TO US
Whenever written notice is required, send it to our Customer Service
Center. The address of our Customer Service Center is shown on the
cover page. Please include your Contract number in all correspondence.
REPORTS TO OWNER
We will send you a report at least once during each Contract Year.
The report will show the Accumulation Value and the Cash Surrender
Value as of the end of the Contract Processing Period. The report
will also show the allocation of the 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 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 in which the Divisions of the Variable Separate Account
invest, as well as any other reports, notices or documents required by
law to be furnished to Owners.
ASSIGNMENT - USING THIS CONTRACT AS COLLATERAL SECURITY
You can assign this Contract as collateral security for a loan or
other obligation. This does not change the ownership. Your rights
and any Beneficiary's right are subject to the terms of the
assignment. To make or release an assignment, we must receive
written notice satisfactory to us, at our Customer Service Center.
We are not responsible for the validity of any assignment.
CHANGING THIS CONTRACT
This Contract or any additional benefit riders may be changed to
another annuity plan according to our rules at the time of the change.
CONTRACT CHANGES - APPLICABLE TAX LAW
We reserve the right to make changes in this Contract or its Riders to
the extent we deem it necessary to continue to qualify this 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.
MISSTATEMENT OF AGE OR SEX
If an age or sex has been misstated, the amounts payable or benefits
provided by this Contract will be those that the Premium Payment made
would have bought at the correct age or sex.
NON-PARTICIPATING
This Contract does not participate in the divisible surplus of Golden
American Life Insurance Company.
GA-IA-1043-01/98 15
<PAGE>
<PAGE>
OTHER IMPORTANT INFORMATION (continued)
- -------------------------------------------------------------------------
PAYMENTS WE MAY DEFER
We may not be able to determine the value of the assets of the
Variable Separate Account Divisions 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 of the
Variable Separate Account, we may delay;
(1) determination and payment of the Cash Surrender Value;
(2) determination and payment of any death benefit if death
occurs before the Annuity Commencement Date;
(3) allocation changes of the Accumulation Value; or
(4) application of the Accumulation Value under an income plan.
As to the amounts allocated to a Guaranteed Interest Division in the
General Account, we may, at any time, defer payment of the Cash
Surrender Value for up to six months after we receive a request for
it. We will allow interest of at least 3.00% a year on any Cash
Surrender Value payment derived from the Guaranteed Interest
Divisions that we defer 30 days or more.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by one of our officers. No
other person, including an insurance agent or broker, can:
(1) change any of this Contract's terms;
(2) extend the time for Premium Payments; or
(3) make any agreement binding on us.
REQUIRED NOTE ON OUR COMPUTATIONS
We have filed a detailed statement of our computations with the
insurance supervisory official in the jurisdiction where this Contract
is delivered. The values are not less than those required by the law
of that state or jurisdiction. Any benefit provided by an attached
Optional Benefit Rider will not increase these values unless otherwise
stated in that Rider.
GA-IA-1043-01/98 16
<PAGE>
<PAGE>
DEFERRED VARIABLE ANNUITY CONTRACT - NO DIVIDENDS
- -------------------------------------------------------------------------
Variable Cash Surrender Values while the Annuitant and Owner are living
and prior to the Annuity Commencement Date. Death benefit subject to
guaranteed minimum. Additional Premium Payment Option. Partial
Withdrawal Option. Non-participating. Investment results reflected in
values.
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 4(e)
GOLDEN AMERICAN
LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
APPLICATION
CUSTOMER SERVICE CENTER, P. O. Box 2700, West Chester, PA 19380-2700
- - --------------------------------------------------------------------------
1. (a) OWNER(S)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth
1. (b) JOINT OWNER
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Date of Birth
- - --------------------------------------------------------------------------
2. ANNUITANT (IF OTHER THAN OWNER)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth Relation
to Owner
- - --------------------------------------------------------------------------
3. PLAN (CHECK ONE)
- - --------------------------------------------------------------------------
(a)/ / DVA PLUS (b)/ / PREMIUM PLUS (c)/ / ES II (d)/ / ACCESS
(e)/ / VALUE (f)/ / Other _________________
- - --------------------------------------------------------------------------
4. DEATH BENEFIT OPTIONS
- - --------------------------------------------------------------------------
(a) / / 7% Solution-Enhanced #1 (b) / / Annual Ratchet-Enhanced #2
(Not available with ES II or Value) (Not available with ES II or Value)
(c) / / Standard
- - --------------------------------------------------------------------------
5. INITIAL PREMIUM AND ALLOCATION INFORMATION
- - --------------------------------------------------------------------------
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN
AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for premium allocation below (see (A)
INITIAL)
(B) DOLLAR COST AVERAGING (DCA): Optional. Please check box to elect.
/ /
Amount to be transferred monthly $_________
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division / / Liquid Asset Division
/ / 1-Year Fixed Allocation
Divisions Transferred To: Fill in percentages for allocation
of DCA below (see (B) DCA)
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A)INITIAL (B) DCA
<S> <C> <C> <C>
RESEARCH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
MID-CAP GROWTH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
TOTAL RETURN MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
SMALL CAP FRED ALGER MANAGEMENT, INC. % %
GROWTH & INCOME ALLIANCE CAPITAL MANAGEMENT L. P. % %
GROWTH JANUS CAPITAL CORPORATION % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
STRATEGIC EQUITY AIM CAPITAL MANAGEMENT, INC. % %
MULTIPLE ALLOCATION ZWEIG ADVISORS INC. % %
RISING DIVIDENDS KAYNE ANDERSON INV. MGMT., LLC % %
CAPITAL APPRECIATION AIM CAPITAL MANAGEMENT, INC. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
INTERNATIONAL
EQUITY/1/ WARBURG PINCUS ASSET MANAGEMENT, INC. % %
MANAGED GLOBAL /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
EMERGING MARKETS /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
HARD ASSETS BARING INTERNATIONAL INVESTMENT LIMITED % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
GLOBAL FIXED
INCOME /3/ BARING INTERNATIONAL INVESTMENT LIMITED % %
LIMITED MATURITY BOND ING INVESTMENT MANAGEMENT, LLC % %
LIQUID ASSET ING INVESTMENT MANAGEMENT, LLC % %
DEVELOPING WORLD BARING INTERNATIONAL INVESTMENT LIMITED % %
HIGH YIELD BOND PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
STOCKSPLUS GROWTH AND
INCOME PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
FIXED ALLOCATION
ELECTION / / 1-YEAR / / 3-YEAR / / 5-YEAR
/ / 7-Year / / 10-YEAR % %
FIXED ALLOCATION
ELECTION / / ___________YEAR % %
TOTAL 100% 100%
</TABLE>
/1/ NOT AVAILABLE WITH DVA PLUS OR ACCESS /2/ AVAILABLE ONLY WITH
DVAPLUS AND ACCESS
GA-AA-1032-6/97 03/01/1999
<PAGE>
- - --------------------------------------------------------------------------
6. BENEFICIARY(IES) (IF MORE THAN ONE INDICATE %)
- - --------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Contingent
Name:
- - --------------------------------------------------------------------------
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
- - --------------------------------------------------------------------------
If you want to receive Systematic Partial Withdrawals, your request
must be received in writing. For the appropriate form, please call our
Customer Service Center: 1-800-366-0066.
- - --------------------------------------------------------------------------
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
- - --------------------------------------------------------------------------
I authorize Golden American to act upon reallocation instructions
given by telephone from _______________ (name of your registered
representative) upon furnishing his/her social security number.
Neither Golden American nor any person authorized by Golden American
will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from
such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this
authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above
is no longer affiliated with the broker/dealer under which my contract
was purchased or until such time that I notify Golden American
otherwise in writing.
- - --------------------------------------------------------------------------
9. TAX-QUALIFIED PLANS If you are funding a qualified plan, please
specify type:
- - --------------------------------------------------------------------------
/ / IRA / / IRA Rollover / / SEP/IRA / /Roth IRA
/ / Other ________________________
- - --------------------------------------------------------------------------
10. REPLACEMENT
- - --------------------------------------------------------------------------
Will the coverage applied for replace any existing annuity or life
insurance coverage?
/ / Yes (If yes, please complete following) / / No
- - --------------------------------------------------------------------------
Company Name Policy Number Face Amount
- - --------------------------------------------------------------------------
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
- - --------------------------------------------------------------------------
- BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I AGREE
THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS APPLICATION ARE COMPLETE AND TRUE AND MAY BE RELIED
UPON IN DETERMINING WHETHER TO ISSUE THE CONTRACT. MY ANSWERS WILL FORM
A PART OF ANY CONTRACT TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN
AMERICAN HAVE THE AUTHORITY TO MODIFY THIS APPLICATION.
- CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES
WHICH FUND CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY
OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
AND ARE NOT BANK GUARANTEED. ALSO, THEY ARE SUBJECT TO MARKET
FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- I UNDERSTAND THAT THE CONTRACT'S CASH SURRENDER VALUE, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT DIVISION, MAY
INCREASE OR DECREASE ON ANY DAY AND THAT NO MINIMUM VALUE IS GUARANTEED.
THE CONTRACT'S COVERAGE IS IN ACCORD WITH MY ANTICIPATED FINANCIAL NEEDS.
- I UNDERSTAND THAT ANY AMOUNT ALLOCATED TO THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH MAY CAUSE THE VALUES TO
INCREASE OR DECREASE, PRIOR TO A SPECIFIED DATE OR DATES AS SPECIFIED
IN THE CONTRACT.
______________________________________ _____________________________
Signature of Owner Signed at (City, State) Date
______________________________________ _____________________________
Signature of Joint Owner (if applicable) Signed at (City, State) Date
______________________________________ _____________________________
Signature of Annuitant (if other than Signed at (City, State) Date
Owner)
Client Account No. (if applicable)_____________________
- - --------------------------------------------------------------------------
FOR AGENT USE ONLY
- - --------------------------------------------------------------------------
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE
ANY EXISTING ANNUITY OR LIFE INSURANCE COVERAGE?
/ / YES / / NO
__________________________ ________________________ ___________________
Agent Signature Print Agent Name & No. Social Security No.
__________________________________
Broker/Dealer/Branch
- - --------------------------------------------------------------------------
Commission Alternative (select one): / / A / / B / / C / / D
- - --------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P. O. Box 2700, West Chester, PA 19380-2700
1-800-366-0066
GA-AA-1032-6/97
<PAGE>
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 4(f)
GOLDEN AMERICAN
LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
ENROLLMENT FORM
CUSTOMER SERVICE CENTER, P. O. Box 2700, West Chester, PA 19380-2700
- - --------------------------------------------------------------------------
1. (a) OWNER(S)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth
1. (b) JOINT OWNER
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Date of Birth
- - --------------------------------------------------------------------------
2. ANNUITANT (IF OTHER THAN OWNER)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth Relation
to Owner
- - --------------------------------------------------------------------------
3. PLAN (CHECK ONE)
- - --------------------------------------------------------------------------
(a) / / DVA PLUS (b) / / PREMIUM PLUS (c) / / ES II (d) / / ACCESS
(e) / / VALUE (f) / / Other _________________
- - --------------------------------------------------------------------------
4. DEATH BENEFIT OPTIONS
- - --------------------------------------------------------------------------
(a) / / 7% Solution -- Enhanced #1 (b) / / Annual Ratchet -- Enhanced #2
(Not available with ES II or Value) (Not available with ES II or Value)
(c) / / Standard
- - --------------------------------------------------------------------------
5. INITIAL PREMIUM AND ALLOCATION INFORMATION
- - --------------------------------------------------------------------------
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN
AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for premium allocation below (see (A) INITIAL)
(B) DOLLAR COST AVERAGING (DCA): Optional. Please check box to elect.
/ /
Amount to be transferred monthly $_________
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division / / Liquid Asset Division
/ / 1-Year Fixed Allocation
Divisions Transferred To: Fill in percentages for allocation of DCA
below (see (B) DCA)
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A)INITIAL (B) DCA
<S> <C> <C> <C>
RESEARCH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
MID-CAP GROWTH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
TOTAL RETURN MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
SMALL CAP FRED ALGER MANAGEMENT, INC. % %
GROWTH & INCOME ALLIANCE CAPITAL MANAGEMENT L. P. % %
GROWTH JANUS CAPITAL CORPORATION % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
STRATEGIC EQUITY AIM CAPITAL MANAGEMENT, INC. % %
MULTIPLE ALLOCATION ZWEIG ADVISORS INC. % %
RISING DIVIDENDS KAYNE ANDERSON INV. MGMT., LLC % %
CAPITAL APPRECIATION AIM CAPITAL MANAGEMENT, INC. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
INTERNATIONAL
EQUITY/1/ WARBURG PINCUS ASSET MANAGEMENT, INC. % %
MANAGED GLOBAL /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
EMERGING MARKETS /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
HARD ASSETS BARING INTERNATIONAL INVESTMENT LIMITED % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
GLOBAL FIXED
INCOME /3/ BARING INTERNATIONAL INVESTMENT LIMITED % %
LIMITED MATURITY BOND ING INVESTMENT MANAGEMENT, LLC % %
LIQUID ASSET ING INVESTMENT MANAGEMENT, LLC % %
DEVELOPING WORLD BARING INTERNATIONAL INVESTMENT LIMITED % %
HIGH YIELD BOND PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
STOCKSPLUS GROWTH AND
INCOME PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
FIXED ALLOCATION
ELECTION / / 1-YEAR / / 3-YEAR / / 5-YEAR
/ / 7-Year / / 10-YEAR % %
FIXED ALLOCATION
ELECTION / / ____________YEAR % %
TOTAL 100% 100%
</TABLE>
/1/ NOT AVAILABLE WITH DVA PLUS OR ACCESS /2/ AVAILABLE ONLY WITH
DVA PLUS AND ACCESS
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY
OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE CONTAINING ANY
MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF MISLEADING
INFORMATION CONCERNING ANY FACT MATERIAL THERE TO, COMMITS A FRAUDULENT
INSURANCE ACT, WHICH IS A CRIME.
GA-EA-1032-6/97 03/01/1999
<PAGE>
- - -------------------------------------------------------------------------
6. BENEFICIARY(IES) (IF MORE THAN ONE 4INDICATE %)
- - -------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Contingent
Name:
- - --------------------------------------------------------------------------
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
- - --------------------------------------------------------------------------
If you want to receive Systematic Partial Withdrawals, your request
must be received in writing. For the appropriate form, please call our
Customer Service Center: 1-800-366-0066.
- - --------------------------------------------------------------------------
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
- - --------------------------------------------------------------------------
I authorize Golden American to act upon reallocation instructions
given by telephone from _______________ (name of your registered
representative) upon furnishing his/her social security number.
Neither Golden American nor any person authorized by Golden American
will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from
such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this
authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above
is no longer affiliated with the broker/dealer under which my contract
was purchased or until such time that I notify Golden American
otherwise in writing.
- - --------------------------------------------------------------------------
9. TAX-QUALIFIED PLANS If you are funding a qualified plan, please
specify type.
- - --------------------------------------------------------------------------
/ / IRA / / IRA Rollover / / SEP/IRA / / Roth IRA
/ / Other ________________________
- - --------------------------------------------------------------------------
10. REPLACEMENT
- - --------------------------------------------------------------------------
Will the coverage applied for replace any existing annuity or life
insurance coverage?
/ / Yes (If yes, please complete following) / / No
- - --------------------------------------------------------------------------
Company Name Policy Number Face Amount
- - --------------------------------------------------------------------------
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
- - --------------------------------------------------------------------------
- BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I AGREE
THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS ENROLLMENT FORM ARE COMPLETE AND TRUE AND MAY BE RELIED
UPON IN DETERMINING WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL
FORM A PART OF ANY CERTIFICATE TO BE ISSUED, AND ONLY THE OWNER AND
GOLDEN AMERICAN HAVE THE AUTHORITY TO MODIFY THIS ENROLLMENT FORM.
- CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES
WHICH FUND CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY
OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
AND ARE NOT BANK GUARANTEED. ALSO, THEY ARE SUBJECT TO MARKET
FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- I UNDERSTAND THAT THE CERTIFICATE'S CASH SURRENDER VALUE, WHEN
BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT DIVISION, MAY
INCREASE OR DECREASE ON ANY DAY AND THAT NO MINIMUM VALUE IS GUARANTEED.
THE CERTIFICATE'S COVERAGE IS IN ACCORD WITH MY ANTICIPATED FINANCIAL
NEEDS.
- I UNDERSTAND THAT ANY AMOUNT ALLOCATED TO THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH MAY CAUSE THE VALUES
TO INCREASE OR DECREASE, PRIOR TO A SPECIFIED DATE OR DATES AS SPECIFIED
IN THE CERTIFICATE.
______________________________________ _____________________________
Signature of Owner Signed at (City, State) Date
______________________________________ _____________________________
Signature of Joint Owner (if applicable) Signed at (City, State) Date
______________________________________ _____________________________
Signature of Annuitant (if other than Signed at (City, State) Date
Owner)
Client Account No. (if applicable)_____________________
- - --------------------------------------------------------------------------
FOR AGENT USE ONLY
- - --------------------------------------------------------------------------
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE
ANY EXISTING ANNUITY OR LIFE INSURANCE COVERAGE?
/ / YES / / NO
__________________________ ________________________ ___________________
Agent Signature Print Agent Name & No. Social Security No.
__________________________________
Broker/Dealer/Branch
- - --------------------------------------------------------------------------
Commission Alternative (select one): / / A / / B / / C / / D
- - --------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P. O. Box 2700, West Chester, PA 19380-2700
1-800-366-0066
GA-EA-1032-6/97
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 4(g)
GOLDEN AMERICAN
LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
APPLICATION
CUSTOMER SERVICE CENTER, P. O. Box 2700, West Chester, PA 19380-2700
- - --------------------------------------------------------------------------
1. (a) OWNER(S)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth
1. (b) JOINT OWNER
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Date of Birth
- - --------------------------------------------------------------------------
2. ANNUITANT (IF OTHER THAN OWNER)
- - --------------------------------------------------------------------------
Name Male Female Soc. Sec. # or Tax ID.#
/ / / /
- - --------------------------------------------------------------------------
Permanent Address Phone ( )
- - --------------------------------------------------------------------------
City State Zip Date of Birth Relation
to Owner
- - --------------------------------------------------------------------------
3. PLAN (CHECK ONE)
- - --------------------------------------------------------------------------
(a) / / DVA PLUS (b) / / PREMIUM PLUS (c) / / ES II (d) / / ACCESS
(e) / / VALUE (f) / / Other _________________
- - --------------------------------------------------------------------------
4. DEATH BENEFIT OPTIONS
- - --------------------------------------------------------------------------
(a) / / 7% Solution -- Enhanced #1 (b) / / Annual Ratchet -- Enhanced #2
(Not available with ES II or Value) (Not available with ES II or Value)
(c) / / Standard
- - --------------------------------------------------------------------------
5. INITIAL PREMIUM AND ALLOCATION INFORMATION
- - --------------------------------------------------------------------------
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN
AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for premium allocation below (see (A) INITIAL)
(B) DOLLAR COST AVERAGING (DCA): Optional. Please check box to elect.
/ /
Amount to be transferred monthly $_________
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division / / Liquid Asset Division
/ / 1-Year Fixed Allocation
Divisions Transferred To: Fill in percentages for allocation of DCA
below (see (B) DCA)
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
<S> <C> <C> <C>
RESEARCH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
MID-CAP GROWTH MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
TOTAL RETURN MASSACHUSETTS FINANCIAL SERVICES % %
COMPANY (MFS)
SMALL CAP FRED ALGER MANAGEMENT, INC. % %
GROWTH & INCOME ALLIANCE CAPITAL MANAGEMENT L. P. % %
GROWTH JANUS CAPITAL CORPORATION % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
STRATEGIC EQUITY AIM CAPITAL MANAGEMENT, INC. % %
MULTIPLE ALLOCATION ZWEIG ADVISORS INC. % %
RISING DIVIDENDS KAYNE ANDERSON INV. MGMT., LLC % %
CAPITAL APPRECIATION AIM CAPITAL MANAGEMENT, INC. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
INTERNATIONAL
EQUITY/1/ WARBURG PINCUS ASSET MANAGEMENT, INC. % %
MANAGED GLOBAL /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
EMERGING MARKETS /2/ PUTNAM INVESTMENT MANAGEMENT, INC. % %
HARD ASSETS BARING INTERNATIONAL INVESTMENT LIMITED % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
GLOBAL FIXED
INCOME /3/ BARING INTERNATIONAL INVESTMENT LIMITED % %
LIMITED MATURITY BOND ING INVESTMENT MANAGEMENT, LLC % %
LIQUID ASSET ING INVESTMENT MANAGEMENT, LLC % %
DEVELOPING WORLD BARING INTERNATIONAL INVESTMENT LIMITED % %
HIGH YIELD BOND PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
STOCKSPLUS GROWTH AND
INCOME PACIFIC INVESTMENT MANAGEMENT
COMPANY (PIMCO) % %
GUARANTEED INTEREST
DIVISION / / 1-YEAR / / 3-YEAR / / 5-YEAR
/ / 7-YEAR % %
GUARANTEED INTEREST
DIVISION / / ____________YEAR % %
TOTAL 100% 100%
</TABLE>
/1/ NOT AVAILABLE WITH DVA PLUS OR ACCESS /2/ AVAILABLE ONLY WITH DVA
PLUS AND ACCESS
GA-AA-1033-6/97 03/01/1999
<PAGE>
- - --------------------------------------------------------------------------
6. BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
- - --------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Primary Relationship
Name: to Owner
- - --------------------------------------------------------------------------
Contingent
Name:
- - --------------------------------------------------------------------------
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
- - --------------------------------------------------------------------------
If you want to receive Systematic Partial Withdrawals, your request
must be received in writing. For the appropriate form, please call our
Customer Service Center: 1-800-366-0066.
- - --------------------------------------------------------------------------
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
- - --------------------------------------------------------------------------
I authorize Golden American to act upon reallocation instructions
given by telephone from _______________ (name of your registered
representative) upon furnishing his/her social security number.
Neither Golden American nor any person authorized by Golden American
will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from
such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this
authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above
is no longer affiliated with the broker/dealer under which my contract
was purchased or until such time that I notify Golden American
otherwise in writing.
- - --------------------------------------------------------------------------
9. TAX-QUALIFIED PLANS If you are funding a qualified plan, please
specify type:
- - --------------------------------------------------------------------------
/ / IRA / / IRA Rollover / / SEP/IRA / / Roth IRA
/ / Other ________________________
- - --------------------------------------------------------------------------
10. REPLACEMENT
- - --------------------------------------------------------------------------
Will the coverage applied for replace any existing annuity or life
insurance coverage?
/ / Yes (If yes, please complete following) / / No
- - --------------------------------------------------------------------------
Company Name Policy Number Face Amount
- - --------------------------------------------------------------------------
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
- - --------------------------------------------------------------------------
- BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I AGREE
THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS APPLICATION ARE COMPLETE AND TRUE AND MAY BE RELIED
UPON IN DETERMINING WHETHER TO ISSUE THE CONTRACT. MY ANSWERS WILL FORM
A PART OF ANY CONTRACT TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN
AMERICAN HAVE THE AUTHORITY TO MODIFY THIS APPLICATION.
- CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES
WHICH FUND CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY
OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
AND ARE NOT BANK GUARANTEED. ALSO, THEY ARE SUBJECT TO MARKET
FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- I UNDERSTAND THAT THE CONTRACT'S CASH SURRENDER VALUE, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT DIVISION, MAY
INCREASE OR DECREASE ON ANY DAY AND THAT NO MINIMUM VALUE IS GUARANTEED.
THE CONTRACT'S COVERAGE IS IN ACCORD WITH MY ANTICIPATED FINANCIAL NEEDS.
______________________________________ _____________________________
Signature of Owner Signed at (City, State) Date
______________________________________ _____________________________
Signature of Joint Owner (if applicable) Signed at (City, State) Date
______________________________________ _____________________________
Signature of Annuitant (if other than Signed at (City, State) Date
Owner)
Client Account No. (if applicable)_____________________
- - --------------------------------------------------------------------------
FOR AGENT USE ONLY
- - --------------------------------------------------------------------------
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE
ANY EXISTING ANNUITY OR LIFE INSURANCE COVERAGE?
/ / YES / / NO
__________________________ ________________________ ___________________
Agent Signature Print Agent Name & No. Social Security No.
__________________________________
Broker/Dealer/Branch
- - --------------------------------------------------------------------------
Commission Alternative (select one): / / A / / B / / C / / D
- - --------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P. O. Box 2700, West Chester, PA 19380-2700
1-800-366-0066
GA-AA-1033-6/97
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 5
ING VARIABLE ANNUITIES
MYLES R. TASHMAN
Executive Vice President,
General Counsel and Secretary
April 20, 1999
Members of the Board of Directors
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380-1478
Ms. Emory 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;
(4) The interests in the Contracts will, when issued and sold in the
manner described in the registration statement, be legal and
binding obligations of the Company and will be legally and
validly issued, fully paid, and non-assessable.
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
1475 Dunwoody Drive Tel: 610-425-3405 GoldenSelect Series
West Chester, PA 19380-1478 Fax: 610-425-3735 Issued by Golden American
Life Insurance Company
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (10)(a)
PARTICIPATION AGREEMENT
AMONG
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of May, 1998 by
and among Golden American Life Insurance Company, (the "Company"),
a Delaware life insurance company, on its own behalf and on
behalf of each segregated asset account of the Company set forth
on Schedule A hereto as may be amended from time to time (each
account hereinafter referred to as the "Account"), PIMCO Variable
Insurance Trust (the "Fund"), a Delaware business trust, and
PIMCO Funds Distributors LLC (the "Underwriter"), a Delaware
limited liability company.
WHEREAS, the Fund engages in business as an open-end
management investment company and is available to act as the
investment vehicle for separate accounts established for variable
life insurance and variable annuity contracts (the "Variable
Insurance Products") to be offered by insurance companies which
have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are
divided into several series of shares, each designated a
"Portfolio" and representing the interest in a particular managed
portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission (the "SEC") granting Participating
Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to
permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (the "Mixed
and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and shares of the
Portfolios are registered under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the
"Adviser"), which serves as investment adviser to the Fund, is
duly registered as an investment adviser under the federal
Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain
variable life insurance and/or variable annuity contracts
supported wholly or partially by the Account (the "Contracts"),
and said Contracts are listed in Schedule A hereto, as it may be
amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a
segregated asset account, duly established by the Company, on the
date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the
Fund, is registered as a broker dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance
laws and regulations, the Company intends to purchase shares in
the Portfolios listed in Schedule A hereto, as it may be amended
from time to time by mutual written agreement (the "Designated
Portfolios") on behalf of the Account to fund the aforesaid
Contracts, and the Underwriter is authorized to sell such shares
to the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises,
the Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1. This text is hidden, do not remove.
1.1. The Fund has granted to the Underwriter exclusive authority
to distribute the Fund's shares, and has agreed to instruct, and
has so instructed, the Underwriter to make available to the
Company for purchase on behalf of the Account Fund shares of
those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to
Article X hereof, the Underwriter agrees to make available to the
Company for purchase on behalf of the Account, shares of those
Designated Portfolios listed on Schedule A to this Agreement,
such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the
foregoing, (i) Fund series (other than those listed on Schedule
A) in existence now or that may be established in the future will
be made available to the Company only as the Underwriter may so
provide, and (ii) the Board of Trustees of the Fund (the "Board")
may suspend or terminate the offering of Fund shares of any
Designated Portfolio or class thereof, if such action is required
by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Board acting in good faith and in
light of its fiduciary duties under federal and any applicable
state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on
behalf of the Account, such redemptions to be effected at net
asset value in accordance with Section 1.3 of this Agreement.
Notwithstanding the foregoing, (i) the Company shall not redeem
Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and
(ii) the Fund may delay redemption of Fund shares of any
Designated Portfolio to the extent permitted by the 1940 Act, and
any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund
for the limited purpose of receiving purchase and redemption
requests on behalf of the Account (but not with respect to any
Fund shares that may be held in the general account of the
Company) for shares of those Designated Portfolios made available
hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt of any such
request (or relevant transactional information therefor) on any
day the New York Stock Exchange is open for trading and on which
the Fund calculates it net asset value pursuant to the rules of
the SEC (a "Business Day") by the Company as such limited agent
of the Fund prior to the time that the Fund ordinarily calculates
its net asset value as described from time to time in the Fund
Prospectus (which as of the date of execution of this Agreement
is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund
on that same Business Day, provided that the Fund receives notice
of such request by 9:30 a.m. Eastern Time on the next following
Business Day.
(b) The Company shall pay for shares of each Designated
Portfolio on the same day that it notifies the Fund of a purchase
request for such shares. Payment for Designated Portfolio shares
shall be made in federal funds transmitted to the Fund by wire to
be received by the Fund by 4:00 p.m. Eastern Time on the day the
Fund is notified of the purchase request for Designated Portfolio
shares (unless the Fund determines and so advises the Company
that sufficient proceeds are available from redemption of shares
of other Designated Portfolios effected pursuant to redemption
requests tendered by the Company on behalf of the Account). If
federal funds are not received on time, such funds will be
invested, and Designated Portfolio shares purchased thereby will
be issued, as soon as practicable and the Company shall promptly,
upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by,
the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon
such purchase request. Upon receipt of federal funds so wired,
such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by the
Account or the Company shall be made in federal funds transmitted
by wire to the Company or any other designated person on the next
Business Day after the Fund is properly notified of the
redemption order of such shares (unless redemption proceeds are
to be applied to the purchase of shares of other Designated
Portfolio in accordance with Section 1.3(b) of this Agreement),
except that the Fund reserves the right to redeem Designated
Portfolio shares in assets other than cash and to delay payment
of redemption proceeds to the extent permitted under Section
22(e) of the 1940 Act and any Rules thereunder, and in accordance
with the procedures and policies of the Fund as described in the
then current prospectus. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds by the Company, the Company
alone shall be responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio
shares held or to be held in the Company's general account shall
be effected at the net asset value per share next determined
after the Fund's receipt of such request, provided that, in the
case of a purchase request, payment for Fund shares so requested
is received by the Fund in federal funds prior to close of
business for determination of such value, as defined from time to
time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the net asset
value per share for each Designated Portfolio available to the
Company by 6:30 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset
value per share for such Designated Portfolio is calculated, and
shall calculate such net asset value in accordance with the
Fund's Prospectus. Neither the Fund, any Designated Portfolio,
the Underwriter, nor any of their affiliates shall be liable for
any information provided to the Company pursuant to this
Agreement which information is based on incorrect information
supplied by the Company or any other Participating Insurance
Company to the Fund or the Underwriter.
1.5. The Fund shall furnish notice (by wire or telephone followed
by written confirmation) to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions
payable on any Designated Portfolio shares. The Company, on its
behalf and on behalf of the Account, hereby elects to receive all
such dividends and distributions as are payable on any Designated
Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its
behalf and on behalf of the Account, to revoke this election and
to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company promptly of the number
of Designated Portfolio shares so issued as payment of such
dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry
only. Stock certificates will not be issued to the Company or
the Account. Purchase and redemption orders for Fund shares
shall be recorded in an appropriate ledger for the Account or the
appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's
shares may be sold to other insurance companies (subject to
Section 1.8 hereof) and the cash value of the Contracts may be
invested in other investment companies, provided, however, that
until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis
as other funding vehicles available under the Contracts. Funding
vehicles other than those listed on Schedule A to this Agreement
may be available for the investment of the cash value of the
Contracts, provided, however, (i) any such vehicle or series
thereof, has investment objectives or policies that are
substantially different from the investment objectives and
policies of the Designated Portfolios available hereunder; (ii)
the Company gives the Fund and the Underwriter 45 days written
notice of its intention to make such other investment vehicle
available as a funding vehicle for the Contracts; and (iii)
unless such other investment company was available as a Funding
vehicle for the Contracts prior to the date of this Agreement and
the Company has so informed the Fund and the Underwriter prior to
their signing this Agreement, the Fund or Underwriter consents in
writing to the use of such other vehicle, such consent not to be
unreasonably withheld.
(a) This text is hidden, do not remove.
(b) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), take
any action to operate the Account as a management investment
company under the 1940 Act.
(c) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), induce
Contract owners to change or modify the Fund or change the Fund's
distributor or investment adviser.
(d) The Company shall not, without prior notice
to the Fund, induce Contract owners to vote on any matter
submitted for consideration by the shareholders of the Fund in a
manner other than as recommended by the Board of Trustees of the
Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and
to persons or plans ("Qualified Persons") that communicate to the
Underwriter and the Fund that they qualify to purchase shares of
the Fund under Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code") and the regulations thereunder
without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of
the Account for the purpose of satisfying the diversification
requirements of Section 817(h). The Underwriter and the Fund
shall not sell Fund shares to any insurance company or separate
account unless an agreement complying with Article VI of this
Agreement is in effect to govern such sales, to the extent
required. The Company hereby represents and warrants that it and
the Account are Qualified Persons. The Fund reserves the right
to cease offering shares of any Designated Portfolio in the
discretion of the Fund.
ARTICLE II. Representations and Warranties
2. This text is hidden, do not remove.
2.1. The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act,
or (b) are not registered because they are properly exempt from
registration under the 1933 Act or will be offered exclusively in
transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state
securities and insurance laws and that the sale of the Contracts
shall comply in all material respects with state insurance
suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and
validly established the Account prior to any issuance or sale
thereof as a segregated asset account under [insert state]
insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the
Contracts, or alternatively (b) has not registered the Account in
proper reliance upon an exclusion from registration under the
1940 Act. The Company shall register and qualify the Contracts
or interests therein as securities in accordance with the laws of
the various states only if and to the extent deemed advisable by
the Company.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933
Act, duly authorized for issuance and sold in compliance with
applicable state and federal securities laws and that the Fund is
and shall remain registered under the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed
advisable by the Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing
distribution expenses pursuant to Rule 12b-1, the Fund will have
the Board, a majority of whom are not interested persons of the
Fund, formulate and approve a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect
of its operations, including, but not limited to, investment
policies, fees and expenses, complies with the insurance and
other applicable laws of the various states.
2.5. The Fund represents that it is lawfully organized and
validly existing under the laws of the State of Delaware and that
it does and will comply in all material respects with the 1940
Act.
2.6. The Underwriter represents and warrants that it is a member
in good standing of the NASD and is registered as a broker-dealer
with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with any
applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all
of their trustees/directors, officers, employees, investment
advisers, and other individuals or entities dealing with the
money and/or securities of the Fund are and shall continue to be
at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the
1940 Act or related provisions as may be promulgated from time to
time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.8. The Company represents and warrants that all of its
directors, officers, employees, and other individuals/entities
employed or controlled by the Company dealing with the money
and/or securities of the Account are covered by a blanket
fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a
reputable bonding company. The Company agrees to hold for the
benefit of the Fund and to pay to the Fund any amounts lost from
larceny, embezzlement or other events covered by the aforesaid
bond to the extent such amounts properly belong to the Fund
pursuant to the terms of this Agreement. The Company agrees to
make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such
coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
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3.1. The Underwriter shall provide the Company with as many
copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) or, to the extent
permitted, the Fund's profiles as the Company may reasonably
request. The Company shall bear the expense of printing copies
of the current prospectus and profiles for the Contracts that
will be distributed to existing Contract owners, and the Company
shall bear the expense of printing copies of the Fund's
prospectus and profiles that are used in connection with offering
the Contracts issued by the Company. If requested by the Company
in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the
Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if
the prospectus for the Fund is amended) to have the prospectus
for the Contracts and the Fund's prospectus or profile printed
together in one document (such printing to be at the Company's
expense).
3.2. The Fund's prospectus shall state that the current Statement
of Additional Information ("SAI") for the Fund is available, and
the Underwriter (or the Fund), at its expense, shall provide a
reasonable number of copies of such SAI free of charge to the
Company for itself and for any owner of a Contract who requests
such SAI.
3.3. The Fund shall provide the Company with information
regarding the Fund's expenses, which information may include a
table of fees and related narrative disclosure. for use in any
prospectus or other descriptive document relating to a Contract.
The Company agrees that it will use such information in the form
provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will
describe in detail the manner in which the Company proposes to
modify the information, and agrees that it may not modify such
information in any way without the prior consent of the Fund.
3.4. The Fund, at its expense, shall provide the Company with
copies of its proxy material, reports to shareholders, and other
communications to shareholders in such quantity as the Company
shall reasonably require for distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such portfolio
for which instructions have been received,
so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for
variable contract owners or to the extent otherwise required by
law. The Company will vote Fund shares held in any segregated
asset account in the same proportion as Fund shares of such
portfolio for which voting instructions have been received from
Contract owners, to the extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in a
Designated Portfolio calculates voting privileges as required by
the Shared Funding Exemptive Order and consistent with any
reasonable standards that the Fund may adopt and provide in
writing.
ARTICLE IV. Sales Material and Information
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4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or
other promotional material that the Company develops and in which
the Fund (or a Designated Portfolio thereof) or the Adviser or
the Underwriter is named. No such material shall be used until
approved by the Fund or its designee, and the Fund will use its
best efforts for it or its designee to review such sales
literature or promotional material within ten Business Days after
receipt of such material. The Fund or its designee reserves the
right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) or the Adviser or the Underwriter
is named, and no such material shall be used if the Fund or its
designee so object.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning
the Fund or the Adviser or the Underwriter in connection with the
sale of the Contracts other than the information or
representations contained in the registration statement or
prospectus or SAI for the Fund shares, as such registration
statement and prospectus or SAI may be amended or supplemented
from time to time, or in reports or proxy statements for the
Fund, or in sales literature or other promotional material
approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the
designee of either.
4.3. The Fund and the Underwriter, or their designee, shall
furnish, or cause to be furnished, to the Company, each piece of
sales literature or other promotional material that it develops
and in which the Company, and/or its Account, is named. No such
material shall be used until approved by the Company, and the
Company will use its best efforts to review such sales literature
or promotional material within ten Business Days after receipt of
such material. The Company reserves the right to reasonably
object to the continued use of any such sales literature or other
promotional material in which the Company and/or its Account is
named, and no such material shall be used if the Company so
objects.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or
concerning the Company, the Account, or the Contracts other than
the information or representations contained in a registration
statement, prospectus (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or
interests therein are not registered under the 1933 Act), or SAI
for the Contracts, as such registration statement, prospectus, or
SAI may be amended or supplemented from time to time, or in
published reports for the Account which are in the public domain
or approved by the Company for distribution to Contract owners,
or in sales literature or other promotional material approved by
the Company or its designee, except with the permission of the
Company.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, SAIs, reports,
proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to
the Fund or its shares, promptly after the filing of such
document(s) with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses (which shall
include an offering memorandum, if any, if the Contracts issued
by the Company or interests therein are not registered under the
1933 Act), SAIs, reports, solicitations for voting instructions,
sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or
the Account, promptly after the filing of such document(s) with
the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received
from the Contract owners pertaining to the Fund or the Designated
Portfolio.
4.7. The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any
Designated Portfolio, and of any material change in the Fund's
registration statement, particularly any change resulting in a
change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the
Company to solicit proxies from Contract owners, or to make
changes to its prospectus or registration statement, in an
orderly manner. The Fund will make reasonable efforts to attempt
to have changes affecting Contract prospectuses become effective
simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales
literature and other promotional materials" includes, but is not
limited to, any of the following that refer to the Fund or any
affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the
public, including brochures, circulars, reports, market letters,
form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, SAIs,
shareholder reports, proxy materials, and any other
communications distributed or made generally available with
regard to the Fund.
ARTICLE V. Fees and Expenses
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5.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if
the Fund or any Portfolio adopts and implements a plan pursuant
to Rule 12b-1 to finance distribution expenses, then the Fund or
Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing, and such payments will be made out of
existing fees otherwise payable to the Underwriter, past profits
of the Underwriter, or other resources available to the
Underwriter. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it
that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state
laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and
reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of
all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to
such Contract owners.
ARTICLE VI. Diversification and Qualification
6. This text is hidden, do not remove.
6.1. The Fund will invest its assets in such a manner as to
ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Code and
the regulations issued thereunder (or any successor provisions).
Without limiting the scope of the foregoing, each Designated
Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, and any
Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a
breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b)
to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Regulation 1.817-5.
6.2. The Fund represents that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provisions) and
that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify
or that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or
annuity insurance contracts, under applicable provisions of the
Code, and that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus
offering a contract that is a "modified endowment contract" as
that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as
a modified endowment contract.
ARTICLE VII. Potential Conflicts
7. This text is hidden, do not remove.
The following provisions shall apply only upon issuance of the
Mixed and Shared Funding Order and the sale of shares of the Fund
to variable life insurance separate accounts, and then only to
the extent required under the 1940 Act.
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the
Contract owners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative
letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference
in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract owners.
The Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications
thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Mixed and
Shared Funding Exemptive Order, by providing the Board with all
information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested members, that a material
irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense and to
the extent reasonably practicable (as determined by a majority of
the disinterested Board members), take whatever steps are
necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets
allocable to some or all of the separate accounts from the Fund
or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected
contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected contract owners the
option of making such a change; and (2) establishing a new
registered management investment company or managed separate
account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or
would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement with respect to each Account;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented,
and until the end of that six month period the Fund shall
continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the
Company conflicts with the majority of other state regulators,
then the Company will withdraw the affected Account's investment
in the Fund and terminate this Agreement with respect to such
Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the
Board. Until the end of the foregoing six month period, the Fund
shall continue to accept and implement orders by the Company for
the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall
determine whether any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Fund
be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a
new funding medium for the Contract if an offer to do so has been
declined by vote of a majority of Contract owners materially
adversely affected by the irreconcilable material conflict. In
the event that the Board determines that any proposed action does
not adequately remedy any irreconcilable material conflict, then
the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the
Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of
the disinterested members of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption
Order or any amendment thereto contains terms and conditions
different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and
7.5 of this Agreement, then the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with the Mixed and Shared Funding
Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4
and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such
Sections are contained in the Mixed and Shared Funding Exemptive
Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to
provide exemptive relief from any provision of the 1940 Act or
the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive
Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then
(a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as
adopted, to the extent such rules are applicable; and
(b) Sections 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8. This text is hidden, do not remove.
8.1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold
harmless the Fund and the Underwriter and each of its
trustees/directors and officers, and each person, if any, who
controls the Fund or Underwriter within the meaning of Section 15
of the 1933 Act or who is under common control with the
Underwriter (collectively, the "Indemnified Parties" for purposes
of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including legal
and other expenses), to which the Indemnified Parties may become
subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statements of any material fact contained in the
registration statement, prospectus (which shall include a written
description of a Contract that is not registered under the 1933
Act), or SAI for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
for use in the registration statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI, or sales literature of
the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or its agents or
persons under the Company's authorization or control, with
respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI, or sales literature of the Fund or
any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
(vi) as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under
this indemnification provision with respect to any losses,
claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under
this indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party shall
have notified the Company in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Company to such
party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly
notify the Company of the commencement of any litigation or
proceedings against them in connection with the issuance or sale
of the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and
hold harmless the Company and each of its directors and officers
and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the
Underwriter) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement, prospectus or SAI for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature for
the Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Fund or Underwriter or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the
Company by or on behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement (including a failure of the
Fund, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable
under this indemnification provision with respect to any losses,
claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance or such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Company or
the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable
under this indemnification provision with respect to any claim
made against an Indemnified Party unless such Indemnified Party
shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any
designated agent), but failure to notify the Underwriter of any
such claim shall not relieve the Underwriter from any liability
which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled
to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action.
After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not
be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable
costs of investigation.
The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with
the issuance or sale of the Contracts or the operation of the
Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold
harmless the Company and each of its directors and officers and
each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the written consent of the Fund) or
litigation (including legal and other expenses) to which the
Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Fund, the
Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The
Fund also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After
notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Fund will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree
promptly to notify the Fund of the commencement of any litigation
or proceeding against it or any of its respective officers or
directors in connection with the Agreement, the issuance or sale
of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9. This text is hidden, do not remove.
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
California.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant (including,
but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in
accordance therewith. If, in the future, the Mixed and Shared
Funding Exemptive Order should no longer be necessary under
applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
10. This text is hidden, do not remove.
10.1. This Agreement shall continue in full force and effect
until the first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by three (3) months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter based upon the Company's determination that
shares of the Fund are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or like
official of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of
the Contracts, the operation of any Account, or the purchase of
the Fund's shares; provided, however, that the Fund or
Underwriter determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund
or Underwriter to perform its obligations under this Agreement;
or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified in Article
VI hereof, or if the Company reasonably believes that such
Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, Adviser, or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(j) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.7(a)(ii) hereof and at
the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(j)
shall be effective forty-five days after the notice specified in
Section 1.7(a)(ii) was given; or
(k) termination by the Company upon any substitution of the
shares of another investment company or series thereof for shares
of a Designated Portfolio of the Fund in accordance with the
terms of the Contracts, provided that the Company has given at
least 45 days prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the Fund's Board
of Trustees determines that a material irreconcilable conflict
exists as provided in Article VII.
10.2. Notwithstanding any termination of this Agreement, the
Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to
Section 26(b) of the 1940 Act to permit the substitution of other
securities for the shares of the Designated Portfolios. The
Underwriter agrees to split the cost of seeking such an order,
and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request.
Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts
(subject to any such election by the Underwriter). The parties
agree that this Section 10.2 shall not apply to any terminations
under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any
terminations under Section 10.1(g) of this Agreement.
10.3. The Company shall not redeem Fund shares attributable
to the Contracts (as opposed to Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract owner initiated or approved transactions, (ii)
as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"),
(iii) upon 45 days prior written notice to the Fund and
Underwriter, as permitted by an order of the SEC pursuant to
Section 26(b) of the 1940 Act, but only if a substitution of
other securities for the shares of the Designated Portfolios is
consistent with the terms of the Contracts, or (iv) as permitted
under the terms of the Contract. Upon request, the Company will
promptly furnish to the Fund and the Underwriter reasonable
assurance that any redemption pursuant to clause (ii) above is a
Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contacts, the Company shall not
prevent Contract owners from allocating payments to a Portfolio
that was otherwise available under the Contracts without first
giving the Fund or the Underwriter 45 days notice of its
intention to do so.
10.4. Notwithstanding any termination of this Agreement, each
party's obligation under Article VIII to indemnify the other
parties shall survive.
ARTICLE XI. Notices
11. This text is hidden, do not remove.
Any notice shall be sufficiently given when sent
by registered or certified mail to the other party at the address
of such party set forth below or at such other address as such
party may from time to time specify in writing to the other
party.
If to the Fund: PIMCO Variable Insurance
Trust
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
If to the Company:
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
12. This text is hidden, do not remove.
12.1. All persons dealing with the Fund must look solely to
the property of the Fund, and in the case of a series company,
the respective Designated Portfolios listed on Schedule A hereto
as though each such Designated Portfolio had separately
contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree
that neither the Board, officers, agents or shareholders of the
Fund assume any personal liability or responsibility for
obligations entered into by or on behalf of the Fund.
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential
information without the express written consent of the affected
party until such time as such information has come into the
public domain.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute
one and the same instrument.
12.5. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without
limitation the SEC, the NASD, and state insurance regulators) and
shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party
hereto further agrees to furnish the [insert state] Insurance
Commissioner with any information or reports in connection with
services provided under this Agreement which such Commissioner
may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner
consistent with the [insert state] variable annuity laws and
regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all
rights, remedies, and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior
written consent of all parties hereto.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles) filed with any state or
federal regulatory body or otherwise made available to the
public, as soon as practicable and in any event within 90 days
after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practicable after the filing thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be hereunder
affixed hereto as of the date specified below.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By its authorized officer
By:/s/Barnett Chernow
---------------------------
Barnett Chernow
Title: President
------------------------
Date: May 1, 1998
------------------------
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By:/s/ Brent R. Harris
---------------------------
Title: Chairman
------------------------
Date: May 1, 1998
------------------------
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By:/s/ Newton Schott
---------------------------
Title: Executive Vice President
------------------------
Date: May 1, 1998
------------------------
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EXHIBIT (10)(d)
ASSET MANAGEMENT AGREEMENT
THIS ASSET MANAGEMENT AGREEMENT (the "Agreement"), dated January
20, 1998, and effective as of the date specified in Section 17 hereof, is by
and between GOLDEN AMERICAN LIFE INSURANCE COMPANY, a Delaware corporation
(the "Client"), and ING INVESTMENT MANAGEMENT LLC, a Delaware limited
liability company ("ING-IM").
SECTION 1. APPOINTMENT OF ING-IM - The Client hereby appoints ING-IM to
provide asset management services for the Client's general account (the
"Account") under the terms and conditions set forth in this Agreement. ING-
IM hereby accepts such appointment and agrees to provide such asset
management services as are specified in EXHIBIT "A" attached hereto and
incorporated herein by reference.
SECTION 2. RECOMMENDATIONS - INVESTMENTS - ING-IM shall make
recommendations to the Client relating to the direction and management of the
investment and reinvestment of assets in the Account and any additions
thereto. No cash or securities due to or held for the Account shall be paid
or delivered to ING-IM except in payment of the fee payable to ING-IM under
this Agreement.
SECTION 3. DISCRETIONARY AUTHORITY - BROKERAGE - ING-IM shall have full
and complete discretion to establish brokerage accounts in the name of the
Client and execute transactions in securities markets in the name of the
Client, pursuant to proper authorization from the Client, through one or more
securities broker/dealer firms as ING-IM may select, including those which
from time to time may furnish to ING-IM statistical and investment research
information and other services. The Client accepts the Statement of Policy
on Brokerage Practices which is attached to this Agreement as EXHIBIT "B" and
incorporated herein by reference. This policy may be modified by ING-IM in
consultation with the Client.
SECTION 4. INVESTMENT OBJECTIVES - The investment objectives and
guidelines for the Account will be communicated in writing by the Client from
time to time. ING-IM will utilize these objectives in managing the Account.
SECTION 5. ADMINISTRATIVE SERVICES - ING-IM will provide the Client with
the following administrative services: preparation of Schedules B and D to
the Client's annual statement; pricing of portfolios on a periodic basis as
mutually agreed; mortgage loan servicing for both direct and mortgage banker-
serviced loans; private placement securities servicing; coordination of
purchases and sales at custodian bank; and coordination of securities lending
by agent banks.
SECTION 6. FEES - The Client will pay to ING-IM as full compensation for
services rendered a quarterly fee based on the quarterly fees set for in
EXHIBIT "C" attached hereto and incorporated herein by reference, as it may
be amended in writing.
If ING-IM shall serve for less than the whole of any quarterly period, its
compensation determined as provided above shall be calculated and shall be
payable on a pro rata basis for the period of the calendar quarter for which
it has served as an adviser hereunder.
SECTION 7. PROCEDURES - All transactions will be consummated by payment
to, or delivery by, the Client, or such other party as the Client may
designate in writing (the "Custodian") of all cash and/or securities due to
or from the Account. ING-IM shall not act as custodian for the Account. The
Client shall establish a procedure for transmitting approvals, directives and
authorizations from the Client to ING-IM. Such procedures, once established,
shall continue until modified, in whole or in part, by the Client. The
Client retains the full right and authority to modify, amend, alter and
repeal all such procedures in its sole discretion. ING-IM shall instruct all
brokers or dealers executing orders on behalf of the Account to forward to
the Client and/or the Custodian copies of all brokerage confirmations
promptly after execution of transactions. The Client will instruct the
Custodian, if any, to provide ING-IM with such periodic reports concerning
the status of the Account as ING-IM may reasonably request. Unless otherwise
notified in writing by Client, ING-IM shall be authorized to rely upon
instruction received from the named Client representatives set forth in
EXHIBIT "D" attached hereto and incorporated herein by reference.
SECTION 8. PROXIES - ING-IM shall vote securities held in the Account in
response to proxies solicited by the issuers of such securities in accordance
with guidelines established by Client. ING-IM will provide such information
with respect to such voting as the Client may reasonably request.
SECTION 9. SERVICE TO OTHER CLIENTS - It is understood that ING-IM
provides asset management services for other clients. It is further
understood that ING-IM may take management action on behalf of such other
clients which differs from management action taken on behalf of the Account.
If the purchase or sale of securities for the Account and for one or more
such other clients is considered at or about the same time, the transactions
in such securities will be allocated among the several clients in a manner
deemed equitable by ING-IM.
SECTION 10. LIABILITY OF ING-IM - In rendering services under this
Agreement, ING-IM will not be subject to any liability to the Client to any
other party for any act or omission of ING-IM except as the result of ING-
IM's gross negligence or willful misconduct. Nothing herein shall in any way
constitute a waiver or limitation of any right of any person under applicable
Federal or State law.
SECTION 11. REPRESENTATIONS BY CLIENT - The Client hereby represents and
warrants in favor of ING-IM as follows:
(a) The Client has the power and authority (i) to enter into and
execute this Agreement and (ii) to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(b) This Agreement has been duly authorized, validly executed and
delivered by one or more authorized signatories of the Client, and this
Agreement constitutes a legal, valid and binding obligation of the Client,
enforceable against the Client in accordance with its terms; and
(c) The execution and delivery of this Agreement and the Client's
performance hereunder do not and will not be in contravention of or in
conflict with the Client's charter documents or the provisions of any
statute, judgment, order, indenture, instrument, agreement or undertaking to
which the Client is a party or by which the Client's assets or properties are
or may become bound. The Client has obtained all necessary consents and
approvals of all regulatory and governmental authorities and agencies have
jurisdiction over the Client for the Client to execute and deliver this
Agreement and to perform hereunder.
SECTION 12. FORM ADV PART II - The parties hereto acknowledge that,
concurrently with the execution of this Agreement, ING-IM is furnishing to
Client, for Client's review and inspection, a copy of Form ADV Part II most
recently filed by ING-IM with the Securities and Exchange Commission. Upon
Client's written or oral request, ING-IM shall provide to Client a copy of
any future Form ADV Part II.
SECTION 13. TERMINATION - This Agreement may be terminated by either
party on the month-end next following receipt of written notice of
termination.
SECTION 14. NOTICE - Any notice, advice or report to be given pursuant
to this Agreement shall be delivered or mailed:
To ING-IM: ING INVESTMENT MANAGEMENT LLC
5780 Powers Ferry Road, NW
Suite 300
Atlanta, GA 30327-4349
To Client: GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street
Suite 400
Wilmington, DE 19801
SECTION 15. CONSTRUCTION OF AGREEMENT - This Agreement shall be
construed and the rights and obligations of the parties hereunder enforced in
accordance with the laws of the State of Georgia.
SECTION 16. ASSIGNMENT - This Agreement shall bind and inure to the
benefit of and be enforceable by the parties hereto and their permitted
successors and assigns hereunder; provided, however, that ING-IM may not
assign its rights and obligations under this Agreement unless and until it
shall have first received the prior written consent of the Client. The above
consent may be withheld for any reason, but if such consent is given, ING-
IM's assignee shall be required to assume and agree to perform all the
obligations of ING-IM hereunder and ING-IM shall remain fully liable for the
full and faithful performance of all obligations arising prior to any such
assignment.
SECTION 17. EFFECTIVE DATE - Notwithstanding the date set forth in the
first paragraph hereof, this Agreement shall be effective as of January 1,
1998.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above.
CLIENT: GOLDEN AMERICAN LIFE INSURANCE
COMPANY
By/s/ David L. Jacobson
_________________________________
Title: Senior Vice President
________________________________
ING-IM: ING INVESTMENT MANAGEMENT LLC
By/s/ Thomas J. Balachowski
_________________________________
Title: President and CEO
________________________________
EXHIBIT "A"
Asset Management Services
_________________________
To the extent permitted by applicable law, ING-IM shall provide all asset
management services for Client's Account, including the following:
Private placement bonds and preferred stocks in an amount not to exceed
the maximum established from time to time by Client's Investment
Committee and communicated to ING-IM.
Public Market Corporate and Government Bonds.
Public Market Preferred Stocks.
Common Stocks.
Participating and Non-participating Mortgage Loans.
Equity Real Estate.
Mortgage Backed Securities and Collateralized Mortgage Obligations and
derivatives thereof.
Cash Management services, as required, in conjunction with Mortgage
Loans, Equity Real Estate, and/or the servicing of same.
Swap Transactions.
"Cap", "Floors", "Puts", "Calls" and similar derivative transactions.
EXHIBIT "B"
STATEMENT OF POLICY ON BROKERAGE PRACTICES
As of May 1, 1975, all national securities exchanges were prohibited
from requiring their members to charge fixed rates of commissions on the
execution of transactions. This prohibition resulted from the adoption by
the Securities and Exchange Commission of Rule 19b-3 under the Securities
and Exchange Act of 1934 and the subsequent passage by Congress of the
Securities Acts Amendments to include Section 28(e) relating to the payment
of brokerage commissions on specific securities transactions in excess of
the commission which might be charged by another broker for the same
transaction. The provisions of Section 28(e) are specifically incorporated
herein by reference.
In recognition of the regulatory changes, ING-IM has adopted this
statement of policy with respect to commissions paid on portfolio
transactions executed on behalf of our clients. It is the responsibility
of individuals trading on behalf of our clients to carry out this statement
of policy, including the fiduciary responsibility of negotiating for each
agency transaction the amount of the brokerage commission.
Essentially, this policy reaffirms the principle of seeking "best
available price and most favorable execution" with respect to all portfolio
transactions. This principle recognized that commissions on portfolio
transactions must be negotiated and utilized for the ultimate benefit of
our clients.
Our brokerage commission policy is as follows:
1. We will continue to use our best efforts to obtain the best
available price and most favorable execution with respect to all portfolio
transactions executed on behalf of our clients.
2. "Best available price and most favorable execution" is defined to
mean the execution of a particular investment decision at the price and
commission which provides the most favorable total cost or proceeds reasonably
obtainable under the circumstances.
3. In selecting a broker for each specific transactions, we will use
our best judgment to choose the broker most capable of providing the
brokerage services necessary to obtain best available price and most
favorable execution. The full range and quality of brokerage services
available will be considered in making these determinations. For example,
brokers may be selected on the basis of the quality of such "brokerage
services" related to the requirements of the specific transaction as the
following: capable floor brokers or traders, competent block trading
coverage, good communications, ability to position, retail distribution and
underwriting, use of automation, research contacts, arbitrage skills,
administrative ability, or provision of market information relating to the
security. We will continue to make periodic evaluations of the quality of
these brokerage services against our own standards of execution. Brokerage
services will be obtained only from those firms which meet our standards,
maintain a reasonable capital position, and can be expected to reliably and
continuously supply these services. We will continue our endeavor to develop
and maintain brokerage contacts and relationships in the interest of providing
our clients with maximum liquidity.
4. We are not obliged to choose the broker offering the lowest
available commission rate if, in our best judgment, there is a material
risk that the total cost or proceeds from the transaction might be less
favorable than obtainable elsewhere. We will make every effort to keep
informed of rate structures offered by the brokerage community. In the
selection of brokers, we will not solicit competitive bids or "shop" the
order for a lower rate if this would, in our best judgment, be harmful to
the execution process and not in the best interests of our clients.
5. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration will be given
to those brokers which supply research and other services in addition to
execution services. Such services may include factual and statistical
information or other items of supplementary research assistance. The
individuals trading on behalf of our clients will be informed as to the
broker/dealers who supply specific or general research assistance. However,
we will not select an executing broker on the basis of research or other
services unless such selection is otherwise consistent with best available
price and most favorable execution.
6. In no event will we enter into agreements, expressed or implied,
with broker/dealer wherein we would select a firm for execution as a means
of remuneration for recommending us as an asset manager for prospective or
present clients. However, portfolio transactions may be executed through
broker/dealers who have made such a recommendation, if otherwise consistent
with best price and most favorable execution.
7. In those instances where a client has expressed a preference for
a particular broker, that broker will be selected only when the broker is
reasonably determined in our best judgment, to be capable of providing the
best available and most favorable execution. With the exception of clients
subject to the provisions of The Employee Retirement Income Security Act of
1974 ("ERISA"), a client may direct us in writing to execute transactions
with one or more specific brokers at such commission rate or rates as may
be agreed to by the client and such brokers. With respect to clients
subject to ERISA, we may accept clients' direction to execute transactions
with one or more specific brokers upon written direction of the clients.
Such written notice shall specify the services provided by the broker(s) to
the clients, the amount of rate of commissions to be paid and the
determination by the clients that such direction is consistent with the
provisions of ERISA.
EXHIBIT "C"
ING INVESTMENT MANAGEMENT
MANAGEMENT FEE SCHEDULE
AS OF JANUARY 1, 1998
ING-IM will receive an annual fee (payable quarterly) from the Client
calculated as follows: 0.25% of the value of the Managed Assets as of the
preceding month end. "Managed Assets" shall mean the investment assets of
the Client's general account, and certain assets in a non-unitized separate
account established and maintained by Client to support certain annuity
contracts, excluding policy loans of Client. Value of the Managed Assets
for purposes of this Agreement shall be determined by the application of
generally accepted accounting principles as applied as of the end of each
quarter.
EXHIBIT "D"
Authorized Representatives of Client
____________________________________
Until otherwise notified in writing by Client, ING-IM shall be authorized
to rely upon instruction received from the following name representatives
of the Client:
[Client to specify]
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (10)(e)
RECIPROCAL LOAN AGREEMENT
This RECIPROCAL LOAN AGREEMENT (this "Agreement"), dated as of January
1, 1998, between Golden American Life Insurance Company, a Delaware
corporation ("Golden American" or "Company"), located at 1001 Jefferson
Street, Suite 400, Wilmington, Delaware 19801 and ING America Insurance
Holdings, Inc., a Delaware corporation ("INGAIH" or "Company") located at
1105 North Market Street, Wilmington, Delaware 19809 (collectively referred
to as the "Companies").
WITNESSETH:
WHEREAS, each of the Companies may have, from time to time, a need to
borrow funds on a revolving basis; and
WHEREAS, each of the Companies may have, from time to time, excess cash
available to lend to the other on a revolving basis; and
WHEREAS, the Companies are affiliated entities and as such are willing
to extend financing to, and borrow from each other as provided herein; and
WHEREAS, each of the Companies desires to enter into this Agreement
providing for, among other things, the making of such Loans by and among each
other;
NOW, THEREFORE, for and in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Companies agree as follows:
ARTICLE 1
_________
DEFINITIONS
___________
SECTION 1.1.DEFINED TERMS. For purposes of this Agreement:
"Agreement" shall have the meaning set forth in the preamble hereto.
"Authorized Person" shall mean the CFO, Treasurer, Treasury Officer, or
Treasury Manager of the Borrowing Company, or a person so designated.
"Borrowing Company" shall mean each of the Companies to which a Loan is
outstanding or is to be made pursuant to a Request for Borrowing.
"Business Day" shall mean a day on which U.S. financial markets are open
for the transaction of business required for this Agreement.
"Companies" shall have the meaning set forth in the preamble hereto.
"Company" shall have the meaning set forth in the preamble hereto.
"Default" shall mean any of the events specified in Section 6.1,
regardless of whether there shall have occurred any passage of time or giving
of notice, or both, that would be necessary in order to constitute such an
Event of Default.
"Event of Default" shall mean any of the events specified in Section 6.1.
"Golden American" shall have the meaning set forth in the preamble
hereto.
"INGAIH" shall have the meaning set forth in the preamble hereto.
"Interest Period" shall mean the number of days or months that a
particular interest rate applies to a particular Loan advanced hereunder.
"Lending Company" shall mean each of the Companies that has made, or is
obligated to make, in accordance with a Request for Borrowing one or more
Loans hereunder.
"Loans" shall mean the amounts advanced by a Lending Company to a
Borrowing Company under this Agreement.
"Notice of Borrowing" shall have the meaning set forth in Section 2.2(b)
of this Agreement.
"Obligations" shall mean all payment and performance obligations of
every kind, nature and description of each Borrowing Company to the Lending
Company, or either of them, under this Agreement (including any interest,
fees and other charges on the Loans or otherwise), whether such obligations
are direct or indirect, absolute or contingent, due or not due, contractual
or tortuous, liquidated or unliquidated, arising by operation of law or
otherwise, now existing or hereafter arising.
"Regional Treasury Office" ("RTO") shall mean the Treasurer's office of
ING North America Insurance Corporation.
"Request for Borrowing" shall have the meaning set forth in Section
2.2(a) of this Agreement.
"Revolving Loan Commitment" shall mean the maximum outstanding amount to
be funded by the Lending Company to the Borrowing Company. The aggregate sum
which the Lending Company may loan to the Borrowing Company under this
Agreement shall not exceed $40,000,000.
"Termination Date" shall mean December 31, 2007, or such earlier date as
payment of the Obligations shall be due (whether by acceleration or
otherwise).
SECTION 1.2. TERMINOLOGY. Each definition of a document in this
Article 1 shall include such document as amended, modified, or supplemented
from time to time, and, except where the context otherwise requires,
definitions imparting the singular shall include the plural and visa versa.
Except where specifically restricted, reference to a party shall include that
party and its successors and assigns. All personal pronouns used in this
Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders. Titles of articles and sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of
this Agreement, and all references in this Agreement to articles, sections,
subsections, paragraphs, clauses, subclauses or exhibits shall refer to the
corresponding article, section, subsection, paragraph, clause, subclause of,
or exhibit attached to, this Agreement, unless otherwise provided.
SECTION 1.3. ACCOUNTING TERMS. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted in
accordance with generally accepted accounting principles consistently
applied.
ARTICLE 2
_________
TERMS OF THE LOANS
__________________
SECTION 2.1. REVOLVING CREDIT.
(a) Subject to and upon the terms and conditions set forth in this
Agreement, each Lending Company agrees to advance to the Borrowing Company,
from time to time prior to the Termination Date, Loans advanced under the
Revolving Loan Commitment shall be repaid in accordance with Section 2.4 and
may be reborrowed from time to time on a revolving basis.
(b) Each Borrowing Company's obligation to pay to the Lending Company
the principal of and interest on the Loans shall be evidenced by the records
of the RTO in lieu of a promissory note or notes.
SECTION 2.2. NOTICE AND MANNER OF BORROWING.
(a) Whenever the Borrowing Company desires to borrow money hereunder,
it shall give the RTO prior written or facsimile request (or verbal request
promptly confirmed in writing or by facsimile) of such borrowing or
reborrowing (a "Request for Borrowing"). Such Request for Borrowing shall be
given by an Authorized Person, to the RTO prior to 10:00 a.m. (Wilmington,
Delaware time). Any Request for Borrowing received after 10:00 a.m. shall be
deemed received on the next Business Day.
(b) The RTO, upon its receipt of a Request for Borrowing, shall
determine if the requested funds are available and the interest rates in
accordance with Section 2.3(a) of this Agreement (and related Interest
Periods, if any) at which the Borrowing Company can borrow money in a
principal amount equal to, and on the date of, the proposed borrowing or
reborrowing described in each such Request for Borrowing, and shall notify
the Lending Company of such interest rates and the related Interest Periods,
if any, and the principal amount of the proposed borrowing or reborrowing (a
"Notice of Borrowing") by telephone (confirmed in writing) or by facsimile no
later than 12:00 p.m. (Wilmington, Delaware time) on the Business Day of the
requested borrowing or reborrowing. The RTO shall promptly convey to the
Borrowing Company the information contained in the Notice of Borrowing by
telephone (confirmed in writing) or by facsimile.
(c) On the date of each borrowing, the Lending Company will make
available the amount of such borrowing or reborrowing in immediately
available funds to the Borrowing Company by depositing such amount in the
account of the Borrowing Company by wire transfer via electronic funds
transfer (EFT).
(d) The RTO shall maintain on its books a control account for each
Company in which shall be recorded (i) the amount of each Loan made hereunder
to each such Company, (ii) the interest rate applicable with respect to each
Loan, (iii) the amount of any principal, interest or fees due or to become
due from each Borrowing Company with respect to the Loans, and (iv) the
amount of any sum received by each Lending Company hereunder in respect of
any such principal, interest or fees due on such Loans. The entries made in
the RTO's control accounts shall be prima facie evidence, in the absence of
manifest error, of the existence and amounts of Obligations therein recorded
and any payments thereon.
(e) The RTO shall account to each Company on a quarterly basis with a
statement of borrowings, interest rates, charges and payments made pursuant
to this Agreement with respect to the Loans and Revolving Loan Commitment. An
Authorized Person of the Companies shall review each quarterly accounting for
accuracy within thirty days of receipt thereof from the RTO. Each such
account rendered by the RTO shall be deemed final, binding and conclusive
unless the RTO is notified by the Lending Company or the Borrowing Company
within thirty days after the date the account is so rendered that either the
Lending Company or the Borrowing Company disputes any item thereof.
(f) The RTO shall be justified in assuming, for purposes of carrying
out its duties and obligations under this Agreement, including, without
limitation, its obligation to maintain accounts and provide accountings of
the Loans pursuant to Section 2.2(d) and (e) above, that (1) Loans are
disbursed by the Lending Company to the Borrowing Company in accordance with
the terms of the Notice of Borrowing, (2) payments on the Loans are made to
the Lending Company when due, and (3) no prepayments of any Loans prior to
the date that they are due and payable under Section 2.4(a) have occurred,
unless the RTO is otherwise notified by either Company within seven Business
Days of any such delayed disbursement, overdue payment, or receipt of a
prepayment.
SECTION 2.3. INTEREST.
(a) The Borrowing Company agrees to pay interest in respect of all
unpaid principal amounts of the Loans from the respective dates such
principal amounts were advanced until the respective dates such principal
amounts are repaid at a rate per annum as determined by the RTO and agreed
upon by the Companies pursuant to Section 2.2(b) of this Agreement. Golden
American shall pay interest on each Loan at a per annum rate which is based
on the cost of funds of INGAIH for the interest period for such Loan plus
.15%. INGAIH shall pay interest on each Loan at a per annum rate which is
based on the prevailing interest rate of U.S. commercial paper available for
purchase with a similar duration. The interest rate shall be determined by
the RTO in accordance with its usual practices.
(b) Overdue principal and, to the extent not prohibited by applicable
law, overdue interest in respect of any of the Loans and all other overdue
amounts owing hereunder shall bear interest from each date that such amounts
are overdue at the rate otherwise applicable to such underlying Loans plus an
additional 2% per annum. Interest on each Loan shall accrue from and
including the date of such Loan to, but excluding, the date of any repayment
thereof; PROVIDED, HOWEVER, that if a Loan is repaid on the same day it is
made, one day's interest shall be paid on such Loan. Interest shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
(c) The Companies hereby agree that the only charges imposed or to be
imposed by the Lending Company hereunder for the use of money in connection
with the Loans is and will be the interest required to be paid under the
provisions of Sections 2.2(b). In no event shall the amount of interest due
and payable under this Agreement or any other documents executed in
connection herewith exceed the maximum rate of interest allowed by applicable
law and, in the event any such payment is made by the Borrowing Company or
received by the Lending Company, such excess sum shall be credited as a
payment of principal. It is the express intent hereof that the Borrowing
Company not pay and the Lending Company not receive, directly or indirectly
in any manner, interest in excess of that which may be lawfully paid under
applicable law.
SECTION 2.4. REPAYMENT OF PRINCIPAL AND INTEREST.
(a) The entire outstanding principal balance of the Loans shall be due
and payable by no later than 5:00 p.m. (Eastern time) on the Business Day on
which the Loan is due, together with all remaining accrued and unpaid
interest thereon, unless an extension of no more than three additional days
is authorized by the Lending Company.
(b) Any of the Loans may be prepaid in whole or in part at any time
without premium or penalty. Any such prepayment made on any Loan shall be
applied, first, to interest accrued thereon through the date thereof and then
to the principal balance thereof.
(c) Each payment and prepayment of principal of any Loan and each
payment of interest on any Loan shall be made to the Lending Company and
applied to outstanding Loan balances in the following order; first, toward
any Loan or Loans then due and payable; and, second, towards the Loan or
Loans which are next due and payable at the time of such prepayment.
ARTICLE 3
_________
REPRESENTATIONS AND WARRANTIES
______________________________
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. In order to induce the
Lending Company to enter into this Agreement, the Borrowing Company hereby
represents and warrants as set forth below:
(a) ORGANIZATION; POWER; QUALIFICATION. The Borrowing Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, has the power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing as a foreign
corporation, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business require such
qualification or authorization.
(b) AUTHORIZATION; ENFORCEABILITY. The Borrowing Company has the power
and has taken all necessary action to authorize it to execute, deliver and
perform this Agreement in accordance with the terms hereof and to consummate
the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Borrowing Company and is a legal, valid and binding
obligation of the Borrowing Company, enforceable in accordance with its
respective terms, (i) subject to limitations imposed by general principles of
equity and (ii) subject to applicable bankruptcy, reorganization, insolvency
and other similar laws affecting creditors' rights generally and to
moratorium laws from time to time in effect.
(c) NO CONFLICT. The execution, delivery and performance of this
Agreement in accordance with its terms and the consummation of the
transactions contemplated hereby do not and will not (i) violate any
applicable law or regulation, (ii) conflict with, result in a breach of, or
constitute a default under the articles or certificate of incorporation or
by-laws of the Borrowing Company or under any indenture, agreement or other
instrument to which the Borrowing Company is a party or by which it or any of
its properties may be bound, or (iii) result in or require the creation or
imposition of any lien upon or with respect to any property now owned or
hereafter acquired by the Borrowing Company.
(d) COMPLIANCE WITH LAW; ABSENCE OF DEFAULT. The Borrowing Company is
in compliance with all applicable laws the failure to comply with which has
or could reasonably be expected to have a materially adverse effect on the
business, assets, liabilities, financial condition or results of operations
of the Borrowing Company, and no event has occurred or has failed to occur
which has not been remedied or waived, the occurrence or non-occurrence of
which constitutes a Default.
SECTION 3.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to
be made, and shall be true and correct, as of the date hereof and as of the
date of each Loan.
ARTICLE 4
_________
AFFIRMATIVE COVENANTS
_____________________
So long as this Agreement is in effect:
SECTION 4.1. PRESERVATION OF EXISTENCE. The Borrowing Company will
(a) preserve and maintain its existence, rights, franchises, licenses and
privileges in its jurisdiction of incorporation and (b) qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization.
SECTION 4.2. COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS. The
Borrowing Company will comply with the requirements of all applicable laws
and regulations the failure with which to comply could have a materially
adverse effect on the business, assets, liabilities, financial condition or
results of operations of the Borrowing Company.
SECTION 4.3. VISITS AND INSPECTIONS.
(a) Upon reasonable advance notice from the Lending Company, the
Borrowing Company will permit representatives of the Lending Company to (a)
visit and inspect the properties of the Borrowing Company during normal
business hours, (b) inspect and make extracts from and copies of its books
and records, and (c) discuss with its principal officers its businesses,
assets, liabilities, financial positions and results of operations.
(b) Each Company agrees that upon reasonable advance notice from an
auditor of either Company or any regulatory official employed by the
Department of Insurance of any state in which either Company is engaged in
business, each Company will prepare and deliver to such auditor or regulatory
official, within a reasonable time following such request, a written
verification of all Loans made to and by the relevant Company. Upon
reasonable advance notice to each Company, the books and records of the RTO
and each Company relating to the subject matter of this Agreement shall be
available for inspection by any auditor of either Company or any regulatory
official during normal business hours, and the RTO and each Company will
cooperate with said auditor or regulatory official in making any audit which
requires inspection of said books and records.
ARTICLE 5
_________
NEGATIVE COVENANTS
__________________
So long as this Agreement is in effect:
SECTION 5.1. LIQUIDATION; MERGER; SALE OF ASSETS; CHANGE OF BUSINESS.
The Borrowing Company shall not at any time, without proper notice to the
Lending Company:
(a) Liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up;
(b) Merge or consolidate with any other person or entity;
(c) Sell, lease, abandon or otherwise dispose of or transfer all or
substantially all of its assets other than in the ordinary course of
business; or
(d) Make any substantial change in the type of business conducted by
the Borrowing Company as of the date hereof without the prior written consent
of the Lending Company if such action would have a material adverse effect on
the business, assets, liabilities, financial condition or results of
operations of the Borrowing Company.
Any corporation into which either Company may be merged, converted or
with which either Company may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which either Company shall be
a party, shall succeed to all either Company's rights, obligations and
immunities hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
ARTICLE 6
_________
DEFAULT
_______
SECTION 6.1 EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default:
(a) Any representation or warranty made by the Borrowing Company under
this Agreement shall prove incorrect or misleading in any material respect
when made;
(b) The Borrowing Company shall default in the payment of (i) any
interest payable under this Agreement within five days of when due, or (ii)
any principal payable under this Agreement within three days of when due;
(c) The Borrowing Company shall default in the performance or
observance of any agreement or covenant contained in this Agreement, and such
Default shall not be cured within a period of thirty days from the occurrence
of such Default;
(d) The Borrowing Company shall default under any other agreement or
instrument evidencing or relating to any indebtedness which Default shall not
have been cured within any applicable grace period set forth therein;
(e) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of
the Borrowing Company under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy law or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or similar official of the
Borrowing Company or of any substantial part of its properties, or ordering
the winding-up or liquidation of the affairs of the Borrowing Company and any
such decree or order shall continue in effect for a period of sixty
consecutive days;
(f) The Borrowing Company shall file a petition, answer or consent
seeking relief under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other applicable federal or state bankruptcy law
or other similar law, or the Borrowing Company shall consent to the
institution of proceedings thereunder or to the filing of any such petition
or to the appointment or taking of possession of a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or other similar official of the
Borrowing Company or of any substantial part of its properties, or the
Borrowing Company shall fail generally to pay its debts as such debts become
due, or the Borrowing Company shall take any corporate action in furtherance
of any such action; or
(g) This Agreement or any provision hereof shall at any time and for
any reason be declared by a court of competent jurisdiction to be null and
void, or a proceeding shall be commenced by the Borrowing Company or any
other person or entity seeking to establish the invalidity or
unenforceability thereof, or the Borrowing Company shall deny that it has any
liability or any obligation for the payment of principal or interest
purported to be created under this Agreement.
SECTION 6.2. REMEDIES. If an Event of Default shall have occurred and
shall be continuing,
(a) The obligation of the Lending Company to make Loans hereunder shall
immediately cease;
(b) With the exception of an Event of Default specified in Section
6.1(e) or (f), the Lending Company, shall declare the principal of and
interest on the Loans and all other amounts owed under this Agreement to be
forthwith due and payable, whereupon all such amounts shall immediately
become absolute and due and payable, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived, anything in
this Agreement to the contrary notwithstanding, and whereupon all such
amounts shall be immediately due and payable;
(c) Upon the occurrence and continuance of an Event of Default
specified in Section 6.1(e) or (f), such principal, interest and other
amounts shall thereupon and concurrently therewith become absolute and due
and payable, all without any action by the Lending Company, all of which are
hereby expressly waived, anything in this Agreement to the contrary
notwithstanding;
(d) The Lending Company shall have the right and option to exercise all
of the post-default rights granted to them hereunder; and
(e) The Lending Company shall have the right and option to exercise all
rights and remedies available to them at law or in equity.
ARTICLE 7
_________
MISCELLANEOUS
_____________
SECTION 8.1. NOTICES. Except as otherwise provided herein, all
notices and other communications required or permitted under this Agreement
shall be in writing and, if mailed, shall be deemed to have been received on
the earlier of the date shown on the receipt or three Business Days after the
postmarked date thereof and, if sent by facsimile, shall be followed
forthwith by letter and shall be deemed to have been received on the next
Business Day following dispatch and acknowledgment of receipt by the
recipient's facsimile machine. In addition, notices hereunder may be
delivered by hand or overnight courier, in which event the notice shall be
deemed effective when delivered. All notices and other communications under
this Agreement shall be given to the parties at the address or facsimile
number listed below such party's signature line hereto, or such other address
or facsimile number as may be specified by any party in a writing addressed
to the other parties hereto.
SECTION 8.2. WAIVERS. The rights and remedies of the Lending Company
under this Agreement shall be cumulative and not exclusive of any rights or
remedies which they would otherwise have. No failure or delay by the Lending
Company in exercising any right shall operate as a waiver of it. The Lending
Company expressly reserves the right to require strict compliance with the
terms of this Agreement. In the event the Lending Company decides to fund a
request for a Loan at a time when the Borrowing Company is not in strict
compliance with the terms of this Agreement, such decision by the Lending
Company shall not be deemed to constitute an undertaking by the Lending
Company to fund any further requests for Loans or precluding the Lending
Company from exercising any rights available to it under the Agreement or at
law or equity with respect to the Borrowing Company. Any waiver or
indulgence granted by the Lending Company shall not constitute a modification
of this Agreement, except to the extent expressly provided in such waiver or
indulgence, or constitute a course of dealing by the Lending Company at
variance with the terms of this Agreement such as to require further notice
by the Lending Company of its intent to require strict adherence to the terms
of this Agreement in the future. Any such actions shall not in any way
affect the ability of the Lending Company, in their respective sole
discretion, to exercise any of their respective rights under this Agreement
or under any other agreement.
SECTION 8.3. ASSIGNMENT; SUCCESSORS.
(a) The Borrowing Company may not assign or transfer any of its rights
or obligations hereunder without notice to the Lending Company.
(b) The Lending Company may not at any time assign or participate its
interest under this Agreement without notice to the Borrowing Company. Any
holder of a participation in, and any assignee or transferee of, all or any
portion of any amount owed by the Borrowing Company under this Agreement may
exercise any and all rights provided in this Agreement with respect to any
and all amounts owed by the Borrowing Company to such assignee, transferee or
holder as fully as if such assignee, transferee or holder had made the Loans
in the amount of the obligation in which its holds a participation or which
is assigned or transferred to it.
(c) This Agreement shall be binding upon, and inure to the benefit of,
the Borrowing Company, the Lending Company, and the permitted successors and
assigns of each party hereto.
SECTION 8.4. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.
SECTION 8.5. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of
such provision in any other jurisdiction.
SECTION 8.6. ENTIRE AGREEMENT; AMENDMENTS. This Agreement represents
the entire agreement among the parties hereto with respect to the subject
matter of this transaction. No amendment or modification of the terms and
provisions of this Agreement shall be effective unless in writing and signed
by both Companies.
SECTION 8.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a non-Business Day, such payment
may be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest
hereunder.
SECTION 8.8. TERMINATION. This Agreement may be terminated with
respect to any party hereto by such party upon its giving the other parties
thirty days notice of its intent to terminate. In the event of termination
as provided in this paragraph, the Lending Company's obligation to make Loans
to the Borrowing Company shall cease; provided, however, that the Borrowing
Company shall continue to be obligated to make all repayments of Loans and
all other amounts due and payable by it as provided under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
By: /s/ David L. Jacobson
______________________________________________
Title: Senior Vice President
___________________________________________
Address for notices:
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Phone: 302/576-3404
Fax: 302/576-3520
ING AMERICA INSURANCE HOLDINGS, INC.
By: /s/ David S. Pendergrass
______________________________________________
Title: Vice President and Treasurer
___________________________________________
Address for notices:
1105 N. Market Street
Wilmington, DE 19809
Phone: 770/980-3300
Fax: 770/980-3301
AMENDMENT NUMBER 1
__________________
RECIPROCAL LOAN AGREEMENT
The Reciprocal Loan Agreement dated January 1, 1998 between Golden American
Life Insurance Company and ING America Insurance Holdings, Inc., is hereby
amended to provide as follows:
Golden American Life Insurance Company shall not lend
money under the terms of this Agreement, that is, it
shall not become a Lending Company, until and unless
the prior approval of the State of Delaware Department
of Insurance is obtained regarding the amount and terms
of such loan or loans.
All other provisions of the Reciprocal Loan Agreement shall remain in effect
and unaffected by this Amendment.
This Amendment is entered into as of this 1st day of January 1998.
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
BY:/s/ David L. Jacobson
______________________________________
TITLE: Senior Vice President
__________________________________
ING AMERICA INSURANCE HOLDINGS, INC.
BY:/s/ David S. Pendergrass
______________________________________
TITLE: Vice President and Treasurer
__________________________________
AMENDMENT NUMBER 2
__________________
RECIPROCAL LOAN AGREEMENT
The Reciprocal Loan Agreement dated January 1, 1998 between Golden American
Life Insurance Company and ING America Insurance Holdings, Inc., is hereby
amended by replacing the defined term "Revolving Loan Commitment" of Section
1.1 with the following:
"Revolving Loan Commitment" shall mean the outstanding
amount to be funded by the Lending Company to the
Borrowing Company. The aggregate sum which the Lending
Company may loan to the Borrowing Company under this
Agreement shall not exceed $65,000,000.00.
All other provisions of the Reciprocal Loan Agreement shall remain in effect
and unaffected by this Amendment.
This Amendment is entered into as of this 20th day of March 1998.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BY:/s/ David L. Jacobson
_________________________________
TITLE: Senior Vice President
_____________________________
ING AMERICA INSURANCE HOLDINGS, INC.
BY:/s/ David S. Pendergrass
_________________________________
TITLE: Vice President and Treasurer
_____________________________
<PAGE>
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EXHIBIT (10)(f)
SINGLE PAYMENT NOTE
$75,000,000 July 27, 1998
For value received, the Obligor promises to pay to the order of
SunTrust Bank, Atlanta (the "Bank"), on July 31, 1999, or at such earlier
date as hereinafter provided, the principal sum of
SEVENTY FIVE MILLION DOLLARS ($75,000,000)
or such lesser amount of loans as may from time to time, at the Bank's sole
discretion, be advanced or, upon repayment, readvanced by the Bank hereunder
together with interest from the date hereof on the unpaid principal balance
at such annual rate or rates of interest as shall be computed and paid in
accordance with the terms and conditions hereinafter set forth.
This note evidences the obligation of the Obligor to repay, with
interest, any and all present and future indebtedness of the Obligor for
loans at any time hereafter made or extended by the Bank hereunder up to the
aggregate principal amount of $75,000,000 at any time outstanding. The
payment of any indebtedness evidenced by this note shall not affect the
enforceability of this note as to any future, different or other indebtedness
evidenced hereby.
The Obligor acknowledges and agrees that Southland Life Insurance
Company (hereinafter "Southland"), Life Insurance Company of Georgia
(hereinafter "LICG"), ING America Life Corporation (hereinafter "America
Life"), Security Life of Denver Insurance Company (hereinafter "Security
Life"), Columbine Life Insurance Company (hereinafter "Columbine"),
Midwestern United Life Insurance Company (hereinafter "Midwestern"), and
First ING Life Insurance Company of New York (hereinafter "First ING New
York") are all direct or indirect subsidiaries of ING America Insurance
Holdings, Inc. ("America Holdings"). The Obligor further acknowledges and
agrees that Equitable Life Insurance Company of Iowa ("Equitable Life") USG
Annuity and Life Insurance Company ("USG"), Equitable American Insurance
Company ("Equitable American"), Locust Street Securities, Inc. ("Locust
Street"), First Golden American Life Insurance Company of New York ("First
Golden"), and the Obligor are all direct or indirect subsidiaries of
Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). American Holdings
and Equitable of Iowa are both wholly-owned direct subsidiaries of ING
Insurance International B.V. On the date that this note is being executed,
LICG, Security Life, America Life, Southland, Equitable Life, USG, and
America Holdings are executing separate notes to the Bank in the maximum
principal amount of $100,000,000 each; Columbine is executing a separate note
to the Bank in the maximum principal amount of $75,000,000; Equitable of Iowa
is executing a separate note to the Bank in the maximum principal amount of
$50,000,000; First ING New York, Locust Street and First Golden are executing
separate notes to the Bank in the maximum principal amount of $10,000,000
each; Midwestern is executing a separate note to the Bank in the maximum
principal amount of $30,000,000; and Equitable American is executing a
separate note to the Bank in the maximum principal amount of $25,000,000,
each of which notes are substantially similar to this note (the "Affiliate
Notes"). Obligor agrees that the aggregate unpaid principal balance from
time to time outstanding on this note plus the aggregate unpaid principal
balance from time to time outstanding on the Affiliate Notes will at no time
exceed $150,000,000. Obligor will not request any disbursement of principal
under this note if, after such disbursement, the unpaid principal balance of
this note plus the aggregate unpaid principal of the Affiliate Notes will
exceed $150,000,000.
If the Obligor desires a disbursement of principal hereunder (an
"Advance") the Obligor shall give the Bank written or telephonic notice of
the amount of such Advance and the period of time from one (1) day to thirty
(30) days that such Advance shall be outstanding (the "Interest Period"),
provided, however, (a) if any Interest Period would otherwise end on a day
which is not a day on which the Bank and commercial banks in New York, New
York, are open for business (a "Business Day"), that Interest Period shall be
extended through the next succeeding day which is a Business Day, and (b) no
Interest Period shall extend beyond the maturity date of this note. Such
written or telephonic notice with respect to the amount of an Advance and the
Interest Period to be applicable thereto shall be given to the Bank by the
Obligor before one o'clock p.m. Atlanta time, on the first Business Day of
the applicable Interest Period. All telephonic notices shall be promptly
confirmed in writing.
The Obligor shall pay interest upon each Advance from the date of
disbursement through the last day of the applicable Interest Period
(including the date of disbursement but excluding the date of repayment) at a
rate per annum, calculated on the basis of a 360 day year and upon the actual
number of days elapsed, equal to either of the following rates of interest as
selected by the Obligor: (1) the per annum rate of interest equal to the
cost of funds of Bank for the Interest Period applicable to such Advance for
amounts substantially similar to the amount of such Advance plus .25% all as
determined by Bank in accordance with its usual practices in determining its
cost of funds (the "Cost of Funds Rate") or (2) a per annum rate of interest
that would be applicable to the requested Advance as quoted by the Bank to
the Obligor (the "Quoted Rate"). Unpaid interest accruing at either of such
rates will be due and payable on the last Business Day of the applicable
Interest Period. The Bank will advise the Obligor of the Cost of Funds Rate
and the Quoted Rate that will be applicable to a requested Advance before
1:30 p.m. Atlanta time on the Business Day that the Bank receives a request
for an Advance from the Obligor. The Obligor will advise the Bank as to
whether the Obligor has selected the Cost of Funds Rate or the Quoted Rate
before 2:00 p.m. Atlanta time on the Business Day that the Bank receives a
request for an Advance from the Obligor. Any telephonic selection of
interest rates by the Obligor will promptly be confirmed in writing. The
Bank will promptly disburse the amount of an Advance to the Obligor upon
receiving notice of the Obligor's interest rate selection. Unpaid interest
accruing at such interest rate will be due and payable on the last Business
Day of the applicable Interest Period.
The Obligor shall repay the entire outstanding principal balance of
each Advance on the last Business Day of the Interest Period applicable
thereto.
The Obligor may on any Business Day renew an outstanding Advance into
an Advance with the same or different Interest Period, provided that the Bank
must be advised of the Obligor's election to renew the Advance and the
Interest Period applicable to such renewal before one o'clock p.m. on the
last Business Day of the then current Interest Period. The interest rate to
be applicable to the renewal of any Advance shall be selected in the same
manner that the interest rate is selected at the time an Advance is made.
Any such renewal shall be at the Bank's sole discretion.
If no Interest Period has been elected for any Advance or for any
principal balance outstanding hereunder, or if such election shall not be
timely, then the Interest Period with respect thereto shall be deemed to be
one day and the applicable interest rate shall be the Cost of Funds Rate.
No prepayment of any Advance shall be permissible during the Interest
Period applicable thereto.
Should the Obligor fail for any reason to pay this note in full on the
maturity date or on the date of acceleration of payment, the Obligor further
promises to pay interest on the unpaid amount from such date until the date
of final payment at a Default Rate equal to the Prime Rate plus 4%. Should
legal action or an attorney at law be utilized to collect any amount due
hereunder, the Obligor further promises to pay all costs of collection, plus
reasonable attorney's fees. All amounts due hereunder may be paid at any
office of Bank. The principal balance of this note shall conclusively be
deemed to be the unpaid principal balance appearing on the Bank's records
unless such records are manifestly in error.
As security for the payment of this and any other liability of the
Obligor to the holder, direct or contingent, irrespective of the nature of
such liability or the time it arises, the Obligor hereby grants a security
interest to the holder in all property of the Obligor in or coming into the
possession, control or custody of the holder, or in which the holder has or
hereafter acquires a lien, security interest, or other right. Upon default,
holder may, without notice, immediately take possession of and then sell or
otherwise dispose of the collateral, signing any necessary documents as
Obligor's attorney in fact, and apply the proceeds against any liability of
Obligor to holder. Upon demand, the Obligor will furnish such additional
collateral, and execute any appropriate documents related thereto, deemed
necessary by the holder for its security. The Obligor further authorizes the
holder, without notice, to set-off any deposit or account and apply any
indebtedness due or to become due from the holder to the Obligor in
satisfaction of any liability described in this paragraph, whether or not
matured. The holder may, without notice, transfer or register any property
constituting security for this note into its or its nominee name with or
without any indication of its security interest therein.
This note shall immediately mature and become due and payable, without
notice or demand, upon the appointment of a receiver for the Obligor or upon
the filing of any petition or the commencement of any proceeding by the
Obligor for relief under any bankruptcy or insolvency laws, or any law
relating to the relief of debtors, readjustment of indebtedness, debtor
reorganization, or composition or extension of debt. Furthermore, this note
shall, at the option of the holder, immediately mature and become due and
payable, without notice or demand, upon the happening of any one or more of
the following events; (1) nonpayment on the due date of any amount due
hereunder; (2) failure of the Obligor to perform any other material
obligation to the holder; (3) if the Obligor shall fail to make any payment
as and when such payment is due upon any obligation for borrowed money other
than the obligation owing pursuant to this Note, and by reason thereof such
obligation becomes due prior to its stated maturity or prior to its regularly
scheduled dates of payment; (4) a reasonable belief on the part of the
holder that the Obligor is unable to pay its obligations when due or is
otherwise insolvent; (5) the filing of any petition or the commencement of
any proceeding against the Obligor for relief under bankruptcy or insolvency
laws, or any law relating to the relief of debtors, readjustment of
indebtedness, debtor reorganization, or composition or extension of debt,
which petition or proceeding is not dismissed within 60 days of the date of
filing thereof; (6) the suspension of the transaction of the usual business
of the Obligor, or the dissolution, liquidation or transfer to another party
of a significant portion of the assets of the Obligor and any such action
shall have a material adverse effect on the ability of the Obligor to repay
the unpaid principal balance hereof; (7) a reasonable belief on the part of
the holder that the Obligor has made a representation or warranty in
connection with any loan by or other transaction with the holder and such
representation or warranty was false in any material respect; (8) the
issuance or filing of any levy, attachment, garnishment, or lien against the
property of the Obligor which shall remain unpaid or undischarged for a
period of thirty (30) days and such failure to pay shall have a material
adverse effect on the ability of the Obligor to repay the unpaid principal
balance hereof; (9) the failure of the Obligor to satisfy any judgment,
penalty or fine imposed by a court or administrative agency of any government
and such judgment, penalty, or fine shall remain unpaid, unstayed on appeal,
undischarged or undismissed for a period of thirty (30) days; (10) failure
of the Obligor, after demand, to furnish financial information or to permit
inspection of any books or records during Obligor's normal business hours;
(11) Equitable of Iowa shall no longer own 100% of the outstanding voting
stock of the Obligor, or (12) the Obligor shall fail to maintain the minimum
level of Company Action Level Risk Based Capital as established by applicable
state law or regulation.
The failure or forbearance of the holder to exercise any right
hereunder, or otherwise granted by law or another agreement, shall not affect
or release the liability of the Obligor, and shall not constitute a waiver of
such right unless so stated by the holder in writing. The Obligor agrees
that the holder shall have no responsibility for the collection or protection
of any property securing this note, and expressly consents that the holder
may from time to time, without notice, extend the time for payment of this
note, or any part thereof, waive its rights with respect to any property or
indebtedness without releasing the Obligor from any liability to the holder.
This note is governed by Georgia law.
The term "Obligor" means Golden American Life Insurance Company. The
term "Prime Rate", if used herein, shall mean that rate of interest
designated by Bank from time to time as its "Prime Rate" which rate is not
necessarily the Bank's best rate. The term "holder" means Bank and any
subsequent transferee or endorsee hereof.
PRESENTMENT AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE OBLIGOR
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BY:/s/ Denny Hargens
_____________________________
TITLE: Treasurer
_________________________
<PAGE>
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EXHIBIT 23(a)
SUTHERLAND
ASBILL & 1275 Pennsylvania Avenue, N.W.
BRENNAN LLP Washington, D.C. 20004-2415
Attorneys at Law Tel: (202) 383-0100
Fax: (202) 637-3593
www.sablaw.com
April 23, 1999
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
VIA EDGAR
- ---------
Board of Directors
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380-1478
Ms. Emory and Gentlemen:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Prospectus filed as part of
Amendment No. 3 to the registration statement on Form S-1 for
Golden American Life Insurance Company (File No. 333-66745).
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>
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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 25, 1999, with respect to the financial statements
of Separate Account B in the Statements of Additional Information
incorporated by reference from registration statement (Form N-4
No. 333-66757) filed with the Securities and Exchange Commission
contemporaneously with this registration statement. We also
consent to the use of our report dated February 12, 1999, 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 Prospectuses
included in this Amendment No. 3 to the Registration Statement
(Form S-1 No. 333-66745) of Golden American Life Insurance
Company.
Our audits 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 audits. 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/Ernst & Young LLP
Des Moines, Iowa
April 23, 1999
<PAGE>
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EXHIBIT 24
ING VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being duly elected
Directors and/or 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 the following
Golden American registration statements and current amendments to
registration statements, and to file the same, with all exhibits thereto, on
or before May 3, 1999, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he or she 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.
o Post-Effective Amendment currently designated #3 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 333-28769;
811-5626)
o Amendment currently designated #5 to Golden American's Registration
Statement on Form S-1 (No. 333-28765)
o Post-Effective Amendment currently designated #12 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 33-59261;
811-5626)
o Amendment currently designated #3 to Golden American's Registration
Statement on Form S-1 (No. 333-51353)
o Post-Effective Amendment currently designated #3 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 333-28679;
811-5626)
o Golden American's Registration Statement on form S-1
o Post-Effective Amendment currently desigated #5 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 333-
28755; 811-5626)
o Amendment currently designated #3 to Golden American's Registration
Statement on Form S-1 (No. 333-65009)
o Post-Effective Amendment currently designated #1 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 333-
66757: 811-5626)
o Amendment currently designated #3 to Golden American's Registration
Statement on Form S-1 (No. 333-66745)
o Post-Effective Amendment currently designated #29 to Separate Account B
of Golden American's Registration Statement on Form N-4 (Nos. 33-23351;
811-5626)
o Post-Effective Amendment currently designated #23 to Separate Account A
of Golden American's Registration Statement on Form N-4 (Nos. 33-23458;
811-5627)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Barnett Chernow Director and President April 9, 1999
- ---------------------
Barnett Chernow
/s/Myles R. Tashman Director, Executive Vice April 8, 1999
- --------------------- President, General Counsel
Myles R. Tashman and Secretary
/s/R. Brock Armstrong Director April 12, 1999
- ---------------------
R. Brock Armstrong
/s/Michael W. Cunningham Director April 8, 1999
- ---------------------
Michael W. Cunningham
/s/Linda B. Emory Director April 9, 1999
- ---------------------
Linda B. Emory
/s/Phillip R. Lowery Director April 8, 1999
- ---------------------
Phillip R. Lowery
/s/E. Robert Koster Senior Vice President and April 7, 1999
- --------------------- Chief Financial Officer
E. Robert Koster
1475 Dunwoody Drive GOLDEN SELECT SERIES
West Chester, PA 19380 Issued by Golden American Life
Insurance Company
<PAGE>
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<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 741,985
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,514
<MORTGAGE> 97,322
<REAL-ESTATE> 0
<TOTAL-INVEST> 903,745
<CASH> 6,679
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 204,979
<TOTAL-ASSETS> 4,752,533
<POLICY-LOSSES> 881,112
<UNEARNED-PREMIUMS> 3,840
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 85,000
0
0
<COMMON> 2,500
<OTHER-SE> 351,394
<TOTAL-LIABILITY-AND-EQUITY> 4,752,533
0
<INVESTMENT-INCOME> 42,485
<INVESTMENT-GAINS> (1,491)
<OTHER-INCOME> 49,459
<BENEFITS> 96,968
<UNDERWRITING-AMORTIZATION> 5,148
<UNDERWRITING-OTHER> (26,406)
<INCOME-PRETAX> 10,353
<INCOME-TAX> 5,279
<INCOME-CONTINUING> 5,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,074
<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>
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</TABLE>
