<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on April 25, 2000
Registration No. 333-95457
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement under The Securities Act of 1933
Amendment No. 1
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 6355 41-0991508
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
1475 Dunwoody Drive
West Chester, PA 19380
(610) 425-3400
(Address and Telephone Number of registrant's principal executive office)
Marilyn Talman, Esq. COPY TO:
Golden American Life Insurance Company Stephen E. Roth, Esq.
1475 Dunwoody Drive Sutherland Asbill & Brennan LLP
West Chester, PA 19380 1275 Pennsylvania Avenue, N.W.
(610) 425-3516 Washington, D.C. 20004-2404
(Name and Address of Agent for Service
of Process)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practical after the effective date of the Registration Statement.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box ................................................ [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box [ ]
____________________________________________________________________________
Pursuant to Rule 429 under the Securities Act of 1933, a prospectus herein
also relates to Registration Statement Nos. 333-28743, 333-51949, 333-65009
and 333-76945.
<PAGE>
<PAGE>
Calculation of Registration Fee
____________________________________________________________________________
<TABLE>
<CAPTION>
Proposed Maximum Proposed Amount of
Title of Securities Amount Being Offering Price Maximum Aggregate Registration
Being Registered Registered (1) Per Unit (1) Offering Price(1) Fee(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annuity Contracts
Annuity Contracts
(Interests in N/A N/A $2,927,000,000 $772,728
Fixed Account)
</TABLE>
(1) The maximum aggregate offering price is estimated solely for the purpose
of determining the registration fee. The amount to be registered and
the proposed maximum offering price per unit are not applicable since
these securities are not issued in predetermined amounts or units.
(2) Previously paid. Amounts previously registered in connection with File
Nos. 333-28743, 333-51949, 333-65009 and 333-76945 were $100,320,000,
$350,000,000, $1,050,000,000 and $630,000,000 respectively.
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<PAGE>
<PAGE>
PART I
This Registration Statement contains four separate Profiles and Prospectuses
for the GoldenSelect Premium Plus Contract. This Amendment to the Registration
Statement contains two forms (Form 1 and Form 2 of each of 2 versions
(Version A and Version B) of the Profile and Prospectus.
|------------------------------------------------|
|PROFILE & | FORM 1 | FORM 2 |
|PROSPECTUS | | |
|------------|----------------|------------------|
|VERSION A | ORIG. DB DESC. | NEW DB DESC. |
| | 27 PORTFOLIOS | 27 PORTFOLIOS |
| | | |
|------------|----------------|------------------|
|VERSION B | ORIG. DB DESC. | NEW DB DESC. |
| | 32 PORTFOLIOS | 32 PORTFOLIOS |
| | | |
| | | |
| | | |
| | | |
| | | |
|------------------------------------------------|
Version B is a variation of the Profile and Prospectus (Version A). The
distribution system and the underlying investment options for the Contracts
offered by each version of the Profile and Prospectus is different. Version A
contains twenty-seven. Version B contains five portfolios of The Galaxy VIP
Fund in addition to all portfolios offered in Version A. Other than these
differences, Version A and Version B are substantially similar.
The Form 2 Profiles and Prospectuses contain updated disclosure regarding the
death benefit options being offered effective with this amendment to the
Registration Statement and appropriate state approval. The Form 1 Profiles
and Prospectuses contain disclosure regarding the death benefit options
available under the current contract. Both Forms will be used until all state
aprovals are received. Other than this difference, Form 1 and Form 2 are
substantially similar. Once all states have approved the contract described
in Form 2, Form 1 will be discontinued. Other than this difference, Form 1
and Form 2 are substantially similar.
The Profiles and Prospectuses filed herein do not contain all of the
information permitted by Securities and Exchange Commission Regulations.
Therefore, this Registration Statement on Form S-1 for Golden American Life
Insurance Company ("Golden American") incorporates by reference the Statements
of Additional Information for Forms One and Two and Versions A and B, and
Part C (Other Information) contained in the Registration Statement on Form N-4
(Post-Effective Amendment No. 9, File Nos. 333-28755, 811-5626, filed
contemporaneously with this Amendment to the Registration Statement on
Form S-1, on or about the date hereof) for Golden American Separate Account
B. This information may be obtained free of charge from Golden American Life
Insurance Company by calling Customer Service at 800-366-0066.
<PAGE>
<PAGE>
SUPPLEMENT FOR FORMS ONE AND TWO OF VERSION A & B
CREDIT SUPPLEMENT
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
PROFILE AND PROSPECTUS SUPPLEMENT
DATED May 1, 2000
Supplement to the Profile and
Prospectus dated May 1, 2000 for
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
issued
by Golden American Life Insurance Company
(the "GoldenSelect PREMIUM PLUS Prospectuses")
__________
You should keep this supplement with your Profile and Prospectus.
The following information supplements the GOLDENSELECT PREMIUM PLUS
Prospectus. Capitalized terms have the meanings described in the
Prospectus.
For any Contract whose Owner (older Owner in the case of joint owners)
or Annuitant (when the Owner is not an individual) at the time of a
premium payment, was less than age 70 (measured on his or her last
Contract Anniversary), we will add a Credit of 5% to the premium paid.
This 5% Credit consists of a 4% contractual guarantee and a 1% credit
enhancement. The credit enhancement on future premium payments (but
not the contractual guarantee) may be reduced or eliminated at our
option at anytime with 30 days notice.
106969 Credit 05/01/00
<PAGE>
<PAGE>
FORM ONE
VERSION A
<PAGE>
<PAGE>
PROFILE AND PROSPECTUS OF
GOLDENSELECT PREMIUM PLUS/R/
(3 DEATH BENEFITS)
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT PREMIUM PLUS(R)
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
MAY 1, 2000
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
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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 features a minimum 4% credit to each premium you pay. The Contract
provides a means for you to invest on a tax-deferred basis in (i) one or more of
27 mutual fund investment portfolios through our Separate Account B and/or (ii)
in a fixed account of Golden American with guaranteed interest periods. The 27
mutual fund portfolios are listed on page 3 below. We currently offer guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years in the fixed account. We
set the interest rates in the fixed account (which will never be less than 3%)
periodically. 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 applicable interest period. If you 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 take out. Generally, 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.
Subject to state availability, you may elect one of three optional riders
offering specified benefits featured in the prospectus for the Contract. The
three optional benefit riders are listed on page 10 below. The optional benefit
riders can provide protection under certain circumstances in the event that
unfavorable investment performance has lowered your contract value below certain
targeted growth. These riders do not guarantee the performance of your
investment portfolios. Separate charges are assessed for the optional riders.
You should carefully analyze and completely evaluate each rider before you
purchase any. Be aware that the benefit provided by any of the riders will be
affected by certain later actions you may take - such as
PREMIUM PLUS PROFILE PROSPECTUS BEGINS AFTER
PAGE 11 OF THIS PROFILE
<PAGE>
withdrawals and transfers. The riders are not available to Contracts issued
before January 1, 2000. To find out about availability, check with our Customer
Service Center.
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 on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract. 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ANNUITY OPTIONS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Option 1 Income for a fixed Payments are made for a specified number of
period years to you or your beneficiary.
-----------------------------------------------------------------------------------------
Option 2 Income for life with Payments are made for the rest of your life
a period certain or longer for a specified 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 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.
-----------------------------------------------------------------------------------------
</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. 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 $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($250 for a qualified Contract) at any time before you
turn 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. Each
time you make a premium payment, we will add a credit of at least 4% of each
premium payment to your contract value. Within 1 year after any credit is added,
it may be deducted from your contract value under certain circumstances which
are described in the prospectus for the Contract. After 1 year, a credit added
to your contract value becomes permanent.
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
2 PREMIUM PLUS PROFILE
<PAGE>
purchased as either an Individual Retirement Annuity (IRA) or in connection with
a qualified retirement plan (each a "qualified Contract").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
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, and the credit we add, 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 27 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, the Warburg Pincus Trust, ING Variable Insurance Trust and the Prudential
Series Fund. Keep in mind that while an investment in the fixed account earns a
fixed interest rate, an investment in any investment portfolio, depending on
market conditions, may cause you to make or lose money. The investment
portfolios available under your Contract are:
<TABLE>
<S> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Strategic Equity Series
Limited Maturity Bond Series Managed Global Series Mid-Cap Growth Series
Global Fixed Income Series Large Cap Value Series Small Cap Series
Fully Managed Series All Cap Series Growth Series
Total Return Series Research Series Real Estate Series
Equity Income Series Capital Appreciation Series Hard Assets Series
Investors Series Capital Growth Series Developing World Series
Value Equity Series
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund
PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based administrative charge and an
annual contract administrative charge of $40. We deduct the mortality and
expense risk charge and the asset-based administrative charges daily directly
from your contract value in the investment portfolios. The mortality and expense
risk charge (depending on the death benefit you choose) and the asset-based
administrative charge, on an annual basis, are as follows:
3 PREMIUM PLUS PROFILE
<PAGE>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
<S> <C> <C> <C>
Mortality & Expense Risk Charge 1.25% 1.40% 1.55%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
Total 1.40% 1.55% 1.70%
</TABLE>
If you choose to purchase one of the optional benefit riders we offer, we will
deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
-------------- ----------------
10 Year............ 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.56% to 1.75% 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, we 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
year is 10% of your contract value on the date of the withdrawal less any prior
withdrawals during that 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 withdrawn.
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column is divided into two: one part reflects
the maximum mortality and expense risk charge, (based on the 7% Solution
Enhanced Death Benefit), the asset-based administrative charge, the annual
contract administrative charge as 0.05% (based on an average contract value of
$77,000), and the highest optional rider charge as 0.75% in most cases, assuming
the rider base is equal to the initial premium and the rider base increases by
7% each year. (Note, however, for the Liquid Asset and Limited Maturity Bond
portfolios, the rider charge is equal to 0.50% because the base for the rider
accumulates at the assumed net rate, not 7%.) The second part reflects the same
insurance charges, but without any rider charges. The "Total Annual Investment
Portfolio Charges" column reflects the portfolio charges for each portfolio and
are based on actual expenses as of December 31, 1999, except for (i) portfolios
that commenced operations during
4 PREMIUM PLUS PROFILE
<PAGE>
2000 where the charges have been estimated, and (ii) newly formed portfolios
where the charges have been estimated. 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 and received a $40 credit 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 (based on the 7% Solution Enhanced Death Benefit). The 1 Year examples
above include an 8% surrender charge. For Years 1 and 10, the examples show the
total annual charges assessed during that time and assume that you have elected
the 7% Solution Enhanced Death Benefit. For these examples, the premium tax is
assumed to be 0%.
<TABLE>
<CAPTION>
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- --------------- ---------------- ----------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- -------------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liquid Asset 2.25% 1.75% 0.56% 2.81% 2.31% $110 $104 $329 $275
- -------------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.25% 1.75% 0.57% 2.82% 2.32% $110 $104 $330 $276
- -------------------------------------------------------------------------------------------------------------------------
Global Fixed Income 2.50% 1.75% 1.60% 4.10% 3.35% $123 $115 $446 $379
- -------------------------------------------------------------------------------------------------------------------------
Fully Managed 2.50% 1.75% 0.97% 3.47% 2.72% $116 $109 $390 $317
- -------------------------------------------------------------------------------------------------------------------------
Total Return 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- -------------------------------------------------------------------------------------------------------------------------
Equity Income 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Investors 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- -------------------------------------------------------------------------------------------------------------------------
Value Equity 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Rising Dividends 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Managed Global 2.50% 1.75% 1.25% 3.75% 3.00% $119 $112 $415 $345
- -------------------------------------------------------------------------------------------------------------------------
Large Cap Value 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- -------------------------------------------------------------------------------------------------------------------------
All Cap 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- -------------------------------------------------------------------------------------------------------------------------
Research 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- -------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Capital Growth 2.50% 1.75% 1.05% 3.55% 2.80% $117 $109 $397 $325
- -------------------------------------------------------------------------------------------------------------------------
Strategic Equity 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- -------------------------------------------------------------------------------------------------------------------------
Small Cap 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Growth 2.50% 1.75% 1.04% 3.54% 2.79% $117 $109 $396 $324
- -------------------------------------------------------------------------------------------------------------------------
Real Estate 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Hard Assets 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- -------------------------------------------------------------------------------------------------------------------------
Developing World 2.50% 1.75% 1.75% 4.25% 3.50% $124 $117 $459 $393
- -------------------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 2.50% 1.75% 0.75% 3.25% 2.50% $114 $106 $369 $295
- -------------------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.50% 1.75% 0.65% 3.15% 2.40% $113 $105 $360 $285
- -------------------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity 2.50% 1.75% 1.32% 3.82% 3.07% $120 $112 $422 $352
ING VARIABLE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------------
ING Global Brand
Names 2.50% 1.75% 1.23% 3.73% 2.98% $119 $111 $413 $323
- -------------------------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison 2.50% 1.75% 1.03% 3.53% 2.78% $117 $109 $395 $323
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
5 PREMIUM PLUS PROFILE
<PAGE>
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" 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 can
calculate and pay you the minimum required distribution amounts at your request.
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 taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page 10.
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 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. The following chart shows average
annual total return for each portfolio that was in operation for the entire year
of 1999. These numbers reflect the deduction of the mortality and expense risk
charge (based on the 7% Solution Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee and the maximum optional benefit
rider charge on a rider base that accumulates at 7%, but do not reflect
deductions for any surrender charges. If surrender charges were reflected, they
would have the effect of reducing performance. Please keep in mind that past
performance is not a guarantee of future results.
6 PREMIUM PLUS PROFILE
<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
- --------------------------------------------------------------------------------
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.89% 10.16%
Strategic Equity(2) 52.84% -1.41%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.77% 9.47%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 58.21% --
Global Fixed Income 10.73% 9.35%
Hard Assets(2 20.67% -31.17%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.76% 26.44%
Small Cap(3) 47.35% 18.29%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.76% -0.72%
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.14% 4.48%
Liquid Asset 2.40% 2.70%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.37% 24.00%
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.31% 11.59%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 75.24% 20.07%
Research 21.48% 20.31%
Total Return 1.05% 9.10%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.00% -15.39%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -2.97% 5.84%
Fully Managed 4.53% 3.52%
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.70% --
PIMCO StocksPLUS Growth and Income 17.20% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 50.10% 3.00%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- --
- ------------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
7 PREMIUM PLUS PROFILE
<PAGE>
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced
Death Benefit or (iii) the Annual Ratchet Enhanced Death Benefit. The 7%
Solution Enhanced Death Benefit is available only if the contract owner or the
annuitant (if the contract owner is not an individual) is not more than 80 years
old at the time of purchase. The Annual Ratchet Enhanced Death Benefit is
available only if the contract owner or the annuitant (if the contract owner is
not an individual) is not more than 79 years old at the time of purchase. The 7%
Solution and Annual Ratchet Enhanced Death Benefits may not be available where a
Contract is held by joint owners.
The death benefit is payable when the first of the following persons die: 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
written notice and due proof of death, as well as required claim forms, 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.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals; or
3) the cash surrender value.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year of
death, which we determine as follows: we credit interest each business
day at the 7% annual effective rate to the enhanced death benefit from
the preceding day (which would be the initial premium and the credit
added if the preceding day is the contract date), then we add
additional premiums paid and credits added since the preceding day,
then we subtract any withdrawals (including any market value
adjustment applied to such withdrawal) since the preceding day, and
then we subtract any associated surrender charges. The maximum
enhanced death benefit is 2 times all premium payments and credits
added, less an amount to reflect withdrawals.
Note: The actual interest rate used for calculating the death benefit for
the Liquid Asset and Limited Maturity Bond investment portfolios will
be the lesser of the 7% annual effective rate 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 7% annual effective rate or
the interest credited to such investment during the applicable period.
Thus, selecting these investments may limit the enhanced death
benefit.
8 PREMIUM PLUS PROFILE
<PAGE>
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 minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which is determined as follows: On each contract anniversary
that occurs on or before the contract owner turns age 80, 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 and credit added if the preceding day is
the contract date), then we add additional premiums paid and credits
added since the preceding day, and then we subtract any withdrawals
(including any market value adjustment applied to such withdrawal)
since the preceding day, and then we subtract any associated surrender
charges. That amount becomes the new enhanced death benefit.
Note: In all cases described above, the amount of the death benefit 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 refund of the adjusted contract value. We determine your
contract value at the close of business on the day we receive your written
refund request. For purposes of the refund during the free look period, (i) we
adjust your contract value for any market value adjustment (if you have invested
in the fixed account), (ii) then we exclude any credit initially applied, and
(iii) then we include 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,
excluding any credit, (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.
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. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. 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. Transfers between Special
Funds and other investment portfolios will result in a transfer of the
Guaranteed Death Benefit in proportion to the account value transferred. In
cases where more than one Guaranteed Death Benefit exists because of such
transfers, each death benefit will be combined to calculate the total death
benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge for
each rider. Once elected, the riders generally may not be cancelled. This means
once
9 PREMIUM PLUS PROFILE
<PAGE>
added the rider may not be removed and charges will be assessed regardless of
the performance of your Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment plus credits at the end of ten years, or, at least
equal two times your initial premium payment plus credits at the end of
twenty years, depending on the waiting period you select, reduced pro rata
for withdrawals and certain transfers. The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one.
Withdrawals and certain transfers may reduce the guarantee by more than the
amount withdrawn or transferred. The MGAB rider may offer you protection in
the event of a lower contract value that may result from unfavorable
investment performance of your Contract. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGAB rider. You should read the prospectus for more complete information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the greater
of the amounts that are ordinarily available to you under your Contract and
the MGIB annuity benefit, which is based on your MGIB Base, the MGIB
annuity option you selected and the MGIB guaranteed income factors
specified in your rider. Your MGIB Base generally depends on the amount of
premiums you pay during the first five contract years after you purchase
the rider, the credit(s) applied, and when you pay the premiums,
accumulated at the MGIB rate, less adjustments for withdrawals and
transfers. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGIB rider. You should read
the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that you will receive annual periodic
payments, when added together, equal to all premium payments and credits
paid during the first two contract years, less adjustments for any prior
withdrawals. If your contract value is reduced to zero, your periodic
payments will be 7% of your Eligible Payment Amount every year. (Of course,
any applicable income and penalty taxes will apply to amounts withdrawn.)
Your original Eligible Payment Amount is your premium payments and credits
received during the first two contract years. Withdrawals that you make in
excess of the above periodic payment amount may substantially reduce the
guarantee. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGWB rider. You should read
the prospectus for more complete information.
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. It 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 surrender 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.
10 PREMIUM PLUS PROFILE
<PAGE>
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 profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
11 PREMIUM PLUS PROFILE
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<PAGE>
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS(R)
- --------------------------------------------------------------------------------
MAY 1, 2000
This prospectus describes GoldenSelect Premium Plus(R), 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 and
credits in one or more of 27 mutual fund investment portfolios. You may also
allocate premium payments and credits 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 listed on the back of this
cover.
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 refund of the adjusted
contract value less credits we added (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 and in certain
situations.
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, 2000, 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 SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST OR THE
PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY
ANY BANK OR 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 VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE
INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
<PAGE>
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
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.
<PAGE>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms................................................. 1
Fees and Expenses...................................................... 2
Performance Information................................................ 9
Accumulation Unit.................................................. 9
Net Investment Factor.............................................. 10
Condensed Financial Information.................................... 10
Financial Statements............................................... 10
Performance Information............................................ 10
Golden American Life Insurance Company................................. 11
The Trusts............................................................. 11
Golden American Separate Account B..................................... 12
The Investment Portfolios.............................................. 12
Investment Objectives.............................................. 12
Investment Management Fees......................................... 16
The Fixed Interest Allocation.......................................... 17
Selecting a Guaranteed Interest Period............................. 17
Guaranteed Interest Rates.......................................... 17
Transfers from a Fixed Interest Allocation......................... 18
Withdrawals from a Fixed Interest Allocation....................... 18
Market Value Adjustment............................................ 19
The Annuity Contract................................................... 20
Contract Date and Contract Year.................................... 20
Annuity Start Date................................................. 20
Contract Owner..................................................... 20
Annuitant.......................................................... 21
Beneficiary........................................................ 21
Purchase and Availability of the Contract.......................... 21
Crediting of Premium Payments...................................... 22
Additional Credit to Premium....................................... 23
Administrative Procedures.......................................... 23
Contract Value..................................................... 23
Cash Surrender Value............................................... 24
Surrendering to Receive the Cash Surrender Value................... 24
The Subaccounts.................................................... 24
Addition, Deletion or Substitution of Subaccounts and Other Changes 24
The Fixed Account.................................................. 25
Optional Riders.................................................... 25
Minimum Guaranteed Accumulation Benefit Rider................. 26
Minimum Guaranteed Income Benefit Rider....................... 28
Minimum Guaranteed Withdrawal Benefit Rider................... 30
Other Contracts.................................................... 32
Other Important Provisions......................................... 32
Withdrawals............................................................ 32
Regular Withdrawals................................................ 33
Systematic Withdrawals............................................. 33
IRA Withdrawals.................................................... 34
Transfers Among Your Investments....................................... 35
Dollar Cost Averaging.............................................. 35
Automatic Rebalancing.............................................. 36
Death Benefit Choices.................................................. 37
Death Benefit During the Accumulation Phase........................ 37
Standard Death Benefit............................................. 37
i
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Enhanced Death Benefits............................................ 37
Death Benefit During the Income Phase.............................. 38
Required Distributions upon Contract Owner's Death................. 38
Charges and Fees....................................................... 39
Charge Deduction Subaccount........................................ 39
Charges Deducted from the Contract Value........................... 40
Surrender Charge................................................... 40
Waiver of Surrender Charge for Extended Medical Care.......... 40
Free Withdrawal Amount........................................ 40
Surrender Charge for Excess Withdrawals....................... 40
Premium Taxes................................................. 40
Administrative Charge......................................... 41
Transfer Charge............................................... 41
Charges Deducted from the Subaccounts......................... 41
Mortality and Expense Risk Charge............................. 41
Asset-Based Administrative Charge............................. 41
Optional Rider Charges........................................ 41
Trust Expenses..................................................... 42
The Annuity Options.................................................... 42
Annuitization of Your Contract..................................... 42
Selecting the Annuity Start Date................................... 43
Frequency of Annuity Payments...................................... 43
The Annuity Options................................................ 43
Income for a Fixed Period..................................... 44
Income for Life with a Period Certain......................... 44
Joint Life Income............................................. 44
Annuity Plan.................................................. 44
Payment When Named Person Dies..................................... 44
Other Contract Provisions.............................................. 44
Reports to Contract Owners......................................... 44
Suspension of Payments............................................. 45
In Case of Errors in Your Application.............................. 45
Assigning the Contract as Collateral............................... 45
Contract Changes-Applicable Tax Law................................ 45
Free Look.......................................................... 45
Group or Sponsored Arrangements.................................... 45
Selling the Contract............................................... 46
Other Information...................................................... 46
Voting Rights...................................................... 46
State Regulation................................................... 46
Legal Proceedings.................................................. 47
Legal Matters...................................................... 47
Experts............................................................ 47
Federal Tax Considerations............................................. 47
More Information About Golden American................................. 52
Financial Statements of Golden American Life Insurance Company......... 72
Statement of Additional Information
Table of Contents.................................................. 103
Appendix A
Condensed Financial Information.................................... A1
Appendix B
Market Value Adjustment Examples................................... B1
Appendix C
Surrender Charge for Excess Withdrawals Example.................... C1
ii
<PAGE>
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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 9
Annual Ratchet Enhanced Death Benefit 38
Annuitant 21
Annuity Start Date 20
Cash Surrender Value 24
Contract Date 20
Contract Owner 20
Contract Value 23
Contract Year 20
Fixed Interest Allocation 17
Free Withdrawal Amount 40
Market Value Adjustment 19
Net Investment Factor 10
Rider Date 25
Special Funds 25
7% Solution Enhanced Death Benefit 37
Standard Death Benefit 37
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
<PAGE>
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FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 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.......................................... $40
(We waive this charge if the total of your premium payments is $100,000 or
more or if your contract value at the end of a contract year is $100,000 or
more.)
*** We deduct this charge on each contract anniversary and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES****
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
------------- -------------- -----------
<S> <C> <C> <C>
Mortality & Expense Risk Charge 1.25% 1.40% 1.55%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
Total Separate Account Charges 1.40% 1.55% 1.70%
</TABLE>
**** As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
OPTIONAL RIDER CHARGES*****
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year......... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year......... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%.............. 0.125% of the MGIB Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
***** We deduct optional rider charges from the subaccounts in which you
are invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation nearest maturity.
2
<PAGE>
(1) The MGAB Charge Base is the total of premiums and credits added during
the two year period commencing on the rider date if you purchase the
rider on the contract date, or, your contract value on the rider date
plus premiums and credits added during the two year period commencing
on the rider date if you purchased the rider after the contract date,
reduced pro rata for all withdrawals taken while the MGAB rider is in
effect, and reduced pro rata for transfers made during the three year
period before the MGAB Benefit Date.
(2) The MGIB Base generally depends on the amount of premiums you pay
during the first five contract years after you purchase the rider, and
the credit(s) applied, when you pay the premiums, and less a pro rata
deduction for any withdrawal made while the MGIB rider is in effect.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums and
credit paid during the 2-year period commencing on the rider date if
you purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums and credits received
during the two-year period commencing on the rider date.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
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MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
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Liquid Asset 0.56% 0.00% 0.56%
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Limited Maturity Bond 0.56% 0.01% 0.57%
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Global Fixed Income 1.60% 0.00% 1.60%
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Fully Managed 0.96% 0.01% 0.97%
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Total Return 0.91% 0.00% 0.91%
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Equity Income 0.96% 0.00% 0.96%
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Investors 1.00% 0.01% 1.01%
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Value Equity 0.96% 0.00% 0.96%
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Rising Dividends 0.96% 0.00% 0.96%
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Managed Global 1.25% 0.00% 1.25%
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Large Cap Value 1.00% 0.01% 1.01%
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All Cap 1.00% 0.01% 1.01%
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Research 0.91% 0.00% 0.91%
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Capital Appreciation 0.96% 0.00% 0.96%
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Capital Growth 1.04% 0.01% 1.05%
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Strategic Equity 0.96% 0.00% 0.96%
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Mid-Cap Growth 0.91% 0.00% 0.91%
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Small Cap 0.96% 0.00% 0.96%
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Growth 1.04% 0.00% 1.04%
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Real Estate 0.96% 0.00% 0.96%
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Hard Assets 0.96% 0.00% 0.96%
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Developing World 1.75% 0.00% 1.75%
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(1) Fees decline as the total assets of certain combined portfolios
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, 1999, except for portfolios that commenced operations in
2000 where the charges have been estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
3
<PAGE>
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
- --------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
- --------------------------------------------------------------------------------
(1) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.65% and 0.75% for the
High Yield Bond and the StocksPLUS Growth and Income Portfolios,
respectively, of average daily net assets. Without such reductions,
total annual operating expenses for the fiscal year ended December 31,
1999 would have remained unchanged for both Portfolios. Under the
Expense Limitation Agreement, PIMCO may recoup any such waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit. The fees expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
- --------------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
- --------------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE(3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Since the portfolio had not commenced operations as of December 31,
1999, expenses as shown are based on estimates of the portfolio's
operating expenses for the portfolio's first fiscal year.
(2) ING Mutual Funds Management Co. LLC, the investment manager, has
entered into an expense limitation contract with the portfolio, under
which it will limit expenses of the portfolio as shown, excluding
interest, taxes, brokerage, and extraordinary expenses through
December 31, 2000. Fee waiver and/or reimbursements by the investment
manager may vary in order to achieve such contractually obligated
Total Expenses. Without this contract, and based on estimates for the
fiscal year ending December 31, 2000, total expenses are estimated to
be 2.03% for the portfolio.
(3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule
12b-1 under the 1940 Act, the portfolio pays its distributor an annual
fee of up to 0.25% of average daily net assets attributable to
portfolio shares. The distribution fee may be used by the distributor
for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the portfolio. For more information
see the portfolio's Statement of Additional Information.
4
<PAGE>
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
- --------------------------------------------------------------------------------
(1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to
enable to portfolio to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses for
delivery to prospective investors and advertising costs for the
portfolio. Over a long period of time, the total amount of 12b-1 fees
paid may exceed the amount of sales charges imposed by the product.
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 Variable Insurance Trust and the Warburg Pincus Trust,
ING Variable Insurance Trust, and the Prudential Series Fund 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.
EXAMPLES:
The following four examples are designed to show you the expenses you would pay
on a $1,000 investment, plus a credit of $40, that earns 5% annually. Each
example assumes election of the 7% Solution Enhanced Death Benefit. The examples
reflect the deduction of a mortality and expense risk charge, an asset-based
administrative charge, and the annual contract administrative charge as an
annual charge of 0.05% of assets (based on an average contract value of
$77,000). In addition, Examples 1 and 2 assume you elected an optional benefit
rider with the highest charge 0.75% annually where the rider base is equal to
the initial premium and increases by 7% annually, except for the Liquid Asset
and Limited Maturity Bond portfolios, where the charge is 0.50% annually and
assume the rider charge is assessed each quarter on a base equal to the
hypothetical $1,000 premium increasing by 7% per year (the assumed net rate for
Liquid Asset and Limited Maturity Bond portfolios). The annual charge of 0.75%
results from the assumption of a 7% annual increase in the rider base but only a
5% earnings increase in the contract value before expenses. Thus, 0.75%
represents an annual charge over the 10-year period which is equivalent to an
increasing charge of 0.125% per quarter over the same period. If the Standard
Death Benefit or the Annual Ratchet Enhanced Death Benefit is elected instead of
the 7% Enhanced Death Benefit used in the examples, the actual expenses will be
less than those represented in the examples. Note that surrender charges may
apply if you choose to annuitize your Contract within the first 5 contract
years, and under certain circumstances, within the first 9 contract years. Thus,
in the event you annuitize your Contract under circumstances which require a
surrender charge, you should refer to Examples 1 and 3 below which assume
applicable surrender charges.
5
<PAGE>
Example 1
If you surrender your Contract at the end of the applicable time period and
elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $110 $171 $225 $329
Limited Maturity Bond $110 $171 $226 $330
Global Fixed Income $123 $210 $288 $446
Fully Managed $116 $191 $257 $390
Total Return $116 $189 $255 $384
Equity Income $116 $190 $257 $389
Investors $117 $192 $259 $393
Value Equity $116 $190 $257 $389
Rising Dividends $116 $190 $257 $389
Managed Global $119 $199 $271 $415
Large Cap Value $117 $192 $259 $393
All Cap $117 $192 $259 $393
Research $116 $189 $255 $384
Capital Appreciation $116 $190 $257 $389
Capital Growth $117 $193 $261 $397
Strategic Equity $116 $190 $257 $389
Mid-Cap Growth $116 $189 $255 $384
Small Cap $116 $190 $257 $389
Growth $117 $193 $261 $396
Real Estate $116 $190 $257 $389
Hard Assets $116 $190 $257 $389
Developing World $124 $214 $295 $459
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $114 $184 $247 $369
PIMCO StocksPLUS
Growth and Income $113 $181 $242 $360
THE WARBURG PINCUS TRUST
International Equity $120 $201 $275 $422
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $119 $199 $270 $413
PRUDENTIAL SERIES FUND
Prudential Jennison $117 $193 $260 $395
</TABLE>
6
<PAGE>
Example 2
If you do not surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $30 $ 91 $155 $329
Limited Maturity Bond $30 $ 91 $156 $330
Global Fixed Income $43 $130 $218 $446
Fully Managed $36 $111 $187 $390
Total Return $36 $109 $185 $384
Equity Income $36 $110 $187 $389
Investors $37 $112 $189 $393
Value Equity $36 $110 $187 $389
Rising Dividends $36 $110 $187 $389
Managed Global $39 $119 $201 $415
Large Cap Value $37 $112 $189 $393
All Cap $37 $112 $189 $393
Research $36 $109 $185 $384
Capital Appreciation $36 $110 $187 $389
Capital Growth $37 $113 $191 $397
Strategic Equity $36 $110 $187 $389
Mid-Cap Growth $36 $109 $185 $384
Small Cap $36 $110 $187 $389
Growth $37 $113 $191 $396
Real Estate $36 $110 $187 $389
Hard Assets $36 $110 $187 $389
Developing World $44 $134 $225 $459
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $34 $104 $177 $369
PIMCO StocksPLUS
Growth and Income $33 $101 $172 $360
THE WARBURG PINCUS TRUST
International Equity $40 $121 $205 $422
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $39 $119 $200 $413
PRUDENTIAL SERIES FUND
Prudential Jennison $37 $113 $190 $395
</TABLE>
7
<PAGE>
Example 3
If you surrender your Contract at the end of the applicable time period and did
not elect any optional benefit rider, you would pay the following expenses for
each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $104 $155 $198 $275
Limited Maturity Bond $104 $155 $199 $276
Global Fixed Income $115 $187 $252 $379
Fully Managed $109 $168 $220 $317
Total Return $108 $166 $217 $311
Equity Income $109 $167 $219 $316
Investors $109 $169 $222 $321
Value Equity $109 $167 $219 $316
Rising Dividends $109 $167 $219 $316
Managed Global $112 $176 $234 $345
Large Cap Value $109 $169 $222 $321
All Cap $109 $169 $222 $321
Research $108 $166 $217 $311
Capital Appreciation $109 $167 $219 $316
Capital Growth $109 $170 $224 $325
Strategic Equity $109 $167 $219 $316
Mid-Cap Growth $108 $166 $217 $311
Small Cap $109 $167 $219 $316
Growth $109 $170 $223 $324
Real Estate $109 $167 $219 $316
Hard Assets $109 $167 $219 $316
Developing World $117 $192 $259 $393
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $106 $161 $208 $295
PIMCO StocksPLUS
Growth and Income $105 $158 $203 $285
THE WARBURG PINCUS TRUST
International Equity $112 $179 $238 $353
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $111 $176 $233 $343
PRUDENTIAL SERIES FUND
Prudential Jennison $109 $170 $223 $323
</TABLE>
8
<PAGE>
Example 4
If you do not surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $24 $ 75 $128 $275
Limited Maturity Bond $24 $ 75 $129 $276
Global Fixed Income $35 $107 $182 $379
Fully Managed $29 $ 88 $150 $317
Total Return $28 $ 86 $147 $311
Equity Income $29 $ 87 $149 $316
Investors $29 $ 89 $152 $321
Value Equity $29 $ 87 $149 $316
Rising Dividends $29 $ 87 $149 $316
Managed Global $32 $ 96 $164 $345
Large Cap Value $29 $ 89 $152 $321
All Cap $29 $ 89 $152 $321
Research $28 $ 86 $147 $311
Capital Appreciation $29 $ 87 $149 $316
Capital Growth $29 $ 90 $154 $325
Strategic Equity $29 $ 87 $149 $316
Mid-Cap Growth $28 $ 86 $147 $311
Small Cap $29 $ 87 $149 $316
Growth $29 $ 90 $153 $324
Real Estate $29 $ 87 $149 $316
Hard Assets $29 $ 87 $149 $316
Developing World $37 $112 $189 $393
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $26 $ 81 $138 $295
PIMCO StocksPLUS
Growth and Income $25 $ 78 $133 $285
THE WARBURG PINCUS TRUST
International Equity $32 $ 99 $168 $352
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $31 $ 96 $163 $343
PRUDENTIAL SERIES FUND
Prudential Jennison $29 $ 90 $153 $323
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE 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.
9
<PAGE>
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
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 the
subaccount. Calculations for the subaccounts are made on a per share
basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 1999, 1998 and 1997 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
accumulation 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 Separate Account B has
been investing in the portfolio. 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 when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current 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. Quotations of average annual
return for the Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as a subaccount of Golden
American Separate Account D. In addition, we may present historic performance
data for the 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 before the separate account began
investing in the portfolios.
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
10
<PAGE>
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,
assuming no surrender and the selection of the 7% Solution Enhanced Death
Benefit and the MGIB optional benefit rider.
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 determine the real
rate of return of 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.
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 based in The
Netherlands. 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.
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies 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 address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The PIMCO Variable Insurance 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 to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
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
11
<PAGE>
certain qualified and retirement plans. The address of the Warburg Pincus Trust
is 153 East 53rd Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund whose shares are offered to
separate accounts funding variable annuity contracts offered by Golden American.
Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to
variable annuity and variable life insurance policies offered by other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund is also a mutual fund whose shares are available to
separate accounts funding variable annuity and variable life insurance polices
offered by The Prudential Insurance Company of America, its affiliated insurers
and other life insurance companies not affiliated with Prudential, including
Golden American. The address of the Prudential Series Fund is 751 Broad Street,
Newark, NJ 07102.
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 Variable
Insurance Trust, the Warburg Pincus Trust, and the ING Variable Insurance Trust,
the Board of Directors of the Prudential Series Fund, and the management of
Directed Services, Inc., Pacific Investment Management Company, Credit Suisse
Asset Management, LLC, ING Mutual Funds Management Co. LLC, Prudential Insurance
Company of America 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
VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH
TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
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, the PIMCO Variable
Insurance Trust, the Warburg Pincus Trust, the ING Variable Insurance Trust or
the Prudential Series Fund. 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 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. Under certain
circumstances, we may make certain changes to the subaccounts. For more
information, see "The Annuity Contract -- Addition, Deletion, or Substitution of
Subaccounts and Other Changes."
12
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU 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. Account B also has other subaccounts investing in other
portfolios which are not available to the Contract described in this prospectus.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE
PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE WARBURG
PINCUS TRUST, THE ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
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 Bond Seeks highest current income consistent with 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 Income Seeks high total return.
Invests primarily in high-grade fixed income securities,
both foreign and domestic.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Investors Seeks long-term growth of capital. Current income is a
secondary objective.
Invests primarily in equity securities of U.S. companies
and to a lesser degree, debt securities.
--------------------------------------------------------
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.
--------------------------------------------------------
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."
--------------------------------------------------------
Managed Global Seeks capital appreciation. Current income is only an
incidental consideration.
Invests primarily in common stocks traded in securities
markets throughout the world.
--------------------------------------------------------
Large Cap Value Seeks long-term growth of capital and income.
Invests primarily in equity and equity-related
securities of companies with market capitalization
greater than $1 billion.
--------------------------------------------------------
All Cap Seeks capital appreciation through investment in
securities which the portfolio manager believes have
above-average capital appreciation potential.
Invests primarily in equity securities of U.S. companies
of any size.
--------------------------------------------------------
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.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
--------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium- and
small-sized companies.
--------------------------------------------------------
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.
--------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
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.
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Real Estate Seeks capital appreciation. Current income is a
secondary objective.
Invests primarily in publicly traded real estate equity
securities.
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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.
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Developing World Seeks capital appreciation.
Invests primarily in equity securities of companies in
developing or emerging countries.
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THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests 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.
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PIMCO StocksPLUS Seeks to achieve a total return which exceeds the total
Growth and Income return performance of the S&P 500.
Invests primarily in common stocks, options, futures,
options on futures and swaps.
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THE WARBURG PINCUS TRUST
International Equity Seeks long-term appreciation.
Invests primarily in a broadly diversified portfolio of
equity securities of companies that have their principal
business activities outside of the United States.
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ING VARIABLE INSURANCE TRUST
ING Global Brand Names Seeks to provide investors with long-term capital
Fund appreciation.
Invests at least 65% of its total assets in equity
securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
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THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
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INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios. Directed Services (and not the GCG Trust) pays each portfolio
manager a monthly fee for managing the assets of a portfolio, based on the
annual rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed Services
does 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.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee 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 Variable
Insurance Trust. PIMCO does 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 expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of the
Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset Management a
monthly advisory fee based on the average daily net assets of the investment
portfolio and also procures the services necessary for the operation of its
portfolios. The Warburg Trust pays monthly administrative fees to two
co-administrators for administrative services, one of which is an affiliate of
Credit Suisse Asset Management. The monthly administrative fee is based on the
portfolio's average daily net assets. Credit Suisse Asset Management does not
bear any portfolio expenses.
ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager
of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's
operations and provides investment advisory services to the portfolios of the
Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING MFMC, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V.
The Prudential Insurance Company of America ("Prudential") serves as the overall
investment adviser for the Prudential Series Fund. Prudential is responsible for
the management of the Prudential Series Fund and provides investment advice and
related services. For the Prudential Jennison Portfolio, Prudential engages
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential pays the sub-adviser out of the fee Prudential receives
from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct a
distribution or 12b-1 fee, which is used to finance any activity that is
primarily intended to result in the sale of shares of the applicable portfolio.
For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees
and Expenses" in this prospectus.
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We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
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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 customer, 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 on DCA
Fixed Interest Allocations, 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 do not take your money out 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. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our Customer
Service Center or your registered representative. The determination may be
influenced by the interest rates on fixed income investments in which we may
invest
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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 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. 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 that was offered exclusively with our dollar cost averaging program,
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.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
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
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charge. Be aware that withdrawals may have federal income tax consequences,
including a 10% penalty tax, as well as state income tax consequences.
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.
Please be aware that the benefit we pay under any of the optional riders will be
reduced on a pro rata basis by any withdrawals you make from the Fixed Interest
Allocations during the period while the rider is in effect. See "Optional
Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. 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 program) 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.
We determine the Market Value Adjustment by multiplying the amount you withdraw,
transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the first day
of the 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
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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 B.
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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
Variable Insurance Trust, the Warburg Pincus Trust, the ING Variable Insurance
Trust, and the Prudential Series Fund through 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 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.
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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 adviser 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 $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for qualified
Contracts) 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
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group or sponsored arrangements. An 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.
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See "Fees
and Expenses" in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days after
receipt, if the application and all information necessary for processing the
Contract are complete. Subsequent premium payments and credits will be processed
within 1 business day if we receive all information necessary. In certain states
we also accept initial and additional premium payments by wire order. Wire
transmittals must be accompanied by sufficient electronically transmitted data.
We may retain your initial premium payment 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. We will allocate your
initial payment according to the instructions you specified. If a subaccount is
not available or requested in error, we will make inquiry about a replacement
subaccount. If we are unable to reach you or your representative, we will
allocate your initial payment proportionally among the other subaccount(s) in
your instructions. For initial premium payments, the payment will be credited at
the accumulation unit value next determined after we receive your premium
payment and the completed application. Once the completed application is
received, we will allocate the payment and credit to the subaccount(s) 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. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment and credit will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
Once we allocate your premium payment and credit to the subaccounts selected by
you, we convert the premium payment and credit into accumulation units. We
divide the amount of the premium payment and credit 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 5 days of the premium payment.
If we do not receive the application or form within 5 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 or your
representative, 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. We may require additional
information before complying with your request (e.g., signature
guarantee).
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In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated with the added credit
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 and credit 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 with the added credit to a Fixed
Interest Allocation with the guaranteed interest period you have chosen;
however, in the future we may allocate the premiums and credits to the specially
designated subaccount during the free look period.
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium payment. The
credit will be added proportionally to each subaccount and Fixed Interest
Allocation as the premium payment is allocated. The credit is a minimum of 4% of
the premium payment. We may increase the credit at our discretion. If we
increase the credit we may reduce it also at our discretion, but we will not
reduce it below the minimum credit of 4%, and we will give at least 30 days
notice of any planned reduction.
The credit constitutes earnings (and not premiums paid by you) for federal tax
purposes.
In any of the following circumstances, we deduct a credit from the amount we pay
to you or your beneficiary:
(1) If you return your Contract within the free look period, we will
deduct the credit from the refund amount;
(2) If a death benefit of contract value becomes payable, we will deduct
any credits added to your contract within 1 year prior to death; and
(3) If we waive any surrender charge, we will deduct any credit added to
your contract value within 1 year.
If we deduct a credit from any amount we pay to you, we will deduct the full
dollar amount of the credit. You will retain any gains, and you will also bear
any losses, that are attributable to the credit we deduct.
Once we have waived any surrender charge, we will not add any additional credit
to any additional premium you pay on or after the date of any such waiver.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or other
approved electronic means, subject to our administrative procedures, which vary
depending on the type of service requested and may include proper completion of
certain forms, providing appropriate identifying information, and/or other
administrative requirements. We will process your request at the accumulation
value next determined only after you have met all administrative requirements.
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 and credits 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 (including,
in some cases, fees for optional benefit riders) 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 added credit that was 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 and
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added credit not allocated to a Fixed Interest Allocation may 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 credits, 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 (including any rider charges) 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, and then we deduct any
surrender charge, any charge for premium taxes, the annual contract
administrative fee (unless waived), any optional benefit rider charges, 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 all paperwork required in order for us to process your
surrender. 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 adviser 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.
THE SUBACCOUNTS
Each of the 27 subaccounts of Account B offered under this prospectus invests in
an investment portfolio with its own distinct investment objectives and
policies. Each subaccount of Account B invests in a corresponding portfolio of
the GCG Trust, a corresponding portfolio of the PIMCO Variable Insurance Trust,
a corresponding portfolio of the Warburg Pincus Trust, a corresponding portfolio
of the ING Variable Insurance Trust, or a corresponding portfolio of the
Prudential Series Fund.
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.
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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. If you elected the dollar cost
averaging, systematic withdrawals or automatic rebalancing programs or if you
have other outstanding instructions, and we substitute or otherwise eliminate a
portfolio which is subject to those instructions, we will execute your
instructions using the substituted or proposed replacement portfolio, unless you
request otherwise.
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.
OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider.
Once elected, the riders generally may not be cancelled. This means once you add
the rider you may not remove it, and charges will be assessed regardless of the
performance of your Contract. Please see "Charges and Fees -- Optional Rider
Charges" for information on rider charges.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider becomes
effective. The rider date is also the contract date if the rider was purchased
at the time the Contract is issued.
SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum
Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the
Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may designate new and/or existing subaccounts as a
Special Fund with 30 days notice at any time, including during the life of a
rider.
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you may not at any time cancel the rider, except with respect to a
one-time right to cancel the twenty-year option of the Minimum Guaranteed
Accumulation Benefit rider under specified conditions. The Company may, at its
discretion, cancel and/or replace a rider at your request in order to renew or
reset a rider.
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are
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multiple contract owners, or at death of annuitant if contract owner is not a
natural person), unless your spouse beneficiary elects to continue the Contract,
during the accumulation phase. The optional rider will also terminate if there
is a change in contract ownership (other than a spousal beneficiary continuation
on your death). Other circumstances which may cause a particular optional rider
to terminate automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you
protection in the event your Contract loses value during the MGAB waiting
period. For a discussion of the charges we deduct under the MGAB rider, see
"Optional Rider Charges."
The MGAB rider offers a ten-year option and a twenty-year option, of which you
may purchase only one. The ten-year option has a waiting period of ten years and
guarantees that your contract value at the end of ten years will at least equal
your initial premium payment plus credits, reduced pro rata for withdrawals.
Transfers made within 3 years prior to the MGAB Benefit Date will also reduce
the benefit pro rata. The twenty-year option has a waiting period of twenty
years and guarantees that your contract value at the end of twenty years will at
least equal two times your initial premium payment plus credits, reduced pro
rata for withdrawals, and reduced for transfers made within 3 years prior to the
MGAB Benefit Date. On the MGAB Benefit Date, which is the next business day
after the applicable waiting period, we calculate your Minimum Guaranteed
Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation
used to determine the MGAB. The MGAB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your annuity income, cash surrender value and death
benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your rider date, reduced
pro rata for any withdrawals and reduced for any transfers made within
the last 3 years prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option, except for the Special Funds which
require special calculations, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rate, reduced pro rata for any
withdrawals and reduced for any transfers made within the last 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for allocations
other than allocations to the Special Funds is the annual effective
rate of 3.5265%. Accumulation of eligible additional premiums starts
on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus, the
MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus premiums
and credits added during the 2-year period after your rider date.
Withdrawals taken while the MGAB rider is in effect, as well as
transfers made within 3 years prior to the MGAB Benefit Date, will
reduce the value of your MGAB Base pro rata. This means that the MGAB
Base (and the MGAB Charge Base) will be reduced by the
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same percent as the percent of contract value that was withdrawn (or
transferred). We will look to your contract value immediately before
the withdrawal or transfer when we determine this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the contract
value allocated to the Special Fund over the calculation period is
less than the amount calculated under the formula above, that lesser
amount becomes the increase in your MGAB Base for the Special Fund for
that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE
OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB
benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the
Special Funds, may prevent the MGAB Base from doubling over the
waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both the
contract value in the subaccounts in which you are invested and the
contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts in
which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not have
an investment in any subaccount on the MGAB Benefit Date, we will
allocate the MGAB to the Liquid Asset subaccount on your behalf. After
the crediting of the MGAB, the amount of your annuity income, cash
surrender value and death benefits will reflect the crediting of the
MGAB to your contract value to the extent the contract value is used
to determine such value.
WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB
Charge Base pro rata to the percentage of contract value of any withdrawals you
make after the rider date but prior to the MGAB Benefit Date. Any transfers you
make after the rider date but within three years prior to the MGAB Benefit Date
will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of
contract value transferred. Transfers you make before this date will have no
immediate impact on the MGAB Base. Any transfers more than 3 years prior to the
MGAB Benefit Date between the subaccounts and Special Funds in which you are
invested will cause your MGAB Base to be reallocated pro rata based on the
percentage of contract value. Transfers to one or more Special Funds could
reduce your MGAB benefit.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus, your MGAB Benefit Date will be the first contract
anniversary occurring after 10 years (for the ten-year option) or 20 years (for
the twenty-year option) after the rider date. The MGAB rider is not available if
the MGAB Benefit Date would fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, you one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our
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Customer Service Center at least 30 days before such anniversary date. If the
MGAB rider is terminated before the MGAB Benefit Date, you will not be credited
with the MGAB and we will assess the pro rata portion of the MGAB rider charge
for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional
benefit which guarantees that a minimum amount of annuity income will be
available to you if you annuitize on the MGIB Benefit Date, regardless of
fluctuating market conditions. The amount of the Minimum Guaranteed Income
Benefit will depend on the amount of premiums you pay during the five contract
years after you purchase the rider, the credit(s) we add, the amount of contract
value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all
portfolios except the Special Funds), the adjustments for Special Fund
transfers, and the dollar amount of any withdrawals you take while the rider is
in effect. For a discussion of the charges we deduct under the MGIB rider, see
"Optional Rider Charges." Ordinarily, the amount of income that will be
available to you on the annuity start date is based on your contract value, the
annuity option you selected and the guaranteed or income factors in effect on
the date you annuitize. If you purchase the MGIB rider, the minimum amount of
income that will be available to you upon annuitization on the MGIB Benefit Date
is the greatest of:
(i) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
guaranteed income factors specified in your Contract for the annuity
option you selected;
(ii) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the then
current income factors in effect for the annuity option you selected;
and
(iii) the MGIB annuity income based on your MGIB Base on the MGIB Benefit
Date applied to the MGIB income factors specified in your rider for
the MGIB annuity option you selected. Prior to applying the MGIB
income factors, we will adjust the MGIB Base for any surrender
charges, premium tax recovery and Market Value Adjustments that would
otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider on the MGIB Benefit Date. Payments
under the rider begin on the MGIB Benefit Date. We require a 10-year waiting
period before you can annuitize under the MGIB rider benefit. The MGIB must be
exercised in the 30-day period prior to the end of the waiting period or any
subsequent contract anniversary. At your request, the Company may in its
discretion extend the latest contract annuity start date without extending the
MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate
your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation
used to determine the MGIB. The MGIB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your cash surrender value and death benefits. Any reset of
contract value under provisions of the Contract or other riders will
not increase the MGIB Base or MGIB Base Maximum.
(i) If you purchased the MGIB rider on the contract date, except for
the Special Funds which require special calculations, the MGIB
Base is equal to your initial premium and credit, plus any
additional premiums and credits added to your Contract during the
5-year period after your contract date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect.
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Premiums and credits paid less than 5 years prior to the earliest
MGIB Benefit Date are excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date, except
for the Special Funds which require special calculations, your
MGIB Base is equal to your contract value on the rider date plus
any eligible premiums and credits added to your Contract during
the 5-year period after your rider date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Eligible additional premium payments and credits are
those added more than 5 years before the earliest MGIB Benefit
Date and are included in the MGIB Base. Premiums and credits paid
after the 5th rider anniversary are excluded from the MGIB Base.
(iii) For any Special Fund, if the actual earnings and/or the interest
credited to the contract value allocated to the Special Fund over
the calculation period is less than the amount determined under
the formula above, that lesser amount becomes the change in your
MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH
SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the
Special Funds may limit the MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata to
the percentage of the contract value withdrawn.
We offer a 7% MGIB Base Rate, except for the Special Funds. The
Company may at its discretion discontinue offering this rate. The
MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base
Maximum is the amount calculated above until the earlier of: (i)
the date the oldest contract owner reaches age 80, or (ii) the
date the MGIB Base reaches two times the MGIB Eligible Premiums
and credits, adjusted for any withdrawals. MGIB Eligible Premiums
is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND
PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii) Any other income plan offered by the Company in connection with
the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base
Maximum pro rata by the percentage of contract value of any withdrawals you
make. Any transfers to and from the subaccounts and Special Funds in which you
are invested will cause your MGIB Base to be reallocated pro rata based on the
percentage of contract value you transfer. Transfers to one or more Special
Funds could reduce the MGIB Benefit.
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PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the
rider date and the ten-year waiting period must end at or prior to the latest
annuity start date. The MGIB rider must be purchased (i) on the contract date,
or (ii) within thirty days after the contract date. For contracts issued more
than 30 days before the date this rider first became available in your state,
the Company may in its discretion allow purchase of this rider during the 30-day
period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later. There is a ten
year waiting period before you can annuitize under the MGIB rider. This could
reduce the MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary on or after the tenth contract
anniversary when you decide to exercise your right to annuitize under the MGIB
rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is
the contract anniversary at least 10 years after the rider date when you decide
to exercise your right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIMES PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to zero
you will receive periodic payments equal to all premium payments and credits
paid during the first two contract years (Eligible Payment Amount) adjusted for
any prior withdrawals. To maintain this guarantee, withdrawals in any contract
year may not exceed 7% of your adjusted Eligible Payment Amount. If your
contract value is reduced to zero, your periodic payments will be 7% of your
Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal
Account is reduced to zero. For a discussion of the charges we deduct under the
MGWB rider, see "Optional Rider Charges." Each payment you receive under the
MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax.
See "Withdrawals" and "Federal Tax Considerations" for more information. Your
original Eligible Payment Amount depends on when you purchase the MGWB rider and
is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
(ii) if you purchased the MGWB rider after the contract date, your
contract value on the rider date, including any premiums and
credits received that day, and any subsequent premium payments
and credits received during the two-year period commencing on the
rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not
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represent a contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It will not affect your annuitization, surrender and
death benefits. The MGWB Withdrawal Account is equal to the Eligible Payment
Amount adjusted for any withdrawals. Withdrawals of up to 7% per year of the
Eligible Payment Amount will reduce the value of your MGWB Withdrawal Account by
the dollar amount of the withdrawal. Any withdrawals greater than 7% per year of
the Eligible Payment Amount will cause a reduction in both the MGWB Withdrawal
Account and the Eligible Payment Amount by the proportion that the withdrawal
bears to the contract value at the time of the withdrawal. The MGWB Withdrawal
Account is also reduced by the amount of any periodic payments paid under the
MGWB rider once your contract value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any
amount permitted under your Contract so long as your contract value is greater
than zero. See "Withdrawals." However, making any withdrawals in any year
greater than 7% per year of the Eligible Payment Amount will reduce the Eligible
Payment Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii) your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered
the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii) you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, (that is, your contract value is zero) we will not accept any
additional premium payments in your Contract, and the Contract will not provide
any benefits except those provided by the MGWB rider. Any other rider
terminates. Your Contract will remain in Automatic
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Periodic Benefit Status until the earliest of (i) payment of all MGWB periodic
payments (ii) payment of the Commuted Value (defined below) or (iii) the owner's
death has occurred.
On the contract's latest annuity start date, in lieu of making the remaining
MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic
payments remaining. We may, at our option, extend your annuity start date in
order to continue the MGWB periodic payments. The Commuted Value is the present
value of any then remaining MGWB periodic payments at the current interest rate
plus 0.50%. The current interest rate will be determined by the average of the
Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB periodic
payment is made or we pay you the Commuted Value, your Contract and the MGWB
rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract, the death benefit
otherwise payable under the terms of your Contract will remain in force during
any Automatic Periodic Benefit Status. In determining the amount of the death
benefit during the Automatic Periodic Benefit Status we deem your contract value
to be zero and treat the MGWB periodic payments as withdrawals. In all other
cases, the death benefit payable during Automatic Periodic Benefit Status is
your MGWB Withdrawal Account which equals the sum of the remaining MGWB periodic
payments.
PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the Company may
in its discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this prospectus, or
the date of state approval, whichever is later.
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 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 10% of your contract
value on the date of the withdrawal less any withdrawals during that 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
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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.
Please be aware that the benefit we pay under certain optional benefit riders
will be reduced by any withdrawals you take while the rider is in effect. See
"Optional Riders."
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 withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the month, your
systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage and are willing to incur associated
surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which
you may add to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract value
and the amount to be withdrawn based on that percentage would be less than $100,
we will automatically increase the amount to $100 as long as it does not exceed
the maximum percentage. If the systematic withdrawal would exceed the maximum
percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest
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Allocations under the Fixed Dollar Systematic Withdrawal Feature are available
only in connection with Section 72(q) and 72(t) distributions. 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 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. The systematic withdrawal option may 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 the systematic
withdrawal option if you are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any surrender charges or Market Value Adjustments.
Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar
Systematic Withdrawal Feature are available only in connection with Section
72(q) and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 10% of your contract value as
determined on the day we receive your election of this feature. The maximum
limit will not be recalculated when you make additional premium payments, unless
you instruct us to do so. We will assess a surrender charge on the withdrawal
date if the withdrawal exceeds the maximum limit as calculated on the withdrawal
date. If you submit a subsequent premium payment after you have applied for
systematic withdrawals, we will not adjust future withdrawals under the
systematic withdrawal program unless you specifically request that we do so. We
will assess a Market Value Adjustment on the withdrawal date if the withdrawal
from a Fixed Interest Allocation exceeds your interest earnings on the
withdrawal date. We will apply the surrender charge and any Market Value
Adjustment directly to your contract value (rather than to the withdrawal) so
that the amount of each systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to surrender charges and Market Value Adjustments
when they exceed the applicable Free Withdrawal Amount.
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 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.
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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 ADVISER 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.
Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers
may also affect your optional rider base. See "The Annuity Contract -- Optional
Riders."
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 or other approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or over the internet.
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
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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. If you make an additional premium payment
into a Fixed Interest Allocation subject to dollar cost averaging, the amount of
your transfers under the dollar cost averaging program remains the same, unless
you instruct us to increase the transfer amount.
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 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 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 written notice
and due proof of death, as well as any required paperwork, 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. For
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
You may choose from the following 3 death benefit choices: (1) the Standard
Death Benefit; (2) the 7% Solution Enhanced Death Benefit; 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. A change in ownership of the Contract may
affect the amount of the death benefit and the guaranteed death benefit. The
MGWB rider may affect the death benefit. See "Minimum Guaranteed Withdrawal
Benefit (MGWB) Rider -- Death Benefit during Automatic Periodic Benefit Status."
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 minus any
credits added within 1 year; (ii) total premium payments less any withdrawals;
and (iii) the cash surrender value.
ENHANCED DEATH BENEFITS. If the 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 minus any credits added
within 1 year prior to death; (ii) total premium payments less any withdrawals;
(iii) the cash surrender value; and (iv) the enhanced death benefit as
calculated below minus any credits added within 1 year prior to death.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
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We credit interest each business day On each contract anniversary that
at the 7% annual effective rate* to occurs on or before the contract owner
the enhanced death benefit from the turns age 80, we compare the prior
preceding day (which would be the enhanced death benefit to the contract
initial premium and credit if the value and select the larger amount as
preceding day is the contract date), the new enhanced death benefit.
then we add additional premiums paid
and credits added since the preceding On all other days, the enhanced death
day, then we subtract any withdrawals benefit is the amount determined
made (including any Market Value below. We first take the enhanced
Adjustment applied to such death benefit from the preceding day
withdrawals) since the preceding day, (which would be the initial premium
and then we subtract any associated and credit if the valuation date is
surrender charges.** the contract date) and then we add
additional premiums paid credits added
The maximum enhanced death benefit is since the preceding day, then we
2 times all and premium payments and subtract any withdrawals (including
credits, as reduced by withdrawals.*** any Market Value Adjustment applied to
such withdrawals) since the preceding
day, and then we subtract any
associated surrender charges. That
amount becomes the new enhanced death
benefit.
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* The interest rate used for calculating the death benefit for the Liquid
Asset and Limited Maturity Bond subaccounts will be the lesser of the 7%
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 7%
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 and credit reduced by any withdrawals and any
associated surrender charges incurred will continue to grow at the 7%
annual effective rate.
*** 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% of cumulative premiums in any
prior contract year, such withdrawals will be treated as withdrawals of
earnings for the purpose of calculating the maximum enhanced death benefit.
Once withdrawals in any contract year exceed 7% of cumulative premiums,
withdrawals will reduce the maximum enhanced death benefit in proportion to
the reduction in contract value.
The 7% Solution Enhanced Death Benefit is 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 80 years old at the
time of purchase. The Annual Ratchet Enhanced Death Benefit is 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 79 years
old at the time of purchase. The 7% Solution and Annual Ratchet Enhanced Death
Benefits may not be available where a Contract is owned 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.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
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If any contract 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.
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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.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct 12b-1
fees. For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See
"Fees and Expenses" in this prospectus.
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.
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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 9-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment withdrawn. 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 withdrawn as follows:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. 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. If we waive the surrender charge, we will deduct any credit added to
your contract value within 1 year of the withdrawal, and we will not add any
additional credit to any additional premium you pay on or after the date of any
such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
10% of your contract value on the date of withdrawal less any withdrawals during
that 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 C. 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 your state of residence. The tax can range from 0% to 3.5% of the
premium payment. We have the right to change this amount to conform with changes
in the law or if you change your state of residence.
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We deduct the premium tax from your contract value (or from the MGIB Base, if
exercised) 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 when you
surrender the Contract, when you take an excess withdrawals or on the annuity
start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge 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.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or more or under other conditions established by
Golden American. 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
guaranteed 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 such 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 mortality and expense risk charge is
deducted each business day. 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 1.25% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003446% 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
1.40% for the Annual Ratchet Enhanced Death Benefit, or 1.55% for the 7%
Solution Enhanced Death Benefit, of the assets you have in each subaccount. The
charge is deducted each business day at the rate of .003863% or .004280%,
respectively, for each day since the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
OPTIONAL RIDER CHARGES
Subject to state availability, you may purchase one of three optional benefit
riders that you may elect at issue. So long as the rider is in effect, we will
deduct a separate quarterly charge for each optional benefit rider through a pro
rata reduction of the contract value of the subaccounts in which you are
invested. If there is insufficient contract value in the subaccount, we will
deduct the charges from your Fixed Interest Allocations nearest their maturity
date. We deduct each rider charge on each quarterly contract anniversary in
arrears, meaning the first charge will be deducted on the first quarterly
anniversary following the rider date. For a description of the riders and the
defined terms used in connection with the riders, see "The Annuity Contract --
Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for
the MGAB rider is as follows:
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Waiting Period Quarterly Charge
-------------- ----------------
10 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums and credits during the 2-year period commencing on the rider date,
reduced pro rata for withdrawals and reduced for transfers made within the last
3 years prior to the MGAB Benefit Date. We will deduct charges only during your
ten-year or twenty-year waiting period, as applicable. If you surrender or
annuitize your Contract, we will deduct a pro rata portion of the charge for the
current quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB
rider is as follows:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................. 0.125% of the MGIB Base (0.50% annually)
The MGIB Base is the total of premiums paid and credits added more than 5 years
before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals
taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate
(7% for all portfolios except the Special Funds). If you surrender or annuitize
your Contract, we will deduct a pro rata portion of the charge for the current
quarter based on the current quarterly charge rate and your MGIB Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
and credits added during the first two contract years following the rider date.
When we calculate the MGWB rider charge, we do not reduce the Eligible Payment
Amount by the amount of any withdrawals taken while the MGWB rider is in effect.
We will deduct charges only during the period before your Contract's Automatic
Periodic Benefit Status. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on the
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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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 you chose. You may change an
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. The MGIB
annuity benefit may be available if you have purchased the MGIB rider, provided
the waiting period and other specified conditions have been met.
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
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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 under applicable
law), 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 annuity start date, which is 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. For more information, 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 reach age 70 1/2 or, in some cases,
retire. Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
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.
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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. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income 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, we will continue payments 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. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
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 your 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
- --------------------------------------------------------------------------------
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, including
rider charges if you have elected one of the optional riders offered in this
prospectus. You have 30 days to notify our Customer Service Center of any errors
or discrepancies contained in the report and in any confirmation notice. We will
also send you copies
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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 SEC 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 gender 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 gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
you should 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 should consult a tax adviser for tax advice. 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 under applicable federal tax law. 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, (i) we adjust your contract value for any market value
adjustment (if you have invested in the fixed account), (ii) then we exclude any
credit initially applied, and (iii) then we include 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. In these states, your
premiums designated for investment in the subaccounts may 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 and the investment is allocated to a subaccount specially
designated by the Company, 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.
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SELLING THE CONTRACT
Directed Services, Inc. is the 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 5.5% commission, and passes through 100%
of the commission to the broker-dealer whose registered representative sold the
contract.
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UNDERWRITER COMPENSATION
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NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 5.5% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments by registered
except when representatives
combined in connection
with some annual with the
trail commissions. distribution
of the Contracts.
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Certain sales agreements may provide for a combination of a certain percentage
of commission at the time of sale and an annual trail commission (which when
combined could exceed 5.5% of total premium payments).
We do not pay any additional commissions on the sale or exercise of any of the
optional benefit riders offered in this prospectus.
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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.
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 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
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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 materially
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 and Account B appearing in
this prospectus or 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 in this prospectus or 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
whose 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 non-qualified
Contracts to be treated as annuity contracts for federal
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income tax purposes. It is intended that Account B, through the subaccounts,
will satisfy these diversification requirements.
INVESTOR CONTROL. 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. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
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 you paid for the contract less any nontaxable withdrawals)
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
(including amounts paid to you under the MGWB rider), 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. Credits constitute earnings (not premiums) for federal
tax purposes and are not included in the owner's investment in the Contract. 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:
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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 adviser 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 non-qualified deferred 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
49
<PAGE>
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 the later of 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.
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 IRA
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. A 10% penalty may apply to amounts
attributable to a conversion from an IRA if they are distributed during the five
taxable years beginning with the year in which the conversion was made.
50
<PAGE>
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 BENEFIT
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
or Roth 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 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). You should consult a tax adviser
with respect to legislative developments and their effect on the Contract.
51
<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"), according 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 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.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER | POST-ACQUISITION
------------------------------------------ | --------------------------
| For the
For the | Period For the
For the For the Period | January 1, Period
Year Year October 25, | 1997 August 14,
Ended Ended 1997 through | through 1996 through
December 31, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ ------------ | ----------- ------------
<S> <C> <C> <C> <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768
Net Income before |
Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350
Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899
Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415
Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484
Pre-Acquisition
---------------
For the Period
January 1,
1996 through
August 13,
1996
---------------
Annuity and Interest
Sensitive Life
Product Charges......... $ 12,259
Net Income before
Federal Income Tax...... $ 1,736
Net Income (Loss)........... $ 3,199
Total Assets................ N/A
Total Liabilities........... N/A
Total Stockholder's Equity.. N/A
</TABLE>
52
<PAGE>
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and 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.
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 is also 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. Golden American reports financial results on a
consolidated 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 OPERATION
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 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.
53
<PAGE>
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 included for the period
January 1, 1997 through October 24, 1997 are presented on the Post-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.
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................. 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............. 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Annuity and interest sensitive life
product charges.................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue................. 10.1 112.5 5.3 4.8
Net investment income.................. 59.2 39.3 16.7 42.5
Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5)
Other income........................... 10.8 94.4 5.2 5.6
-------- ----- ----- -----
$ 160.1 77.0% $69.6 $90.5
======== ===== ===== =====
54
<PAGE>
Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
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 $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
<TABLE>
<CAPTION>
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances ...................... 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions ............................. 188.4 55.5 67.2 121.2
General expenses ........................ 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1
Value of purchased insurance in force . 6.2 32.0 1.5 4.7
Goodwill .............................. 3.8 -- -- 3.8
-------- ----- -------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======== ===== ======== ========
</TABLE>
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
55
<PAGE>
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
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 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. 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. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from
$5.1 million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
56
<PAGE>
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> | <C>
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
========== ========== ========== | ==========
</TABLE>
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 $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
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
========== ========== ========== | ==========
</TABLE>
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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
included 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
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
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
========== ========= ========= | =========
</TABLE>
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 related 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
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incurred as the result of new sales including the extra credit bonus were
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.
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.
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.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying value and amortized cost basis of
the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999.
All of the Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. Therefore, growth
in the carrying value of the Companies' investment portfolio was due to 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 options. The Companies manage the
growth of insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance products,
cash flow was invested primarily in fixed maturities and short-term investments.
At December 31, 1999, the Companies investments had a yield of 6.6%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 97.6% of amortized cost value at December 31,
1999.
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<PAGE>
FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with
an amortized cost of $858.1 million and an estimated fair value of $835.3
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $22.8 million was comprised of
gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net
unrealized holding losses on these securities, net of adjustments to VPIF, DPAC,
and deferred income taxes of $7.0 million were included in stockholder's equity
at December 31, 1999.
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 ($558.0 million or 65.0%), that are rated BBB+ to
BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.6% at December
31, 1999.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At December 31, 1999, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $72.3 million, or 6.9%, 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, 1999, the yield at
amortized cost on the Companies' below investment grade portfolio was 7.8%
compared to 6.5% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999.
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 1999, fixed maturities designated as available for sale with a combined
amortized cost of $221.8 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax
loss on the write-down of two bonds in 1999.
During the fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to
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<PAGE>
their combined net realizable value of $2.9 million. During the second quarter
of 1999, further information was received regarding these bonds and Golden
American determined that the carrying value of the two bonds exceeded their
estimated net realizable value. As a result, at June 30, 1999, Golden American
recognized a total pre-tax loss of approximately $1.6 million to further reduce
the carrying value of the bonds to their combined net realizable value of $1.1
million.
EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment
portfolio. At December 31, 1999, the Companies owned equity securities with a
cost of $15.0 million and an estimated fair value of $17.3 million. Net
unrealized appreciation of equity securities was comprised entirely of gross
appreciation of $2.3 million. Equity securities are primarily comprised of
investments in shares of the mutual funds underlying the Companies' registered
separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $100.1 million at December 31, 1999 with an estimated fair value of $95.5
million. The Companies' mortgage loan portfolio includes 58 loans with an
average size of $1.7 million and average seasoning of 0.7 years if weighted by
the number of loans. The Companies' mortgage loans on real estate 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 1999 and
1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (34% in 1999, 36% in 1998),
industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999,
20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998).
At December 31, 1999, the yield on the Companies' mortgage loan portfolio was
7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90
days or more. The Companies' loan investment strategy is consistent with other
life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due
to an increase in the overall size of the portfolio resulting from the
investment of premiums allocated to the fixed account options of the Companies'
variable insurance products.
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credit, and
other expenses related to the production of new business after the merger. The
Companies' previous balances of DPAC and 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, 1999, the Companies had
DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During
1998, VPIF decreased $2.7 million to adjust the value of other receivables and
increased $0.2 million as a result of an adjustment to the merger costs.
Property and equipment increased $6.5 million, or 89.0%, during 1999, due to
leasehold improvements, the purchase of furniture and other equipment for Golden
American's new offices in West Chester, Pennsylvania, and 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 as of December 31, 1999 was $8.2
million.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
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<PAGE>
At December 31, 1999, the Companies had $7.6 billion of separate account assets
compared to $3.4 billion at December 31, 1998. The increase in separate account
assets resulted from market appreciation, increased transfer activity, and
growth in sales of the Companies' variable annuity products, net of redemptions.
At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6%
increase from December 31, 1998.
LIABILITIES. Future policy benefits for annuity and interest sensitive life
products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium
growth in the Companies' fixed account options of the variable products, net of
transfers to the separate accounts. Market appreciation, increased transfer
activity, and premiums, net of redemptions, accounted for the $4.2 billion, or
122.7%, increase in separate account liabilities to $7.6 billion at December 31,
1999.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029.
On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. 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, the
surplus note is now payable to EIC.
Other liabilities increased $21.7 million from $34.7 million at December 31,
1998, due primarily to increases in remittances to be applied, outstanding
checks, accrued interest payable, and pension liability.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9
billion at December 31, 1999.
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 stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or
34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, 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 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 premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash used in operating activities was $73.4 million in 1999 compared to
$63.9 million in 1998. 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 products.
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Net cash used in investing activities was $177.5 million during 1999 as compared
to $390.0 million in 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans on real
estate during 1998 than in 1999. Net purchases of fixed maturities reached
$124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage
loans on real estate declined to $3.1 million from $12.6 million in the prior
year.
Net cash provided by financing activities was $258.6 million during 1999 as
compared to $439.5 million during the prior year. In 1999, net cash provided by
financing activities was positively impacted by net fixed account deposits of
$626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase
in net borrowings in 1999 compared to 1998. This increase was offset by net
reallocations to the Companies' separate accounts, which increased to $650.3
million from $239.7 million during the prior year. In 1999, another important
source of cash provided by financing activities was $121.0 million in capital
contributions from the Parent compared to $103.8 million in 1998. Another source
of cash provided by financing activities during 1999 was $160.0 million in
proceeds from surplus notes compared to $60.0 million in 1998
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, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes
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 sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding
surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%;
and 3) Golden American's statutory capital and surplus exceeds the "Amounts
Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3,
Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. During 1999, Golden American occupied
105,000 square feet of leased space; its affiliate occupies 20,000 square feet.
Previously, Golden American's home office operations were housed in leased
locations in Wilmington, Delaware and locations in Pennsylvania. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $2.4 million on capital needs for
2000.
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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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 dividends to Golden
American during 2000.
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
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<PAGE>
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, 1999, 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.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Impact of Year 2000: In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
Golden American expensed approximately $264,000 during 1999 in connection with
remediating systems. The Companies are not aware of any material problems
resulting from Year 2000 issues, either with products, internal systems, or the
products and services of third parties. The Companies will continue to monitor
mission critical computer applications and those of suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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 insurance 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 1999 levels, variable separate account funds, which represent 88% of
the in force, pass the risk in underlying fund performance to the contractholder
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(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from year end 1999 levels, the remaining 12% 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, fee revenue,
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 tax status 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.
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 variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, Locust Street Securities, Inc.,
Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network
Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of
Golden American. As of December 31, 1999, two broker-dealers produce 10% or more
of Golden American's product sales.
REINSURANCE. Golden American reinsured its mortality risk associated with the
Contract's guaranteed death benefit on Contracts issued through December 31,
1999 with one or more appropriately licensed insurance companies. Golden
American is currently pursuing alternative reinsurance arrangements for new
business. 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
65
<PAGE>
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
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 subsidiary First
Golden American Life Insurance Company of New York ("First Golden"), $1.3
million and $1.1 million, for the years ended December 31, 1999 and 1998,
respectively, 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 $10.1 million and $4.8 million for the years 1999 and 1998, 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 and accounting services for
a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden
American and First Golden incurred fees of $2.2 million and $1.5 million,
respectively, under this agreement.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Revenues for these services totaled
$6.1 million for 1999 and $5.8 million for 1998.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.4 million of 1999. Golden American provides resources and services to
ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services
totaled $0.2 million for 1999 and $0.1 million for 1998.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $0.5 million in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.2 million in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.1 million in 1999.
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, 1999, are sold primarily
through two broker/dealer institutions. For the years 1999 and 1998, commissions
paid by Golden American to DSI (including commissions paid by First Golden)
aggregated $181.5 million and $117.5 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.
66
<PAGE>
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 initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many states regulate affiliated groups of insurers, such as Golden
American, and its affiliates, under insurance holding company legislation. Under
such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions of
the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding Golden American's
estimated liability for future guaranty fund assessments, see Note 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.
67
<PAGE>
DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (57) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (51) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (42) Executive Vice President and Chief Actuary
E. Robert Koster (41) Senior Vice President and Chief Financial Officer
Patricia M. Corbett (35) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (46) Senior Vice President, Project Implementation
Steven G. Mandel (40) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
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. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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.
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. Mark A. Tullis became a Director of Golden American and First Golden in
December 1999. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999. From June, 1994 to
August, 1999, he was with Pimerica, serving as Executive Vice President at the
time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American and First Golden in December, 1997
as Executive Vice President. From 1982 through November, 1997, he held several
positions with the Endeavor Group and was President upon his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief Financial
Officer of Golden American and First Golden 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.
68
<PAGE>
Mr. David L. Jacobson joined Golden American in November 1993 as Vice President
and Assistant Secretary and became Senior Vice President in December, 1993. He
was elected Senior Vice President and Assistant Secretary for First Golden in
June, 1996.
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. He was elected Senior Vice President and Chief
Actuary of First Golden in June, 1996 and elected Executive Vice President in
June, 1998.
Mr. William L. 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.
Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior
Vice President and Chief Information Officer in June, 1998.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE 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,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
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<PAGE>
<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 3
- ------------------ ---- ------ ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4
Executive Vice 1998 $ 173.870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
</TABLE>
- --------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on October 24,
1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee for
participation in company sponsored programs such as tuition reimbursement,
PC purchase assistance program, and other miscellaneous payments or
reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received
$636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel
received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received
$3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses of
the named executive.
5 In connection with the termination of his employment, Mr. Glover received
payments and benefits totaling $555,452.
70
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3
OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
- ---- ----------- ------ --------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
</TABLE>
- ----------------
1 Stock appreciation rights granted in 1999 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 the
date of grant.
3 Total dollar gains based on indicated rates of appreciation of share price
over the total term of the rights.
71
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
74
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | hrough
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
<S> <C> <C> <C> <C>
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
</TABLE>
See accompanying notes.
75
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
</TABLE>
See accompanying notes.
76
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
</TABLE>
See accompanying notes.
77
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
</TABLE>
See accompanying notes.
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding
all of the preceding items are inherently subject to change and are reassessed
periodically. Changes in estimates and assumptions could materially impact the
financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
</TABLE>
Realized gains (losses) on investments follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
</TABLE>
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
</TABLE>
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
Foreign governments.......................
.......
</TABLE>
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
<S> <C> <C> <C> <C>
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
</TABLE>
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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.
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
<TABLE>
<CAPTION>
POST-MERGER
-----------------------------------------------
December 31, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
</TABLE>
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 process. This pricing
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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.
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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
<TABLE>
<CAPTION>
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
</TABLE>
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary
based upon changes in assumptions and experience.
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.
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
<TABLE>
<CAPTION>
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
<S> <C>
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
</TABLE>
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
Internal Revenue Code, a newly acquired insurance company cannot file as part of
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
92
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
</TABLE>
93
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|---------------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|---------------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
96
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
97
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
</TABLE>
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
98
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies 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 reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
99
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other
receivables from these reinsurers comprised of $493,000 and $439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
100
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers
during 1998 and 1997, respectively). The Premium Plus product generated 79% of
the Companies' sales during 1999 (63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively.
101
<PAGE>
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<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction...................................................... 1
Description of Golden American Life Insurance Company............. 1
Safekeeping of Assets............................................. 1
The Administrator................................................. 1
Independent Auditors.............................................. 1
Distribution of Contracts......................................... 1
Performance Information........................................... 2
IRA Partial Withdrawal Option..................................... 10
Other Information................................................. 11
Financial Statements of Separate Account B........................ 11
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE
FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS 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
106946 PREMIUM PLUS-3 (05/00)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
103
<PAGE>
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value, All Cap, Managed Global, the ING
Global Brand Names and the Prudential Jennison subaccounts which did not
commence operations as of December 31, 1999, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation units, and
(3) the total accumulation unit value, for each subaccount of Golden American
Separate Account B available under the Contract for the indicated periods. The
date on which the subaccount became available to investors and the starting
accumulation unit value are indicated on the last row of each table.
LIQUID ASSET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
A1
<PAGE>
FULLY MANAGED
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
A2
<PAGE>
RISING DIVIDENDS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
A3
<PAGE>
STRATEGIC EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
A4
<PAGE>
REAL ESTATE
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $17.37 130,846 $2,273 $17.09 175,931 3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
A5
<PAGE>
PIMCO STOCKSPLUS GROWTH AND INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $15.50 4,663,701 72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
</TABLE>
A6
<PAGE>
APPENDIX B
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
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 8%; and that no prior transfers or 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-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 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-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 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
withdrawals affecting this Fixed Interest Allocation have been made.
B1
<PAGE>
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
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge 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 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
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the 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.
B2
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third contract
years, for total premium payments under the Contract of $30,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 15% of the contract
value of $35,000.
In this example, $3,500 ($35,000 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 $5,250 ($35,000 x .15). Therefore, $1,750 ($5,250 -
$3,500) is considered an excess withdrawal of a part of the initial premium
payment of $10,000 and would be subject to a 7% surrender charge of $122.50
($1,750 x .07). This example does not take into account any Market Value
Adjustment or deduction of any premium taxes.
C1
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<PAGE>
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<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
106946 Premium Plus-3 05/01/2000
<PAGE>
<PAGE>
FORM ONE
VERSION B
<PAGE>
<PAGE>
PROFILE AND PROSPECTUS OF
GOLDENSELECT GALAXY/R/
(3 DEATH BENEFITS)
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT PREMIUM PLUS(R)
FEATURING THE GALAXY VIP FUND
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
MAY 1, 2000
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
It is offered exclusively to customers of Fleet Financial Group, Inc. and its
affiliates. The Contract features a minimum 4% credit to each premium you pay.
The Contract provides a means for you to invest on a tax-deferred basis in (i)
one or more of 32 mutual fund investment portfolios through our Separate Account
B and/or (ii) in a fixed account of Golden American with guaranteed interest
periods. The 32 mutual fund portfolios are listed on page 3 below. We currently
offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years in the
fixed account. We set the interest rates in the fixed account (which will never
be less than 3%) periodically. 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 applicable interest period. If you 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
take out. Generally, 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.
Subject to state availability, you may elect one of three optional riders
offering specified benefits featured in the prospectus for the Contract. The
three optional benefit riders are listed on page 10 below. The optional benefit
riders can provide protection under certain circumstances in the event that
unfavorable investment performance has lowered your contract value below certain
targeted growth. These riders do not guarantee
GALAXY PREMIUM PLUS PROFILE PROSPECTUS BEGINS AFTER
PAGE 12 OF THIS PROFILE
<PAGE>
the performance of your investment portfolios. Separate charges are assessed for
the optional riders. You should carefully analyze and completely evaluate each
rider before you purchase any. Be aware that the benefit provided by any of the
riders will be affected by certain later actions you may take - such as
withdrawals and transfers. The riders are not available to Contracts issued
before January 1, 2000. To find out about availability, check with our Customer
Service Center.
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 on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract. 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ANNUITY OPTIONS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Option 1 Income for a fixed Payments are made for a specified number of
period years to you or your beneficiary.
-----------------------------------------------------------------------------------------
Option 2 Income for life with Payments are made for the rest of your life
a period certain or longer for a specified 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 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.
-----------------------------------------------------------------------------------------
</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. 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 $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($250 for a qualified Contract) at any time before you
turn 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. Each
time you make a premium payment, we will add a credit of at least 4% of each
premium payment to your contract value. Within 1 year after any credit is added,
it may be deducted from your contract value under certain circumstances which
are described in the prospectus for the Contract. After 1 year, a credit added
to your contract value becomes permanent.
2 GALAXY PREMIUM PLUS PROFILE
<PAGE>
Who may purchase this Contract? Contracts offered by the prospectus accompanying
this Profile are available only to customers of Fleet Boston Financial
Corporation and its affiliates. 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").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
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, and the credit we add, 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 32 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, the Warburg Pincus Trust, ING Variable Insurance Trust and the Prudential
Series Fund. Keep in mind that while an investment in the fixed account earns a
fixed interest rate, an investment in any investment portfolio, depending on
market conditions, may cause you to make or lose money. The investment
portfolios available under your Contract are:
<TABLE>
<S> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series
Limited Maturity Bond Series Managed Global Series Small Cap Series
Global Fixed Income Series Large Cap Value Series Growth Series
Fully Managed Series All Cap Series Real Estate Series
Total Return Series Research Series Hard Assets Series
Equity Income Series Capital Appreciation Series Developing World Series
Investors Series Capital Growth Series
Value Equity Series Strategic Equity Series
THE GALAXY VIP FUND
Equity Fund Small Company Growth Fund High Quality Bond Fund
Growth and Income Fund Asset Allocation Fund
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund
PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
</TABLE>
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based
3 GALAXY PREMIUM PLUS PROFILE
<PAGE>
administrative charge and an annual contract administrative charge of $40. We
deduct the mortality and expense risk charge and the asset-based administrative
charges daily directly from your contract value in the investment portfolios.
The mortality and expense risk charge (depending on the death benefit you
choose) and the asset-based administrative charge, on an annual basis, are as
follows:
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
<S> <C> <C> <C>
Mortality & Expense Risk Charge 1.25% 1.40% 1.55%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
1.40% 1.55% 1.70%
</TABLE>
If you choose to purchase one of the optional benefit riders we offer, we will
deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
-------------- ----------------
10 Year............. 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year............. 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%.................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.56% to 1.75% 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, we 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
year is 10% of your contract value on the date of the withdrawal less any prior
withdrawals during that 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 withdrawn.
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column is divided into two: one part reflects
the maximum mortality and expense risk charge, (based on the 7% Solution
Enhanced Death Benefit), the asset-based administrative charge, the annual
contract administrative charge as 0.05% (based on an average contract value of
$77,000), and the highest
4 GALAXY PREMIUM PLUS PROFILE
<PAGE>
optional rider charge as 0.75% in most cases, assuming the rider base is equal
to the initial premium and the rider base increases by 7% each year. (Note,
however, for the Liquid Asset and Limited Maturity Bond portfolios, the rider
charge is equal to 0.50% because the base for the rider accumulates at the
assumed net rate, not 7%.) The second part reflects the same insurance charges,
but without any rider charges. The "Total Annual Investment Portfolio Charges"
column reflects the portfolio charges for each portfolio and are based on actual
expenses as of December 31, 1999, except for (i) portfolios that commenced
operations during 2000 where the charges have been estimated, and (ii) newly
formed portfolios where the charges have been estimated. 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 and received a $40 credit 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 (based on the 7% Solution Enhanced Death Benefit). The 1 Year examples
above include an 8% surrender charge. For Years 1 and 10, the examples show the
total annual charges assessed during that time and assume that you have elected
the 7% Solution Enhanced Death Benefit. For these examples, the premium tax is
assumed to be 0%.
5 GALAXY PREMIUM PLUS PROFILE
<PAGE>
<TABLE>
<CAPTION>
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- -------------- -------------- ---------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- ------------------------------------------------------------------------------------------------------
THE GCG TRUST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liquid Asset 2.25% 1.75% 0.56% 2.81% 2.31% $110 $104 $329 $275
- ------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.25% 1.75% 0.57% 2.82% 2.32% $110 $104 $330 $276
- ------------------------------------------------------------------------------------------------------
Global Fixed Income 2.50% 1.75% 1.60% 4.10% 3.35% $123 $115 $446 $379
- ------------------------------------------------------------------------------------------------------
Fully Managed 2.50% 1.75% 0.97% 3.47% 2.72% $116 $109 $390 $317
- ------------------------------------------------------------------------------------------------------
Total Return 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- ------------------------------------------------------------------------------------------------------
Equity Income 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Investors 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- ------------------------------------------------------------------------------------------------------
Value Equity 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Rising Dividends 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Managed Global 2.50% 1.75% 1.25% 3.75% 3.00% $119 $112 $415 $345
- ------------------------------------------------------------------------------------------------------
Large Cap Value 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- ------------------------------------------------------------------------------------------------------
All Cap 2.50% 1.75% 1.01% 3.51% 2.76% $117 $109 $393 $321
- ------------------------------------------------------------------------------------------------------
Research 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- ------------------------------------------------------------------------------------------------------
Capital Appreciation 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Capital Growth 2.50% 1.75% 1.05% 3.55% 2.80% $117 $109 $397 $325
- ------------------------------------------------------------------------------------------------------
Strategic Equity 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.50% 1.75% 0.91% 3.41% 2.66% $116 $108 $384 $311
- ------------------------------------------------------------------------------------------------------
Small Cap 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Growth 2.50% 1.75% 1.04% 3.54% 2.79% $117 $109 $396 $324
- ------------------------------------------------------------------------------------------------------
Real Estate 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Hard Assets 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Developing World 2.50% 1.75% 1.75% 4.25% 3.50% $124 $117 $459 $393
- ------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity 2.50% 1.75% 0.96% 3.46% 2.71% $116 $109 $389 $316
- ------------------------------------------------------------------------------------------------------
Growth and Income 2.50% 1.75% 1.49% 3.99% 3.24% $122 $114 $437 $368
- ------------------------------------------------------------------------------------------------------
Small Company Growth 2.50% 1.75% 1.60% 4.10% 3.35% $123 $115 $446 $379
- ------------------------------------------------------------------------------------------------------
Asset Allocation 2.50% 1.75% 1.02% 3.52% 2.77% $117 $109 $394 $322
- ------------------------------------------------------------------------------------------------------
High Quality Bond 2.50% 1.75% 0.64% 3.14% 2.39% $113 $105 $359 $284
THE PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------
PIMCO High Yield Bond 2.50% 1.75% 0.75% 3.25% 2.50% $114 $106 $369 $295
- ------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.50% 1.75% 0.65% 3.15% 2.40% $113 $105 $360 $285
THE WARBURG PINCUS TRUST
- ------------------------------------------------------------------------------------------------------
International Equity 2.50% 1.75% 1.32% 3.82% 3.07% $120 $112 $422 $352
- ------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names 2.50% 1.75% 1.23% 3.73% 2.98% $119 $111 $413 $343
THE PRUDENTIAL SERIES FUND
- ------------------------------------------------------------------------------------------------------
Prudential Jennison 2.50% 1.75% 1.03% 3.53% 2.78% $117 $109 $395 $323
- ------------------------------------------------------------------------------------------------------
</TABLE>
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
6 GALAXY PREMIUM PLUS PROFILE
<PAGE>
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 can
calculate and pay you the minimum required distribution amounts at your request.
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 taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page 10.
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 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. The following chart shows average
annual total return for each portfolio that was in operation for the entire year
of 1999. These numbers reflect the deduction of the mortality and expense risk
charge (based on the 7% Solution Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee and the maximum optional benefit
rider charge on a rider base that accumulates at 7%, but do not reflect
deductions for any surrender charges. If surrender charges were reflected, they
would have the effect of reducing performance. Please keep in mind that past
performance is not a guarantee of future results.
7 GALAXY PREMIUM PLUS PROFILE
<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
- --------------------------------------------------------------------------------
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.89% 10.16%
Strategic Equity(2) 52.84% -1.41%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.77% 9.47%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 58.21% --
Global Fixed Income -10.73% 9.35%
Hard Assets(2 20.67% -31.17%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.76% 26.44%
Small Cap(3) 47.35% 18.29%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.76% -0.72%
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.14% 4.48%
Liquid Asset 2.40% 2.70%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.37% 24.00%
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.31% 11.59%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 75.24% 20.07%
Research 21.48% 20.31%
Total Return 1.05% 9.10%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.00% -15.39%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -2.97% 5.84%
Fully Managed 4.53% 3.52%
- --------------------------------------------------------------------------------
Managed by Fleet Investment Advisors Inc.
Equity Fund -- --
Growth and Income Fund -- --
Small Company Growth Fund -- --
Asset Allocation Fund -- --
High Yield Bond Fund -- --
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.70% --
PIMCO StocksPLUS Growth and Income 17.20% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 50.10% 3.00%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- --
- --------------------------------------------------------------------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
8 GALAXY PREMIUM PLUS PROFILE
<PAGE>
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced
Death Benefit or (iii) the Annual Ratchet Enhanced Death Benefit. The 7%
Solution Enhanced Death Benefit is available only if the contract owner or the
annuitant (if the contract owner is not an individual) is not more than 80 years
old at the time of purchase. The Annual Ratchet Enhanced Death Benefit is
available only if the contract owner or the annuitant (if the contract owner is
not an individual) is not more than 79 years old at the time of purchase. The 7%
Solution and Annual Ratchet Enhanced Death Benefits may not be available where a
Contract is held by joint owners.
The death benefit is payable when the first of the following persons die: 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
written notice and due proof of death, as well as required claim forms, 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.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals; or
3) the cash surrender value.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year of
death, which we determine as follows: we credit interest each business
day at the 7% annual effective rate to the enhanced death benefit from
the preceding day (which would be the initial premium and the credit
added if the preceding day is the contract date), then we add
additional premiums paid and credits added since the preceding day,
then we subtract any withdrawals (including any market value
adjustment applied to such withdrawal) since the preceding day, and
then we subtract any associated surrender charges. The maximum
enhanced death benefit is 2 times all premium payments and credits
added, less an amount to reflect withdrawals.
Note: The actual interest rate used for calculating the death benefit for
the Liquid Asset and Limited Maturity Bond investment portfolios will
be the lesser of the 7% annual effective rate 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 7% annual effective rate or
the interest credited to such investment during the applicable period.
Thus, selecting these investments may limit the enhanced death
benefit.
9 GALAXY PREMIUM PLUS PROFILE
<PAGE>
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 minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which is determined as follows: On each contract anniversary
that occurs on or before the contract owner turns age 80, 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 and credit added if the preceding day is
the contract date), then we add additional premiums paid and credits
added since the preceding day, and then we subtract any withdrawals
(including any market value adjustment applied to such withdrawal)
since the preceding day, and then we subtract any associated surrender
charges. That amount becomes the new enhanced death benefit.
Note: In all cases described above, the amount of the death benefit 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 refund of the adjusted contract value. We determine your
contract value at the close of business on the day we receive your written
refund request. For purposes of the refund during the free look period, (i) we
adjust your contract value for any market value adjustment (if you have invested
in the fixed account), (ii) then we exclude any credit initially applied, and
(iii) then we include 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,
excluding any credit, (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.
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. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. 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. Transfers between Special
Funds and other investment portfolios will result in a transfer of the
Guaranteed Death Benefit in proportion to the account value transferred. In
cases where more than one Guaranteed Death Benefit exists because of such
transfers, each death benefit will be combined to calculate the total death
benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge for
each rider. Once elected, the riders generally may not be cancelled. This means
once
10 GALAXY PREMIUM PLUS PROFILE
<PAGE>
added the rider may not be removed and charges will be assessed regardless of
the performance of your Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment plus credits at the end of ten years, or, at least
equal two times your initial premium payment plus credits at the end of
twenty years, depending on the waiting period you select, reduced pro rata
for withdrawals and certain transfers. The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one.
Withdrawals and certain transfers may reduce the guarantee by more than the
amount withdrawn or transferred. The MGAB rider may offer you protection in
the event of a lower contract value that may result from unfavorable
investment performance of your Contract. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGAB rider. You should read the prospectus for more complete information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the greater
of the amounts that are ordinarily available to you under your Contract and
the MGIB annuity benefit, which is based on your MGIB Base, the MGIB
annuity option you selected and the MGIB guaranteed income factors
specified in your rider. Your MGIB Base generally depends on the amount of
premiums you pay during the first five contract years after you purchase
the rider, the credit(s) applied, and when you pay the premiums,
accumulated at the MGIB rate, less adjustments for withdrawals and
transfers. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGIB rider. You should read
the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that you will receive annual periodic
payments, when added together, equal to all premium payments and credits
paid during the first two contract years, less adjustments for any prior
withdrawals. If your contract value is reduced to zero, your periodic
payments will be 7% of your Eligible Payment Amount every year. (Of course,
any applicable income and penalty taxes will apply to amounts withdrawn.)
Your original Eligible Payment Amount is your premium payments and credits
received during the first two contract years. Withdrawals that you make in
excess of the above periodic payment amount may substantially reduce the
guarantee. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGWB rider. You should read
the prospectus for more complete information.
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. It 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 surrender 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.
11 GALAXY PREMIUM PLUS PROFILE
<PAGE>
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 profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
12 GALAXY PREMIUM PLUS PROFILE
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS(R)
FEATURING THE GALAXY VIP FUND
- --------------------------------------------------------------------------------
MAY 1, 2000
This prospectus describes GoldenSelect Premium Plus(R), 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 and
credits in one or more of 32 mutual fund investment portfolios. You may also
allocate premium payments and credits 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 listed on the back of this
cover.
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 refund of the adjusted
contract value less credits we added (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 and in certain
situations.
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, 2000, 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 SUBACCOUNTS THROUGH THE GCG TRUST, THE GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY ANY BANK OR 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 GALAXY VIP FUND, THE PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS
TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
<PAGE>
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
FLEET INVESTMENT ADVISORS INC.
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Yield Bond Fund
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
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.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms................................................. 1
Fees and Expenses...................................................... 2
Performance Information................................................ 11
Accumulation Unit.................................................. 11
Net Investment Factor.............................................. 11
Condensed Financial Information.................................... 11
Financial Statements............................................... 11
Performance Information............................................ 11
Golden American Life Insurance Company................................. 12
The Trusts............................................................. 12
Golden American Separate Account B..................................... 13
The Investment Portfolios.............................................. 14
Investment Objectives.............................................. 14
Investment Management Fees......................................... 18
The Fixed Interest Allocation.......................................... 19
Selecting a Guaranteed Interest Period............................. 19
Guaranteed Interest Rates.......................................... 20
Transfers from a Fixed Interest Allocation......................... 20
Withdrawals from a Fixed Interest Allocation....................... 21
Market Value Adjustment............................................ 21
The Annuity Contract................................................... 22
Contract Date and Contract Year.................................... 22
Annuity Start Date................................................. 22
Contract Owner..................................................... 22
Annuitant.......................................................... 23
Beneficiary........................................................ 23
Purchase and Availability of the Contract.......................... 24
Crediting of Premium Payments...................................... 24
Additional Credit to Premium....................................... 25
Administration Procedures.......................................... 25
Contract Value..................................................... 25
Cash Surrender Value............................................... 26
Surrendering to Receive the Cash Surrender Value................... 26
The Subaccounts.................................................... 26
Addition, Deletion or Substitution of Subaccounts and Other Changes 27
The Fixed Account.................................................. 27
Optional Riders.................................................... 27
Minimum Guaranteed Accumulation Benefit Rider................... 28
Minimum Guaranteed Income Benefit Rider......................... 30
Minimum Guaranteed Withdrawal Benefit Rider..................... 32
Other Contracts.................................................... 34
Other Important Provisions......................................... 34
Withdrawals............................................................ 34
Regular Withdrawals................................................ 35
Systematic Withdrawals............................................. 35
IRA Withdrawals.................................................... 36
Transfers Among Your Investments....................................... 37
Dollar Cost Averaging.............................................. 37
Automatic Rebalancing.............................................. 38
Death Benefit Choices.................................................. 39
Death Benefit During the Accumulation Phase........................ 39
Standard Death Benefit.......................................... 39
Enhanced Death Benefits......................................... 39
- --------------------------------------------------------------------------------
i
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Death Benefit During the Income Phase............................... 40
Required Distributions upon Contract Owner's Death.................. 41
Charges and Fees........................................................ 41
Charge Deduction Subaccount......................................... 41
Charges Deducted from the Contract Value............................ 42
Surrender Charge................................................. 42
Waiver of Surrender Charge for Extended Medical Care............. 42
Free Withdrawal Amount........................................... 42
Surrender Charge for Excess Withdrawals.......................... 42
Premium Taxes.................................................... 42
Administrative Charge............................................ 43
Transfer Charge.................................................. 43
Charges Deducted from the Subaccounts............................... 43
Mortality and Expense Risk Charge................................ 43
Asset-Based Administrative Charge................................ 43
Optional Rider Charges.............................................. 43
Trust Expenses...................................................... 44
The Annuity Options..................................................... 44
Annuitization of Your Contract...................................... 44
Selecting the Annuity Start Date.................................... 45
Frequency of Annuity Payments....................................... 45
The Annuity Options................................................. 46
Income for a Fixed Period........................................ 46
Income for Life with a Period Certain............................ 46
Joint Life Income................................................ 46
Annuity Plan..................................................... 46
Payment When Named Person Dies...................................... 46
Other Contract Provisions............................................... 46
Reports to Contract Owners.......................................... 46
Suspension of Payments.............................................. 47
In Case of Errors in Your Application............................... 47
Assigning the Contract as Collateral................................ 47
Contract Changes-Applicable Tax Law................................. 47
Free Look........................................................... 47
Group or Sponsored Arrangements..................................... 48
Selling the Contract................................................ 48
Other Information....................................................... 48
Voting Rights....................................................... 48
State Regulation.................................................... 49
Legal Proceedings................................................... 49
Legal Matters....................................................... 49
Experts............................................................. 49
Federal Tax Considerations.............................................. 49
More Information About Golden American.................................. 53
Financial Statements of Golden American Life Insurance Company.......... 75
Statement of Additional Information
Table of Contents...................................................105
Appendix A
Condensed Financial Information..................................... A1
Appendix B
Market Value Adjustment Examples.................................... B1
Appendix C
Surrender Charge for Excess Withdrawals Example............................. C1
ii
<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:
SPECIAL TERM PAGE
Accumulation Unit 11
Annual Ratchet Enhanced Death Benefit 39
Annuitant 23
Annuity Start Date 22
Cash Surrender Value 26
Contract Date 22
Contract Owner 22
Contract Value 25
Contract Year 22
Fixed Interest Allocation 18
Free Withdrawal Amount 42
Market Value Adjustment 21
Net Investment Factor 11
Rider Date 27
Special Fund 27
7% Solution Enhanced Death Benefit 39
Standard Death Benefit 39
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
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 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............................................. $40
(We waive this charge if the total of your premium payments is $100,000 or
more or if your contract value at the end of a contract year is $100,000 or
more.)
*** We deduct this charge on each contract anniversary and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES****
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
------------- -------------- -----------
<S> <C> <C> <C>
Mortality & Expense Risk Charge 1.25% 1.40% 1.55%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
Total Separate Account Charges 1.40% 1.55% 1.70%
</TABLE>
**** As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
OPTIONAL RIDER CHARGES*****
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year........... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................ 0.125% of the MGIB Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
*****We deduct optional rider charges from the subaccounts in which you are
invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation nearest maturity.
2
<PAGE>
(1) The MGAB Charge Base is the total of premiums and credits added during
the two year period commencing on the rider date if you purchase the
rider on the contract date, or, your contract value on the rider date
plus premiums and credits added during the two year period commencing
on the rider date if you purchased the rider after the contract date,
reduced pro rata for all withdrawals taken while the MGAB rider is in
effect, and reduced pro rata for transfers made during the three year
period before the MGAB Benefit Date.
(2) The MGIB Base generally depends on the amount of premiums you pay
during the first five contract years after you purchase the rider, and
the credit(s) applied, when you pay the premiums, and less a pro rata
deduction for any withdrawal made while the MGIB rider is in effect.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums and
credit paid during the 2-year period commencing on the rider date if
you purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums and credits received
during the two-year period commencing on the rider date.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
- --------------------------------------------------------------------------------
Liquid Asset 0.56% 0.00% 0.56%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.56% 0.01% 0.57%
- --------------------------------------------------------------------------------
Global Fixed Income 1.60% 0.00% 1.60%
- --------------------------------------------------------------------------------
Fully Managed 0.96% 0.01% 0.97%
- --------------------------------------------------------------------------------
Total Return 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Equity Income 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Value Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Rising Dividends 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.00% 1.25%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Capital Appreciation 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
- --------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Small Cap 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Growth 1.04% 0.00% 1.04%
- --------------------------------------------------------------------------------
Real Estate 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Hard Assets 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.00% 1.75%
- --------------------------------------------------------------------------------
(1) Fees decline as the total assets of certain combined portfolios
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, 1999, except for portfolios that commenced operations in
2000 where the charges have been estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
3
<PAGE>
THE GALAXY VIP FUND ANNUAL EXPENSES (as a percentage of the average daily net
assets of the portfolio):
- --------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1) REIMBURSEMENT(1) REIMBURSEMENT(1)
- --------------------------------------------------------------------------------
Equity 0.75% 0.21% 0.96%
Growth and Income 0.75% 0.74% 1.49%
Small Company Growth 0.75% 0.85% 1.60%
Asset Allocation 0.75% 0.27% 1.02%
High Quality Bond 0.29% 0.35% 0.64%
- --------------------------------------------------------------------------------
(1) Total Expenses are based on actual Expenses for the fiscal year ended
December 31, 1999. Fleet Investment Advisors Inc. and/or the
administrator have agreed to waive certain fees and/or reimburse Fund
expenses of 4.37% and 0.39% for the Small Company Growth Fund and High
Quality Bond Fund, respectively, for the year ending December 31,
2000. Without this agreement, and based on actual waivers and
reimbursements for the fiscal year ended December 31, 1999, total
expenses would have been 0.96%, 1.49%, 5.97%, 1.02% and 1.03% for the
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Asset
Allocation Fund and High Quality Bond, respectively.
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
- --------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
- --------------------------------------------------------------------------------
(1) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.65% and 0.75% for the
High Yield Bond and the StocksPLUS Growth and Income Portfolios,
respectively, of average daily net assets. Without such reductions,
total annual operating expenses for the fiscal year ended December 31,
1999 would have remained unchanged for both Portfolios. Under the
Expense Limitation Agreement, PIMCO may recoup any such waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit. The fees expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
- --------------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
- --------------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
4
<PAGE>
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE (3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Since the portfolio had not commenced operations as of December 31,
1999, expenses as shown are based on estimates of the portfolio's
operating expenses for the portfolio's first fiscal year.
(2) ING Mutual Funds Management Co. LLC, the investment manager, has
entered into an expense limitation contract with the portfolio, under
which it will limit expenses of the portfolio as shown, excluding
interest, taxes, brokerage, and extraordinary expenses through
December 31, 2000. Fee waiver and/or reimbursements by the investment
manager may vary in order to achieve such contractually obligated
Total Expenses. Without this contract, and based on estimates for the
fiscal year ending December 31, 2000, total expenses are estimated to
be 2.03% for the portfolio.
(3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule
12b-1 under the 1940 Act, the portfolio pays its distributor an annual
fee of up to 0.25% of average daily net assets attributable to
portfolio shares. The distribution fee may be used by the distributor
for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the portfolio. For more information
see the portfolio's Statement of Additional Information.
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
- --------------------------------------------------------------------------------
(1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to
enable to portfolio to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses for
delivery to prospective investors and advertising costs for the
portfolio. Over a long period of time, the total amount of 12b-1 fees
paid may exceed the amount of sales charges imposed by the product.
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 Galaxy VIP Fund, the PIMCO Variable Insurance Trust and the
Warburg Pincus Trust, the ING Variable Insurance Trust, and the Prudential
Series Fund 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.
EXAMPLES:
The following four examples are designed to show you the expenses you would pay
on a $1,000 investment, plus a credit of $40, that earns 5% annually. Each
example assumes election of the 7% Solution Enhanced Death Benefit. The examples
reflect the deduction of a mortality and expense risk charge, an asset-based
administrative charge, and the annual contract administrative charge as an
annual charge of 0.05% of assets (based on an average contract value of
$77,000). In addition, Examples 1 and 2 assume you elected an optional benefit
rider with the highest charge 0.75% annually where the rider base is equal to
the initial premium and increases by 7% annually, except for the Liquid Asset
and Limited Maturity Bond portfolios, where the charge is 0.50% annually and
assume the rider charge is assessed each quarter on a base equal to the
hypothetical $1,000 premium increasing by 7% per year (the assumed net rate for
Liquid Asset and Limited Maturity Bond portfolios). The annual charge of 0.75%
results from the assumption of a 7% annual
5
<PAGE>
increase in the rider base but only a 5% earnings increase in the contract value
before expenses. Thus, 0.75% represents an annual charge over the 10-year period
which is equivalent to an increasing charge of 0.125% per quarter over the same
period. If the Standard Death Benefit or the Annual Ratchet Enhanced Death
Benefit is elected instead of the 7% Enhanced Death Benefit used in the
examples, the actual expenses will be less than those represented in the
examples. Note that surrender charges may apply if you choose to annuitize your
Contract within the first 5 contract years, and under certain circumstances,
within the first 9 contract years. Thus, in the event you annuitize your
Contract under circumstances which require a surrender charge, you should refer
to Examples 1 and 3 below which assume applicable surrender charges.
6
<PAGE>
Example 1
If you surrender your Contract at the end of the applicable time period and
elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $110 $171 $225 $329
Limited Maturity Bond $110 $171 $226 $330
Global Fixed Income $123 $210 $288 $446
Fully Managed $116 $191 $257 $390
Total Return $116 $189 $255 $384
Equity Income $116 $190 $257 $389
Investors $117 $192 $259 $393
Value Equity $116 $190 $257 $389
Rising Dividends $116 $190 $257 $389
Managed Global $119 $199 $271 $415
Large Cap Value $117 $192 $259 $393
All Cap $117 $192 $259 $393
Research $116 $189 $255 $384
Capital Appreciation $116 $190 $257 $389
Capital Growth $117 $193 $261 $397
Strategic Equity $116 $190 $257 $389
Mid-Cap Growth $116 $189 $255 $384
Small Cap $116 $190 $257 $389
Growth $117 $193 $261 $396
Real Estate $116 $190 $257 $389
Hard Assets $116 $190 $257 $389
Developing World $124 $214 $295 $459
THE GALAXY VIP FUND
Equity $116 $190 $257 $389
Growth and Income $122 $206 $283 $437
Small Company Growth $123 $210 $288 $446
Asset Allocation $117 $192 $260 $394
High Quality Bond $113 $181 $241 $359
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $114 $184 $247 $369
PIMCO StocksPLUS
Growth and Income $113 $181 $242 $360
THE WARBURG PINCUS TRUST
International Equity $120 $201 $275 $422
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $119 $199 $270 $413
PRUDENTIAL SERIES FUND
Prudential Jennison $117 $193 $260 $395
</TABLE>
7
<PAGE>
Example 2
If you do not surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $30 $ 91 $155 $329
Limited Maturity Bond $30 $ 91 $156 $330
Global Fixed Income $43 $130 $218 $446
Fully Managed $36 $111 $187 $390
Total Return $36 $109 $185 $384
Equity Income $36 $110 $187 $389
Investors $37 $112 $189 $393
Value Equity $36 $110 $187 $389
Rising Dividends $36 $110 $187 $389
Managed Global $39 $119 $201 $415
Large Cap Value $37 $112 $189 $393
All Cap $37 $112 $189 $393
Research $36 $109 $185 $384
Capital Appreciation $36 $110 $187 $389
Capital Growth $37 $113 $191 $397
Strategic Equity $36 $110 $187 $389
Mid-Cap Growth $36 $109 $185 $384
Small Cap $36 $110 $187 $389
Growth $37 $113 $191 $396
Real Estate $36 $110 $187 $389
Hard Assets $36 $110 $187 $389
Developing World $44 $134 $225 $459
THE GALAXY VIP FUND
Equity $36 $110 $187 $389
Growth and Income $42 $126 $213 $437
Small Company Growth $43 $130 $218 $446
Asset Allocation $37 $112 $190 $394
High Quality Bond $33 $101 $171 $359
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $34 $104 $177 $369
PIMCO StocksPLUS
Growth and Income $33 $101 $172 $360
THE WARBURG PINCUS TRUST
International Equity $40 $121 $205 $422
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $39 $119 $200 $413
PRUDENTIAL SERIES FUND
Prudential Jennison $37 $113 $190 $395
</TABLE>
8
<PAGE>
Example 3
If you surrender your Contract at the end of the applicable time period and did
not elect any optional benefit rider, you would pay the following expenses for
each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $104 $155 $198 $275
Limited Maturity Bond $104 $155 $199 $276
Global Fixed Income $115 $187 $252 $379
Fully Managed $109 $168 $220 $317
Total Return $108 $166 $217 $311
Equity Income $109 $167 $219 $316
Investors $109 $169 $222 $321
Value Equity $109 $167 $219 $316
Rising Dividends $109 $167 $219 $316
Managed Global $112 $176 $234 $345
Large Cap Value $109 $169 $222 $321
All Cap $109 $169 $222 $321
Research $108 $166 $217 $311
Capital Appreciation $109 $167 $219 $316
Capital Growth $109 $170 $224 $325
Strategic Equity $109 $167 $219 $316
Mid-Cap Growth $108 $166 $217 $311
Small Cap $109 $167 $219 $316
Growth $109 $170 $223 $324
Real Estate $109 $167 $219 $316
Hard Assets $109 $167 $219 $316
Developing World $117 $192 $259 $393
THE GALAXY VIP FUND
Equity $109 $167 $219 $316
Growth and Income $114 $184 $246 $368
Small Company Growth $115 $187 $252 $379
Asset Allocation $109 $169 $222 $322
High Quality Bond $105 $158 $203 $284
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $106 $161 $208 $295
PIMCO StocksPLUS
Growth and Income $105 $158 $203 $285
THE WARBURG PINCUS TRUST
International Equity $112 $179 $238 $353
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $111 $176 $233 $343
PRUDENTIAL SERIES FUND
Prudential Jennison $109 $170 $223 $323
</TABLE>
9
<PAGE>
Example 4
If you do not surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
<TABLE>
<CAPTION>
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Liquid Asset $24 $ 75 $128 $275
Limited Maturity Bond $24 $ 75 $129 $276
Global Fixed Income $35 $107 $182 $379
Fully Managed $29 $ 88 $150 $317
Total Return $28 $ 86 $147 $311
Equity Income $29 $ 87 $149 $316
Investors $29 $ 89 $152 $321
Value Equity $29 $ 87 $149 $316
Rising Dividends $29 $ 87 $149 $316
Managed Global $32 $ 96 $164 $345
Large Cap Value $29 $ 89 $152 $321
All Cap $29 $ 89 $152 $321
Research $28 $ 86 $147 $311
Capital Appreciation $29 $ 87 $149 $316
Capital Growth $29 $ 90 $154 $325
Strategic Equity $29 $ 87 $149 $316
Mid-Cap Growth $28 $ 86 $147 $311
Small Cap $29 $ 87 $149 $316
Growth $29 $ 90 $153 $324
Real Estate $29 $ 87 $149 $316
Hard Assets $29 $ 87 $149 $316
Developing World $37 $112 $189 $393
THE GALAXY VIP FUND
Equity $29 $ 87 $149 $316
Growth and Income $34 $104 $176 $368
Small Company Growth $35 $107 $182 $379
Asset Allocation $29 $ 89 $152 $322
High Quality Bond $25 $ 78 $133 $284
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $26 $ 81 $138 $295
PIMCO StocksPLUS
Growth and Income $25 $ 78 $133 $285
THE WARBURG PINCUS TRUST
International Equity $32 $ 99 $168 $352
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $31 $ 96 $163 $343
PRUDENTIAL SERIES FUND
Prudential Jennison $29 $ 90 $153 $323
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
10
<PAGE>
- --------------------------------------------------------------------------------
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 certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
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 the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 1999, 1998 and 1997 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
accumulation 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 Separate Account B has
been investing in the portfolio. 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 when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current 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. Quotations of average annual
return for the Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as
11
<PAGE>
a subaccount of Golden American Separate Account D. In addition, we may present
historic performance data for the 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 before the
separate account began investing in the portfolios.
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, assuming no
surrender and the selection of the 7% Solution Enhanced Death Benefit and the
MGIB optional benefit rider.
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 determine the real
rate of return of 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.
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 based in The
Netherlands. 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.
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies not affiliated with
Golden
12
<PAGE>
American. Pending SEC approval, shares of the GCG Trust may also be sold to
certain qualified pension and retirement plans. The address of the GCG Trust is
1475 Dunwoody Drive, West Chester, PA 19380.
The Galaxy VIP Fund is a mutual fund whose shares are offered to separate
accounts of various life insurance companies for variable annuity contracts,
including certain variable contracts of Golden American and its affiliates. The
principal address of The Galaxy VIP Fund is 4400 Computer Drive, Westborough, MA
01581.
The PIMCO Variable Insurance 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 to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
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 address of the Warburg Pincus Trust is 153 East 53rd
Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund whose shares are offered to
separate accounts funding variable annuity contracts offered by Golden American.
Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to
variable annuity and variable life insurance policies offered by other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund is also a mutual fund whose shares are available to
separate accounts funding variable annuity and variable life insurance polices
offered by The Prudential Insurance Company of America, its affiliated insurers
and other life insurance companies not affiliated with Prudential, including
Golden American. The address of the Prudential Series Fund is 751 Broad Street,
Newark, NJ 07102.
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 Galaxy VIP
Fund, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING
Variable Insurance Trust, the Board of Directors of Prudential Series Fund, and
the management of Directed Services, Inc., Fleet Investment Advisors Inc.,
Pacific Investment Management Company, Credit Suisse Asset Management LLC, ING
Mutual Funds Management Co. LLC, Prudential Insurance Company of America 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 GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH
TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
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, the Galaxy VIP Fund, the
PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING Variable
Insurance Trust or the Prudential Series Fund. 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
13
<PAGE>
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 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. Under certain
circumstances, we may make certain changes to the subaccounts. For more
information, see "The Annuity Contract -- Addition, Deletion, or Substitution of
Subaccounts and Other Changes."
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU 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. Account B also has other subaccounts investing in other
portfolios which are not available to the Contract described in this prospectus.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE
PROSPECTUSES FOR THE GCG TRUST, THE GALAXY VIP FUND, THE PIMCO VARIABLE
INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE
PRUDENTIAL SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
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 Bond Seeks highest current income consistent with 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 Income Seeks high total return.
Invests primarily in high-grade fixed income securities,
both foreign and domestic.
--------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Investors Seeks long-term growth of capital. Current income is a
secondary objective.
Invests primarily in equity securities of U.S. companies
and to a lesser degree, debt securities.
--------------------------------------------------------
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.
--------------------------------------------------------
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."
--------------------------------------------------------
Managed Global Seeks capital appreciation. Current income is only an
incidental consideration.
Invests primarily in common stocks traded in securities
markets throughout the world.
--------------------------------------------------------
Large Cap Value Seeks long-term growth of capital and income.
Invests primarily in equity and equity-related
securities of companies with market capitalization
greater than $1 billion.
--------------------------------------------------------
All Cap Seeks capital appreciation through investment in
securities which the portfolio manager believes have
above-average capital appreciation potential.
Invests primarily in equity securities of U.S. companies
of any size.
--------------------------------------------------------
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.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
--------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium- and
small-sized companies.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
THE GALAXY VIP FUND
Equity Seeks long-term growth by investing in companies that
the portfolio manager believes have above-average
earnings potential.
Invests normally at least 75% of its total assets in
common stocks and securities convertible into common
stocks issued by U.S. companies.
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Growth and Income Seeks to provide a relatively high total return through
long-term capital appreciation and current income.
Invests normally at least 65% of its total assets in the
common stocks of U.S. companies with large market
capitalizations (generally over $2 billion) that have
prospects for above-average growth and dividends.
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Small Company Growth Seeks capital appreciation.
Invests normally at least 65% of its total assets in the
equity securities, primarily common stocks, of small
companies that have market capitalizations of $1.5
billion or less. The portfolio invests primarily in the
common stock of U.S. companies, but may invest up to 20%
of its total assets in foreign equity securities.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Asset Allocation Seeks a high total return by providing both a current
level of income that is greater than that provided by
the popular stock market averages, as well as long-term
growth in the value of the portfolio's assets.
Invests in a mix of stocks and bonds that the portfolio
manager believes will produce both income and long-term
capital growth. This mix will change from time to time
as a result of economic and market conditions. However,
the portfolio keeps at least 25% of its total assets in
fixed income investments, including debt securities and
preferred stocks, at all times.ll produce both income
and long-term capital growth. This mix will change from
time to time as a result of economic and market
conditions. However, the portfolio keeps at least 25% of
its total assets in fixed income investments, including
debt securities and preferred stocks, at all times.
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High Quality Bond Seeks a high level of current income consistent with
prudent risk of capital.
Invests primarily in obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities,
as well as in corporate debt obligations such as notes
and bonds. The portfolio also invests in asset-backed
and mortgage-backed securities and in money market
instruments, such as commercial paper and bank
obligations. Normally, at least 65% of the portfolio's
total assets will be invested in high quality debt
obligations that have one of the top two ratings
assigned by Standard & Poor's Ratings Group or Moody's
Investors Services, Inc. or are unrated securities
determined by the portfolio manager to be of comparable
quality.
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THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests 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.
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PIMCO StocksPLUS
Growth and Income Seeks to achieve a total return which exceeds the total
return performance of the S&P 500
Invests primarily in common stocks, options, futures,
options on futures and swaps.
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THE WARBURG PINCUS TRUST
International Equity Seeks long-term appreciation.
Invests primarily in a broadly diversified portfolio of
equity securities of companies that have their principal
business activities outside of the United States.
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ING VARIABLE INSURANCE TRUST
ING Global Brand Names Seeks to provide investors with long-term capital
Fund appreciation.
Invests at least 65% of its total assets in equity
securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
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INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios. Directed Services (and not the GCG Trust) pays each portfolio
manager a monthly fee for managing the assets of a portfolio, based on the
annual rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed Services
does 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.
Fleet Investment Advisors Inc. serves as the investment advisor of The Galaxy
VIP Fund. The Galaxy VIP Fund pays Fleet Investment Advisors a monthly advisory
fee based on the average daily net assets of each investment portfolio. Each
portfolio pays its own administrative costs. Except for agreements to reimburse
certain expenses of some portfolios, Fleet Investment Advisors does not bear any
portfolio expenses.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee 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 Variable
Insurance Trust. PIMCO does 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 expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of the
Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset Management a
monthly advisory fee based on the average daily net assets of the investment
portfolio and also procures the services necessary for the operation of its
portfolios. The Warburg Trust pays monthly administrative fees to two
co-administrators for administrative services, one of which is an affiliate of
Credit Suisse Asset Management. The monthly administrative fee is based on the
portfolio's average daily net assets. Credit Suisse Asset Management does not
bear any portfolio expenses.
ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager
of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's
operations and provides investment advisory services to the portfolios of the
Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING MFMC, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V.
The Prudential Insurance Company of America ("Prudentail") serves as the overall
investment adviser for the Prudential Series Fund. Prudential is responsible for
the management of the Prudential Series Fund and provides investment advice and
related services. For the Prudential Jennison Portfolio, Prudential
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engages Jennison Associates to serve as a sub-adviser and to provide day-to-day
management. Prudential pays the sub-advisor out of the fee Prudential receives
from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct a
distribution or 12b-1 fee, which is used to finance any activity that is
primarily intended to result in the sale of shares of the applicable portfolio.
For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees
and Expenses" in this prospectus.
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
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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 customer, 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 on DCA
Fixed Interest Allocations, 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.
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GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is guaranteed as
long as you do not take your money out 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. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our Customer
Service Center or your registered representative. 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 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. 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 that was offered exclusively with our dollar cost averaging program,
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.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
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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, as well as state income tax consequences.
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.
Please be aware that the benefit we pay under any of the optional riders will be
reduced on a pro rata basis by any withdrawals you make from the Fixed Interest
Allocations during the period while the rider is in effect. See "Optional
Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. 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 program) 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.
We determine the Market Value Adjustment by multiplying the amount you withdraw,
transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the first day
of the 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
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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 B.
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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 Galaxy VIP
Fund, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING
Variable Insurance Trust and the Prudential Series Fund through 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 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.
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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 adviser 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.
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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 $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for qualified
Contracts) 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. An 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.
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See "Fees
and Expenses" in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days after
receipt, if the application and all information necessary for processing the
Contract are complete. Subsequent premium payments and credits will be processed
within 1 business day if we receive all information necessary. In certain states
we also accept initial and additional premium payments by wire order. Wire
transmittals must be accompanied by sufficient electronically transmitted data.
We may retain your initial premium payment 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.
We will allocate your initial payment according to the instructions you
specified. If a subaccount is not available or requested in error, we will make
inquiry about a replacement subaccount. If we are unable to reach you or your
representative, we will allocate your initial payment proportionally among the
other subaccount(s) in your instructions. For initial premium payments, the
payment will be credited at the accumulation unit value next determined after we
receive your premium payment and the completed application. Once the completed
application is received, we will allocate the payment and credit to the
subaccount(s) 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. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment and credit will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
Once we allocate your premium payment and credit to the subaccounts selected by
you, we convert the premium payment and credit into accumulation units. We
divide the amount of the premium payment and credit 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 5 days of the premium payment.
If we do not receive the application or form within 5 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.
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(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 or your
representative, 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. We may require additional
information before complying with your request (e.g., signature
guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated with the added credit
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 and credit 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 with the added credit to a Fixed
Interest Allocation with the guaranteed interest period you have chosen;
however, in the future we may allocate the premiums and credits to the specially
designated subaccount during the free look period.
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium payment. The
credit will be added proportionally to each subaccount and Fixed Interest
Allocation as the premium payment is allocated. The credit is a minimum of 4% of
the premium payment. We may increase the credit at our discretion. If we
increase the credit we may reduce it also at our discretion, but we will not
reduce it below the minimum credit of 4%, and we will give at least 30 days
notice of any planned reduction.
The credit constitutes earnings (and not premiums paid by you) for federal tax
purposes.
In any of the following circumstances, we deduct a credit from the amount we pay
to you or your beneficiary:
(1) If you return your Contract within the free look period, we will
deduct the credit from the refund amount;
(2) If a death benefit of contract value becomes payable, we will deduct
any credits added to your contract within 1 year prior to death; and
(3) If we waive any surrender charge, we will deduct any credit added to
your contract value within 1 year.
If we deduct a credit from any amount we pay to you, we will deduct the full
dollar amount of the credit. You will retain any gains, and you will also bear
any losses, that are attributable to the credit we deduct.
Once we have waived any surrender charge, we will not add any additional credit
to any additional premium you pay on or after the date of any such waiver.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or other
approved electronic means, subject to our administrative procedures, which vary
depending on the type of service requested and may include proper completion of
certain forms, providing appropriate identifying information, and/or other
administrative requirements. We will process your request at the accumulation
value next determined only after you have met all administrative requirements.
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 and credits allocated
to the Fixed Interest Allocation under the Contract, plus contract value
transferred to the Fixed Interest Allocation, plus credited interest, minus any
transfers
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and withdrawals from the Fixed Interest Allocation (including any Market Value
Adjustment applied to such withdrawal), contract fees (including, in some cases,
fees for optional benefit riders) 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 added credit that was 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 and added credit not allocated
to a Fixed Interest Allocation may 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 credits, 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 (including any rider charges) 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, and then we deduct any
surrender charge, any charge for premium taxes, the annual contract
administrative fee (unless waived), any optional benefit rider charges, 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 all paperwork required in order for us to process your
surrender. 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 adviser 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.
THE SUBACCOUNTS
Each of the 32 subaccounts of Account B offered under this prospectus invests in
an investment portfolio with its own distinct investment objectives and
policies. Each subaccount of Separate Account B invests in a corresponding
portfolio of the GCG Trust, a corresponding portfolio of the Galaxy VIP Fund, a
corresponding
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portfolio of the PIMCO Variable Insurance Trust, a corresponding portfolio of
the Warburg Pincus Trust, a corresponding portfolio of the ING Variable
Insurance Trust, or a corresponding portfolio of the Prudential Series Fund.
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. If you elected the dollar cost
averaging, systematic withdrawals or automatic rebalancing programs or if you
have other outstanding instructions, and we substitute or otherwise eliminate a
portfolio which is subject to those instructions, we will execute your
instructions using the substituted or proposed replacement portfolio, unless you
request otherwise.
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.
OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider.
Once elected, the riders generally may not be cancelled. This means once you add
the rider you may not remove it, and charges will be assessed regardless of the
performance of your Contract. Please see "Charges and Fees -- Optional Rider
Charges" for information on rider charges.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider becomes
effective. The rider date is also the contract date if the rider was purchased
at the time the Contract is issued.
SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum
Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the
Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may designate new and/or existing subaccounts as a
Special Fund with 30 days notice at any time, including during the life of a
rider.
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you
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may not at any time cancel the rider, except with respect to a one-time right to
cancel the twenty-year option of the Minimum Guaranteed Accumulation Benefit
rider under specified conditions. The Company may, at its discretion, cancel
and/or replace a rider at your request in order to renew or reset a rider.
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death of
annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase. The
optional rider will also terminate if there is a change in contract ownership
(other than a spousal beneficiary continuation on your death). Other
circumstances which may cause a particular optional rider to terminate
automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base.
The MGAB rider may offer you protection in the event your Contract loses value
during the MGAB waiting period. For a discussion of the charges we deduct under
the MGAB rider, see "Optional Rider Charges." The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one. The
ten-year option has a waiting period of ten years and guarantees that your
contract value at the end of ten years will at least equal your initial premium
payment plus credits, reduced pro rata for withdrawals. Transfers made within 3
years prior to the MGAB Benefit Date will also reduce the benefit pro rata. The
twenty-year option has a waiting period of twenty years and guarantees that your
contract value at the end of twenty years will at least equal two times your
initial premium payment plus credits, reduced pro rata for withdrawals, and
reduced for transfers made within 3 years prior to the MGAB Benefit Date. On the
MGAB Benefit Date, which is the next business day after the applicable waiting
period, we calculate your Minimum Guaranteed Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation
used to determine the MGAB. The MGAB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your annuity income, cash surrender value and death
benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your rider date, reduced
pro rata for any withdrawals and reduced for any transfers made within
the last 3 years prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option, except for the Special Funds which
require special calculations, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rate, reduced pro rata for any
withdrawals and reduced for any transfers made within the last 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for allocations
other than allocations to the Special Funds is the annual effective
rate of 3.5265%. Accumulation of eligible additional premiums starts
on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE
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MGAB BASE. Thus, the MGAB rider may not be appropriate for you if you
plan to add substantial premium payments after your second rider
anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus premiums
and credits added during the 2-year period after your rider date.
Withdrawals taken while the MGAB rider is in effect, as well as
transfers made within 3 years prior to the MGAB Benefit Date, will
reduce the value of your MGAB Base pro rata. This means that the MGAB
Base (and the MGAB Charge Base) will be reduced by the same percent as
the percent of contract value that was withdrawn (or transferred). We
will look to your contract value immediately before the withdrawal or
transfer when we determine this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the contract
value allocated to the Special Fund over the calculation period is
less than the amount calculated under the formula above, that lesser
amount becomes the increase in your MGAB Base for the Special Fund for
that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE
OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB
benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the
Special Funds, may prevent the MGAB Base from doubling over the
waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both the
contract value in the subaccounts in which you are invested and the
contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts in
which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not have
an investment in any subaccount on the MGAB Benefit Date, we will
allocate the MGAB to the Liquid Asset subaccount on your behalf. After
the crediting of the MGAB, the amount of your annuity income, cash
surrender value and death benefits will reflect the crediting of the
MGAB to your contract value to the extent the contract value is used
to determine such value.
WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB
Charge Base pro rata to the percentage of contract value of any withdrawals you
make after the rider date but prior to the MGAB Benefit Date. Any transfers you
make after the rider date but within three years prior to the MGAB Benefit Date
will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of
contract value transferred. Transfers you make before this date will have no
immediate impact on the MGAB Base. Any transfers more than 3 years prior to the
MGAB Benefit Date between the subaccounts and Special Funds in which you are
invested will cause your MGAB Base to be reallocated pro rata based on the
percentage of contract value. Transfers to one or more Special Funds could
reduce your MGAB benefit.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus,
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your MGAB Benefit Date will be the first contract anniversary occurring after 10
years (for the ten-year option) or 20 years (for the twenty-year option) after
the rider date. The MGAB rider is not available if the MGAB Benefit Date would
fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, you one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our Customer Service Center at least 30 days before
such anniversary date. If the MGAB rider is terminated before the MGAB Benefit
Date, you will not be credited with the MGAB and we will assess the pro rata
portion of the MGAB rider charge for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional
benefit which guarantees that a minimum amount of annuity income will be
available to you if you annuitize on the MGIB Benefit Date, regardless of
fluctuating market conditions. The amount of the Minimum Guaranteed Income
Benefit will depend on the amount of premiums you pay during the five contract
years after you purchase the rider, the credit(s) we add, the amount of contract
value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all
portfolios except the Special Funds), the adjustments for Special Fund
transfers, and the dollar amount of any withdrawals you take while the rider is
in effect. For a discussion of the charges we deduct under the MGIB rider, see
"Optional Rider Charges." Ordinarily, the amount of income that will be
available to you on the annuity start date is based on your contract value, the
annuity option you selected and the guaranteed or income factors in effect on
the date you annuitize. If you purchase the MGIB rider, the minimum amount of
income that will be available to you upon annuitization on the MGIB Benefit Date
is the greatest of:
(i) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
guaranteed income factors specified in your Contract for the annuity
option you selected;
(ii) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the then
current income factors in effect for the annuity option you selected;
and
(iii) the MGIB annuity income based on your MGIB Base on the MGIB Benefit
Date applied to the MGIB income factors specified in your rider for
the MGIB annuity option you selected. Prior to applying the MGIB
income factors, we will adjust the MGIB Base for any surrender
charges, premium tax recovery and Market Value Adjustments that would
otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider on the MGIB Benefit Date. Payments
under the rider begin on the MGIB Benefit Date. We require a 10-year waiting
period before you can annuitize under the MGIB rider benefit. The MGIB must be
exercised in the 30-day period prior to the end of the waiting period or any
subsequent contract anniversary. At your request, the Company may in its
discretion extend the latest contract annuity start date without extending the
MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate
your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation
used to determine the MGIB. The MGIB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your cash surrender value and death benefits. Any reset of
contract value under provisions of the Contract or other riders will
not increase the MGIB Base or MGIB Base Maximum.
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(i) If you purchased the MGIB rider on the contract date, except for
the Special Funds which require special calculations, the MGIB
Base is equal to your initial premium and credit, plus any
additional premiums and credits added to your Contract during the
5-year period after your contract date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Premiums and credits paid less than 5 years prior to
the earliest MGIB Benefit Date are excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date, except
for the Special Funds which require special calculations, your
MGIB Base is equal to your contract value on the rider date plus
any eligible premiums and credits added to your Contract during
the 5-year period after your rider date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Eligible additional premium payments and credits are
those added more than 5 years before the earliest MGIB Benefit
Date and are included in the MGIB Base. Premiums and credits paid
after the 5th rider anniversary are excluded from the MGIB Base.
(iii) For any Special Fund, if the actual earnings and/or the interest
credited to the contract value allocated to the Special Fund over
the calculation period is less than the amount determined under
the formula above, that lesser amount becomes the change in your
MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH
SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the
Special Funds may limit the MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata to
the percentage of the contract value withdrawn.
We offer a 7% MGIB Base Rate, except for the Special Funds. The
Company may at its discretion discontinue offering this rate. The
MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base
Maximum is the amount calculated above until the earlier of: (i)
the date the oldest contract owner reaches age 80, or (ii) the
date the MGIB Base reaches two times the MGIB Eligible Premiums
and credits, adjusted for any withdrawals. MGIB Eligible Premiums
is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND
PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii) Any other income plan offered by the Company in connection with
the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
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WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base
Maximum pro rata by the percentage of contract value of any withdrawals you
make. Any transfers to and from the subaccounts and Special Funds in which you
are invested will cause your MGIB Base to be reallocated pro rata based on the
percentage of contract value you transfer. Transfers to one or more Special
Funds could reduce the MGIB Benefit.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the
rider date and the ten-year waiting period must end at or prior to the latest
annuity start date. The MGIB rider must be purchased (i) on the contract date,
or (ii) within thirty days after the contract date. For contracts issued more
than 30 days before the date this rider first became available in your state,
the Company may in its discretion allow purchase of this rider during the 30-day
period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later. There is a ten
year waiting period before you can annuitize under the MGIB rider. This could
reduce the MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary on or after the tenth contract
anniversary when you decide to exercise your right to annuitize under the MGIB
rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is
the contract anniversary at least 10 years after the rider date when you decide
to exercise your right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIMES PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER . The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to zero
you will receive periodic payments equal to all premium payments and credits
paid during the first two contract years (Eligible Payment Amount) adjusted for
any prior withdrawals. To maintain this guarantee, withdrawals in any contract
year may not exceed 7% of your adjusted Eligible Payment Amount. If your
contract value is reduced to zero, your periodic payments will be 7% of your
Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal
Account is reduced to zero. For a discussion of the charges we deduct under the
MGWB rider, see "Optional Rider Charges." Each payment you receive under the
MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax.
See "Withdrawals" and "Federal Tax Considerations" for more information. Your
original Eligible Payment Amount depends on when you purchase the MGWB rider and
is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
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(ii) if you purchased the MGWB rider after the contract date, your
contract value on the rider date, including any premiums and
credits received that day, and any subsequent premium payments
and credits received during the two-year period commencing on the
rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not represent a contract value, nor does
it guarantee performance of the subaccounts in which you are invested. It will
not affect your annuitization, surrender and death benefits. The MGWB Withdrawal
Account is equal to the Eligible Payment Amount adjusted for any withdrawals.
Withdrawals of up to 7% per year of the Eligible Payment Amount will reduce the
value of your MGWB Withdrawal Account by the dollar amount of the withdrawal.
Any withdrawals greater than 7% per year of the Eligible Payment Amount will
cause a reduction in both the MGWB Withdrawal Account and the Eligible Payment
Amount by the proportion that the withdrawal bears to the contract value at the
time of the withdrawal. The MGWB Withdrawal Account is also reduced by the
amount of any periodic payments paid under the MGWB rider once your contract
value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any
amount permitted under your Contract so long as your contract value is greater
than zero. See "Withdrawals." However, making any withdrawals in any year
greater than 7% per year of the Eligible Payment Amount will reduce the Eligible
Payment Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii) your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered
the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii) you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's
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latest annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, (that is, your contract value is zero) we will not accept any
additional premium payments in your Contract, and the Contract will not provide
any benefits except those provided by the MGWB rider. Any other rider
terminates. Your Contract will remain in Automatic Periodic Benefit Status until
the earliest of (i) payment of all MGWB periodic payments (ii) payment of the
Commuted Value (defined below) or (iii) the owner's death has occurred.
On the contract's latest annuity start date, in lieu of making the remaining
MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic
payments remaining. We may, at our option, extend your annuity start date in
order to continue the MGWB periodic payments. The Commuted Value is the present
value of any then remaining MGWB periodic payments at the current interest rate
plus 0.50%. The current interest rate will be determined by the average of the
Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB periodic
payment is made or we pay you the Commuted Value, your Contract and the MGWB
rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract, the death benefit
otherwise payable under the terms of your Contract will remain in force during
any Automatic Periodic Benefit Status. In determining the amount of the death
benefit during the Automatic Periodic Benefit Status we deem your contract value
to be zero and treat the MGWB periodic payments as withdrawals. In all other
cases, the death benefit payable during Automatic Periodic Benefit Status is
your MGWB Withdrawal Account which equals the sum of the remaining MGWB periodic
payments.
PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the Company may
in its discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this prospectus, or
the date of state approval, whichever is later.
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 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 10% of your contract
value on the date of the withdrawal less any withdrawals during that 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
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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.
Please be aware that the benefit we pay under certain optional benefit riders
will be reduced by any withdrawals you take while the rider is in effect. See
"Optional Riders."
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 withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the month, your
systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage and are willing to incur associated
surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which
you may add to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract value
and the amount to be withdrawn based on that percentage would be less than $100,
we will automatically increase the amount to $100 as long as it does not exceed
the maximum percentage. If the systematic withdrawal would exceed the maximum
percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
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Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. 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 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. If you submit a subsequent premium payment after you have
applied for systematic withdrawals, we will not adjust future withdrawals under
the systematic withdrawal program unless you specifically request that we do so.
The systematic withdrawal option may 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 the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any surrender charges or Market Value Adjustments.
Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar
Systematic Withdrawal Feature are available only in connection with Section
72(q) and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 10% of your contract value as
determined on the day we receive your election of this feature. The maximum
limit will not be recalculated when you make additional premium payments, unless
you instruct us to do so. We will assess a surrender charge on the withdrawal
date if the withdrawal exceeds the maximum limit as calculated on the withdrawal
date. We will assess a Market Value Adjustment on the withdrawal date if the
withdrawal from a Fixed Interest Allocation exceeds your interest earnings on
the withdrawal date. We will apply the surrender charge and any Market Value
Adjustment directly to your contract value (rather than to the withdrawal) so
that the amount of each systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to surrender charges and Market Value Adjustments
when they exceed the applicable Free Withdrawal Amount.
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
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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 ADVISER 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.
Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers
may also affect your optional rider base. See "The Annuity Contract -- Optional
Riders."
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 or other approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or over the internet.
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.
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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 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. If you make an additional premium payment
into a Fixed Interest Allocation subject to dollar cost averaging, the amount of
your transfers under the dollar cost averaging program remains the same, unless
you instruct us to increase the transfer amount.
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
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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 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 written notice
and due proof of death, as well as any required paperwork, 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. For
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
You may choose from the following 3 death benefit choices: (1) the Standard
Death Benefit; (2) the 7% Solution Enhanced Death Benefit; 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. A change in ownership of the Contract may
affect the amount of the death benefit and the guaranteed death benefit. The
MGWB rider may affect the death benefit. See "Minimum Guaranteed Withdrawal
Benefit (MGWB) Rider -- Death Benefit during Automatic Periodic Benefit Status."
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 minus any
credits added within 1 year; (ii) total premium payments less any withdrawals;
and (iii) the cash surrender value.
ENHANCED DEATH BENEFITS. If the 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 minus any credits added
within 1 year prior to death; (ii) total premium payments less any withdrawals;
(iii) the cash surrender value; and (iv) the enhanced death benefit as
calculated below minus any credits added within 1 year prior to death.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
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We credit interest each business day On each contract anniversary that
at the 7% annual effective rate* to occurs on or before the contract owner
the enhanced death benefit from the turns age 80, we compare the prior
preceding day (which would be the enhanced death benefit to the contract
initial premium and credit if the value and select the larger amount as
preceding day is the contract date), the new enhanced death benefit.
then we add additional premiums paid
and credits added since the preceding On all other days, the enhanced death
day, then we subtract any withdrawals benefit is the amount determined
made (including any Market Value below. We first take the enhanced
Adjustment applied to such death benefit from the preceding day
withdrawals) since the preceding day, (which would be the initial premium
and then we subtract any associated and credit if the valuation date is
surrender charges.** the contract date) and then we add
additional premiums paid and credits
The maximum enhanced death benefit is added since the preceding day, then we
2 times all premium payments and subtract any withdrawals (including
credits, as reduced by withdrawals.*** any Market Value Adjustment applied to
such withdrawals) since the preceding
day, and then we subtract any
associated surrender charges. That
amount becomes the new enhanced death
benefit.
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* The interest rate used for calculating the death benefit for the Liquid
Asset and Limited Maturity Bond subaccounts will be the lesser of the 7%
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 7%
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 and credit reduced by any withdrawals and any
associated surrender charges incurred will continue to grow at the 7%
annual effective rate.
*** 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% of cumulative premiums in any
prior contract year, such withdrawals will be treated as withdrawals of
earnings for the purpose of calculating the maximum enhanced death benefit.
Once withdrawals in any contract year exceed 7% of cumulative premiums,
withdrawals will reduce the maximum enhanced death benefit in proportion to
the reduction in contract value.
The 7% Solution Enhanced Death Benefit is 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 80 years old at the
time of purchase. The Annual Ratchet Enhanced Death Benefit is 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 79 years
old at the time of purchase. The 7% Solution and Annual Ratchet Enhanced Death
Benefits may not be available where a Contract is owned 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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REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any contract 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.
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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 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.
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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 9-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment withdrawn. 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 withdrawn as follows:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. 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. If we waive the surrender charge, we will deduct any credit added to
your contract value within 1 year of the withdrawal, and we will not add any
additional credit to any additional premium you pay on or after the date of any
such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
10% of your contract value on the date of withdrawal less any withdrawals during
that 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 C. 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 your state of residence. The tax can range from 0% to 3.5% of the
premium payment. We have the right to change this amount to conform with changes
in the law or if you change your state of residence.
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We deduct the premium tax from your contract value (or from the MGIB Base, if
exercised) 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 when you
surrender the Contract, when you take an excess withdrawals or on the annuity
start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge 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.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or more or under other conditions established by
the Golden American. 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
guaranteed 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 such 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 mortality and expense risk charge is
deducted each business day. 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 1.25% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003446% 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
1.40% for the Annual Ratchet Enhanced Death Benefit, or 1.55% for the 7%
Solution Enhanced Death Benefit, of the assets you have in each subaccount. The
charge is deducted each business day at the rate of .003863% or .004280%,
respectively, for each day since the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
OPTIONAL RIDER CHARGES
Subject to state availability, you may purchase one of three optional benefit
riders that you may elect at issue. So long as the rider is in effect, we will
deduct a separate quarterly charge for each optional benefit rider through a pro
rata reduction of the contract value of the subaccounts in which you are
invested. If there is insufficient contract value in the subaccount, we will
deduct the charges from your Fixed Interest Allocations nearest their maturity
date. We deduct each rider charge on each quarterly contract anniversary in
arrears, meaning the first charge will be deducted on the first quarterly
anniversary following the rider date. For a description of the riders and the
defined terms used in connection with the riders, see "The Annuity Contract --
Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for
the MGAB rider is as follows:
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Waiting Period Quarterly Charge
-------------- ----------------
10 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums and credits during the 2-year period commencing on the rider date,
reduced pro rata for withdrawals and reduced for transfers made within the last
3 years prior to the MGAB Benefit Date. We will deduct charges only during your
ten-year or twenty-year waiting period, as applicable. If you surrender or
annuitize your Contract, we will deduct a pro rata portion of the charge for the
current quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB
rider is as follows:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................. 0.125% of the MGIB Base (0.50% annually)
The MGIB Base is the total of premiums paid and credits added more than 5 years
before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals
taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate
(7% for all portfolios except the Special Funds). If you surrender or annuitize
your Contract, we will deduct a pro rata portion of the charge for the current
quarter based on the current quarterly charge rate and your MGIB Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
and credits added during the first two contract years following the rider date.
When we calculate the MGWB rider charge, we do not reduce the Eligible Payment
Amount by the amount of any withdrawals taken while the MGWB rider is in effect.
We will deduct charges only during the period before your Contract's Automatic
Periodic Benefit Status. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on the
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct 12b-1
fees. For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See
"Fees and Expenses" in this prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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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 you chose. You may change an
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
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chose. The MGIB annuity benefit may be available if you have purchased the MGIB
rider, provided the waiting period and other specified conditions have been met.
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 under applicable
law), 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 annuity start date, which is 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. For more information, 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 reach age 70 1/2 or, in some cases,
retire. Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
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.
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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. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income 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, we will continue payments 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. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
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 your 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.
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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,
including rider charges if you have elected one of the optional riders offered
in this prospectus. You have 30 days to notify our Customer Service Center of
any errors or discrepancies contained in the report and in any confirmation
notice. 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 SEC 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 gender 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 gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
you should 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 should consult a tax adviser for tax advice. 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 under applicable federal tax law. 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, (i) we adjust your contract value for any market value
adjustment (if you have invested in the fixed account), (ii) then we exclude any
credit initially applied, and (iii) then we include 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. In these states, your
premiums designated for investment in the subaccounts may 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 and the investment is allocated to a subaccount specifically
designated by the Company, 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.
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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 the 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 affiliated
with Fleet Financial Group, Inc. 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 4.5% commission, and passes through 100% of the commission to the
Fleet affililiated broker-dealer whose registered representative sold the
contract.
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UNDERWRITER COMPENSATION
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NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 4.5% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments by registered
except when representatives
combined in connection
with some annual with the
trail commissions. distribution
of the Contracts.
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We do not pay any additional commissions on the sale or exercise of any of the
optional benefit riders offered in this prospectus.
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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.
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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 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 materially
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 and Account B appearing in
this prospectus or 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 in this prospectus or 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
whose 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.
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TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments of a
variable account be "adequately diversified" in order for non-qualified
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.
INVESTOR CONTROL. 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. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
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 you paid for the contract less any nontaxable withdrawals)
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
(including amounts paid to you under the MGWB rider), 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. Credits constitute earnings (not premiums) for federal
tax purposes and are not included in the owner's investment in the Contract. 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.
50
<PAGE>
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 adviser 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 non-qualified deferred 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.
51
<PAGE>
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 the later of 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.
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 IRA
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
52
<PAGE>
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. A 10% penalty may
apply to amounts attributable to a conversion form an IRA if they are
distributed during the five taxable years beginning with year in which the
conversion was made.
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 BENEFIT
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
or Roth 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 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). You should consult a tax adviser
with regard to legislative developments and their effect on the Contract.
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<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"), according 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 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.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER | POST-ACQUISITION
------------------------------------------ | --------------------------
| For the
For the | Period For the
For the For the Period | January 1, Period
Year Year October 25, | 1997 August 14,
Ended Ended 1997 through | through 1996 through
December 31, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ ------------ | ----------- ------------
<S> <C> <C> <C> <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768
Net Income before |
Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350
Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899
Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415
Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484
Pre-Acquisition
---------------
For the Period
January 1,
1996 through
August 13,
1996
---------------
Annuity and Interest
Sensitive Life
Product Charges......... $ 12,259
Net Income before
Federal Income Tax...... $ 1,736
Net Income (Loss)........... $ 3,199
Total Assets................ N/A
Total Liabilities........... N/A
Total Stockholder's Equity.. N/A
</TABLE>
54
<PAGE>
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and 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.
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 is also 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. Golden American reports financial results on a
consolidated 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 OPERATION
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 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.
55
<PAGE>
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 included for the period
January 1, 1997 through October 24, 1997 are presented on the Post-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.
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................. 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............. 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Annuity and interest sensitive life
product charges.................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue................. 10.1 112.5 5.3 4.8
Net investment income.................. 59.2 39.3 16.7 42.5
Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5)
Other income........................... 10.8 94.4 5.2 5.6
-------- ----- ----- -----
$ 160.1 77.0% $69.6 $90.5
======== ===== ===== =====
56
<PAGE>
Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
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 $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
<TABLE>
<CAPTION>
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances ...................... 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions ............................. 188.4 55.5 67.2 121.2
General expenses ........................ 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1
Value of purchased insurance in force . 6.2 32.0 1.5 4.7
Goodwill .............................. 3.8 -- -- 3.8
-------- ----- -------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======== ===== ======== ========
</TABLE>
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
57
<PAGE>
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
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 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. 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. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from
$5.1 million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
58
<PAGE>
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> | <C>
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
========== ========== ========== | ==========
</TABLE>
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 $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
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
========== ========== ========== | ==========
</TABLE>
59
<PAGE>
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
included 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
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
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
========== ========= ========= | =========
</TABLE>
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 related 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
60
<PAGE>
incurred as the result of new sales including the extra credit bonus were
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.
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.
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.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying value and amortized cost basis of
the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999.
All of the Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. Therefore, growth
in the carrying value of the Companies' investment portfolio was due to 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 options. The Companies manage the
growth of insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance products,
cash flow was invested primarily in fixed maturities and short-term investments.
At December 31, 1999, the Companies investments had a yield of 6.6%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 97.6% of amortized cost value at December 31,
1999.
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<PAGE>
FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with
an amortized cost of $858.1 million and an estimated fair value of $835.3
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $22.8 million was comprised of
gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net
unrealized holding losses on these securities, net of adjustments to VPIF, DPAC,
and deferred income taxes of $7.0 million were included in stockholder's equity
at December 31, 1999.
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 ($558.0 million or 65.0%), that are rated BBB+ to
BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.6% at December
31, 1999.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At December 31, 1999, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $72.3 million, or 6.9%, 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, 1999, the yield at
amortized cost on the Companies' below investment grade portfolio was 7.8%
compared to 6.5% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999.
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 1999, fixed maturities designated as available for sale with a combined
amortized cost of $221.8 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax
loss on the write-down of two bonds in 1999.
During the fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to
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<PAGE>
their combined net realizable value of $2.9 million. During the second quarter
of 1999, further information was received regarding these bonds and Golden
American determined that the carrying value of the two bonds exceeded their
estimated net realizable value. As a result, at June 30, 1999, Golden American
recognized a total pre-tax loss of approximately $1.6 million to further reduce
the carrying value of the bonds to their combined net realizable value of $1.1
million.
EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment
portfolio. At December 31, 1999, the Companies owned equity securities with a
cost of $15.0 million and an estimated fair value of $17.3 million. Net
unrealized appreciation of equity securities was comprised entirely of gross
appreciation of $2.3 million. Equity securities are primarily comprised of
investments in shares of the mutual funds underlying the Companies' registered
separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $100.1 million at December 31, 1999 with an estimated fair value of $95.5
million. The Companies' mortgage loan portfolio includes 58 loans with an
average size of $1.7 million and average seasoning of 0.7 years if weighted by
the number of loans. The Companies' mortgage loans on real estate 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 1999 and
1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (34% in 1999, 36% in 1998),
industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999,
20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998).
At December 31, 1999, the yield on the Companies' mortgage loan portfolio was
7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90
days or more. The Companies' loan investment strategy is consistent with other
life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due
to an increase in the overall size of the portfolio resulting from the
investment of premiums allocated to the fixed account options of the Companies'
variable insurance products.
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credit, and
other expenses related to the production of new business after the merger. The
Companies' previous balances of DPAC and 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, 1999, the Companies had
DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During
1998, VPIF decreased $2.7 million to adjust the value of other receivables and
increased $0.2 million as a result of an adjustment to the merger costs.
Property and equipment increased $6.5 million, or 89.0%, during 1999, due to
leasehold improvements, the purchase of furniture and other equipment for Golden
American's new offices in West Chester, Pennsylvania, and 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 as of December 31, 1999 was $8.2
million.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
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<PAGE>
At December 31, 1999, the Companies had $7.6 billion of separate account assets
compared to $3.4 billion at December 31, 1998. The increase in separate account
assets resulted from market appreciation, increased transfer activity, and
growth in sales of the Companies' variable annuity products, net of redemptions.
At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6%
increase from December 31, 1998.
LIABILITIES. Future policy benefits for annuity and interest sensitive life
products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium
growth in the Companies' fixed account options of the variable products, net of
transfers to the separate accounts. Market appreciation, increased transfer
activity, and premiums, net of redemptions, accounted for the $4.2 billion, or
122.7%, increase in separate account liabilities to $7.6 billion at December 31,
1999.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029.
On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. 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, the
surplus note is now payable to EIC.
Other liabilities increased $21.7 million from $34.7 million at December 31,
1998, due primarily to increases in remittances to be applied, outstanding
checks, accrued interest payable, and pension liability.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9
billion at December 31, 1999.
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 stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or
34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, 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 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 premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash used in operating activities was $73.4 million in 1999 compared to
$63.9 million in 1998. 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 products.
64
<PAGE>
Net cash used in investing activities was $177.5 million during 1999 as compared
to $390.0 million in 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans on real
estate during 1998 than in 1999. Net purchases of fixed maturities reached
$124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage
loans on real estate declined to $3.1 million from $12.6 million in the prior
year.
Net cash provided by financing activities was $258.6 million during 1999 as
compared to $439.5 million during the prior year. In 1999, net cash provided by
financing activities was positively impacted by net fixed account deposits of
$626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase
in net borrowings in 1999 compared to 1998. This increase was offset by net
reallocations to the Companies' separate accounts, which increased to $650.3
million from $239.7 million during the prior year. In 1999, another important
source of cash provided by financing activities was $121.0 million in capital
contributions from the Parent compared to $103.8 million in 1998. Another source
of cash provided by financing activities during 1999 was $160.0 million in
proceeds from surplus notes compared to $60.0 million in 1998
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, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes
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 sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding
surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%;
and 3) Golden American's statutory capital and surplus exceeds the "Amounts
Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3,
Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. During 1999, Golden American occupied
105,000 square feet of leased space; its affiliate occupies 20,000 square feet.
Previously, Golden American's home office operations were housed in leased
locations in Wilmington, Delaware and locations in Pennsylvania. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $2.4 million on capital needs for
2000.
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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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 dividends to Golden
American during 2000.
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
65
<PAGE>
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, 1999, 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.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Impact of Year 2000: In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
Golden American expensed approximately $264,000 during 1999 in connection with
remediating systems. The Companies are not aware of any material problems
resulting from Year 2000 issues, either with products, internal systems, or the
products and services of third parties. The Companies will continue to monitor
mission critical computer applications and those of suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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 insurance 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 1999 levels, variable separate account funds, which represent 88% of
the in force, pass the risk in underlying fund performance to the contractholder
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<PAGE>
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from year end 1999 levels, the remaining 12% 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, fee revenue,
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 tax status 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.
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 variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, Locust Street Securities, Inc.,
Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network
Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of
Golden American. As of December 31, 1999, two broker-dealers produce 10% or more
of Golden American's product sales.
REINSURANCE. Golden American reinsured its mortality risk associated with the
Contract's guaranteed death benefit on Contracts issued through December 31,
1999 with one or more appropriately licensed insurance companies. Golden
American is currently pursuing alternative reinsurance arrangements for new
business. 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
67
<PAGE>
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
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 subsidiary First
Golden American Life Insurance Company of New York ("First Golden"), $1.3
million and $1.1 million, for the years ended December 31, 1999 and 1998,
respectively, 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 $10.1 million and $4.8 million for the years 1999 and 1998, 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 and accounting services for
a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden
American and First Golden incurred fees of $2.2 million and $1.5 million,
respectively, under this agreement.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Revenues for these services totaled
$6.1 million for 1999 and $5.8 million for 1998.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.4 million of 1999. Golden American provides resources and services to
ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services
totaled $0.2 million for 1999 and $0.1 million for 1998.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $0.5 million in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.2 million in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.1 million in 1999.
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, 1999, are sold primarily
through two broker/dealer institutions. For the years 1999 and 1998, commissions
paid by Golden American to DSI (including commissions paid by First Golden)
aggregated $181.5 million and $117.5 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.
68
<PAGE>
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 initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many states regulate affiliated groups of insurers, such as Golden
American, and its affiliates, under insurance holding company legislation. Under
such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions of
the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding Golden American's
estimated liability for future guaranty fund assessments, see Note 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.
69
<PAGE>
DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (57) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (51) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (42) Executive Vice President and Chief Actuary
E. Robert Koster (41) Senior Vice President and Chief Financial Officer
Patricia M. Corbett (35) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (46) Senior Vice President, Project Implementation
Steven G. Mandel (40) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
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. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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.
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. Mark A. Tullis became a Director of Golden American and First Golden in
December 1999. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999. From June, 1994 to
August, 1999, he was with Pimerica, serving as Executive Vice President at the
time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American and First Golden in December, 1997
as Executive Vice President. From 1982 through November, 1997, he held several
positions with the Endeavor Group and was President upon his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief Financial
Officer of Golden American and First Golden 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.
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<PAGE>
Mr. David L. Jacobson joined Golden American in November 1993 as Vice President
and Assistant Secretary and became Senior Vice President in December, 1993. He
was elected Senior Vice President and Assistant Secretary for First Golden in
June, 1996.
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. He was elected Senior Vice President and Chief
Actuary of First Golden in June, 1996 and elected Executive Vice President in
June, 1998.
Mr. William L. 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.
Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior
Vice President and Chief Information Officer in June, 1998.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE 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,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
71
<PAGE>
<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 3
- ------------------ ---- ------ ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4
Executive Vice 1998 $ 173.870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
</TABLE>
- --------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on October 24,
1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee for
participation in company sponsored programs such as tuition reimbursement,
PC purchase assistance program, and other miscellaneous payments or
reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received
$636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel
received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received
$3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses of
the named executive.
5 In connection with the termination of his employment, Mr. Glover received
payments and benefits totaling $555,452.
72
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3
OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
- ---- ----------- ------ --------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
</TABLE>
- ----------------
1 Stock appreciation rights granted in 1999 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 the
date of grant.
3 Total dollar gains based on indicated rates of appreciation of share price
over the total term of the rights.
73
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
76
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | hrough
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
<S> <C> <C> <C> <C>
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
</TABLE>
See accompanying notes.
77
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
</TABLE>
See accompanying notes.
78
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
</TABLE>
See accompanying notes.
79
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
</TABLE>
See accompanying notes.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding
all of the preceding items are inherently subject to change and are reassessed
periodically. Changes in estimates and assumptions could materially impact the
financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
</TABLE>
Realized gains (losses) on investments follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
</TABLE>
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
</TABLE>
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
Foreign governments.......................
.......
</TABLE>
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
<S> <C> <C> <C> <C>
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
</TABLE>
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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.
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
<TABLE>
<CAPTION>
POST-MERGER
-----------------------------------------------
December 31, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
</TABLE>
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 process. This pricing
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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.
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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
<TABLE>
<CAPTION>
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
</TABLE>
92
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary
based upon changes in assumptions and experience.
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.
93
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
<TABLE>
<CAPTION>
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
<S> <C>
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
</TABLE>
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
Internal Revenue Code, a newly acquired insurance company cannot file as part of
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
</TABLE>
95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
96
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
97
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|---------------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|---------------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
98
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
99
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
</TABLE>
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
100
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies 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 reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
101
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other
receivables from these reinsurers comprised of $493,000 and $439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
102
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers
during 1998 and 1997, respectively). The Premium Plus product generated 79% of
the Companies' sales during 1999 (63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively.
103
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction........................................................ 1
Description of Golden American Life Insurance Company............... 1
Safekeeping of Assets............................................... 1
The Administrator................................................... 1
Independent Auditors................................................ 1
Distribution of Contracts........................................... 1
Performance Information............................................. 2
IRA Partial Withdrawal Option....................................... 11
Other Information................................................... 12
Financial Statements of Separate Account B.......................... 12
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE
FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS 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
106948 Galaxy PREMIUM PLUS-3 (05/00)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
105
<PAGE>
This page intentionally left blank.
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value, All Cap, Managed Global, the ING
Global Brand Names and the Prudential Jennison subaccounts which did not
commence operations as of December 31, 1999, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation units, and
(3) the total accumulation unit value, for each subaccount of Golden American
Separate Account B available under the Contract for the indicated periods. The
date on which the subaccount became available to investors and the starting
accumulation unit value are indicated on the last row of each table.
LIQUID ASSET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
A1
<PAGE>
FULLY MANAGED
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
A2
<PAGE>
RISING DIVIDENDS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
A3
<PAGE>
STRATEGIC EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
A4
<PAGE>
REAL ESTATE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $17.37 130,846 $2,273 $17.09 175,931 3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
GALAXY EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 8,936 $105 $11.79 11,848 $140
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.78 4,420 $52
10/1/98 10.00 -- --
- ------------------------------------------------------------------
A5
<PAGE>
GALAXY GROWTH AND INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.55 8,512 $90 $10.55 1,122 $12
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.54 493 $5
10/1/98 10.00 -- --
- ------------------------------------------------------------------
GALAXY SMALL COMPANY GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
10/1/98 $10.00 -- -- $10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999
10/1/98 $10.00 -- --
GALAXY ASSET ALLOCATION
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.70 4,460 $48 $10.70 832 $9
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.70 7,153 $76
10/1/98 10.00 -- --
- ------------------------------------------------------------------
GALAXY HIGH QUALITY BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $9.93 2,756 $27 -- -- --
10/1/98 10.00 -- -- $10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 -- -- --
10/1/98 $10.00 -- --
- ------------------------------------------------------------------
A6
<PAGE>
PIMCO HIGH YIELD BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $15.50 4,663,701 72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
</TABLE>
A7
<PAGE>
<PAGE>
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<PAGE>
APPENDIX B
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
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 8%; and that no prior transfers or 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-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 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-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 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
withdrawals affecting this Fixed Interest Allocation have been made.
B1
<PAGE>
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
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge 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 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
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the 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.
B2
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third contract
years, for total premium payments under the Contract of $30,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 15% of the contract
value of $35,000.
In this example, $3,500 ($35,000 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 $5,250 ($35,000 x .15). Therefore, $1,750 ($5,250 -
$3,500) is considered an excess withdrawal of a part of the initial premium
payment of $10,000 and would be subject to a 7% surrender charge of $122.50
($1,750 x .07). This example does not take into account any Market Value
Adjustment or deduction of any premium taxes.
C1
<PAGE>
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<PAGE>
<PAGE>
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<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
106948 Galaxy Premium Plus-3 05/01/2000
<PAGE>
<PAGE>
FORM TWO
VERSION A
<PAGE>
<PAGE>
PROFILE AND PROSPECTUS OF
GOLDENSELECT PREMIUM PLUS-DB/R/
(4 DEATH BENEFITS)
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT PREMIUM PLUS(R)
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
MAY 1, 2000
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 features a minimum 4% credit to each premium you pay. The Contract
provides a means for you to invest on a tax-deferred basis in (i) one or more of
27 mutual fund investment portfolios through our Separate Account B and/or (ii)
in a fixed account of Golden American with guaranteed interest periods. The 27
mutual fund portfolios are listed on page 3 below. We currently offer guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years in the fixed account. We
set the interest rates in the fixed account (which will never be less than 3%)
periodically. 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 applicable interest period. If you 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 take out. Generally, 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.
Subject to state availability, you may elect one of three optional riders
offering specified benefits featured in the prospectus for the Contract. The
three optional benefit riders are listed on page 10 below. The optional benefit
riders can provide protection under certain circumstances in the event that
unfavorable investment performance has lowered your contract value below certain
targeted growth. These riders do not guarantee the performance of your
investment portfolios. Separate charges are assessed for the optional riders.
You should carefully analyze and completely evaluate each rider before you
purchase any. Be aware that the benefit provided by any of the riders will be
affected by certain later actions you may take - such as
PREMIUM PLUS PROFILE PROSPECTUS BEGINS AFTER
PAGE 11 OF THIS PROFILE
<PAGE>
withdrawals and transfers. The riders are not available to Contracts issued
before January 1, 2000. To find out about availability, check with our Customer
Service Center.
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 on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract. 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ANNUITY OPTIONS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Option 1 Income for a fixed Payments are made for a specified number of
period years to you or your beneficiary.
-----------------------------------------------------------------------------------------
Option 2 Income for life with Payments are made for the rest of your life
a period certain or longer for a specified 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 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.
-----------------------------------------------------------------------------------------
</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. 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 $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($250 for a qualified Contract) at any time before you
turn 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. Each
time you make a premium payment, we will add a credit of at least 4% of each
premium payment to your contract value. Within 1 year after any credit is added,
it may be deducted from your contract value under certain circumstances which
are described in the prospectus for the Contract. After 1 year, a credit added
to your contract value becomes permanent.
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
2 PREMIUM PLUS PROFILE
<PAGE>
purchased as either an Individual Retirement Annuity (IRA) or in connection with
a qualified retirement plan (each a "qualified Contract").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
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, and the credit we add, 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 27 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, the Warburg Pincus Trust, ING Variable Insurance Trust and the Prudential
Series Fund. Keep in mind that while an investment in the fixed account earns a
fixed interest rate, an investment in any investment portfolio, depending on
market conditions, may cause you to make or lose money. The investment
portfolios available under your Contract are:
<TABLE>
<CAPTION>
<S> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series
Limited Maturity Bond Series Managed Global Series Small Cap Series
Global Fixed Income Series Large Cap Value Series Growth Series
Fully Managed Series All Cap Series Real Estate Series
Total Return Series Research Series Hard Assets Series
Equity Income Series Capital Appreciation Series Developing World Series
Investors Series Capital Growth Series
Value Equity Series Strategic Equity Series
THE PIMCO VARIABLE INSURANCE TRUST ING VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio ING Global Brand Names Fund
PIMCO StocksPLUS Growth
and Income Portfolio PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
</TABLE>
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based administrative charge and an
annual contract administrative charge of $40. We deduct the mortality and
expense risk charge and the asset-based administrative charges daily directly
from your contract value in the investment portfolios. The mortality and expense
risk charge (depending on the death benefit you choose) and the asset-based
administrative charge, on an annual basis, are as follows:
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
------------- -------------- ----------- -----
<S> <C> <C> <C> <C>
Mortality & Expense Risk Charge...... 1.30% 1.45% 1.65% 1.75%
Asset-Based Administrative Charge.... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total........................ 1.45% 1.60% 1.80% 1.90%
</TABLE>
3 PREMIUM PLUS PROFILE
<PAGE>
If you choose to purchase one of the optional benefit riders we offer, we will
deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
-------------- ----------------
10 Year............ 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.56% to 1.75% 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, we 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
year is 10% of your contract value on the date of the withdrawal less any prior
withdrawals during that 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 withdrawn.
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column is divided into two: one part reflects
the maximum mortality and expense risk charge, (based on the Max 7 Enhanced
Death Benefit), the asset-based administrative charge, the annual contract
administrative charge as 0.05% (based on an average contract value of $77,000),
and the highest optional rider charge as 0.75% in most cases, assuming the rider
base is equal to the initial premium and the rider base increases by 7% each
year. (Note, however, for the Liquid Asset and Limited Maturity Bond portfolios,
the rider charge is equal to 0.50% because the base for the rider accumulates at
the assumed net rate, not 7%.) The second part reflects the same insurance
charges, but without any rider charges. The "Total Annual Investment Portfolio
Charges" column reflects the portfolio charges for each portfolio and are based
on actual expenses as of December 31, 1999, except for (i) portfolios that
commenced operations during 2000 where the charges have been estimated, and (ii)
newly formed portfolios where the charges have been estimated. 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.
4 PREMIUM PLUS PROFILE
<PAGE>
As required by the Securities and Exchange Commission, the examples assume that
you invested $1,000 and received a $40 credit 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 (based on the Max 7 Enhanced Death Benefit). For Years 1 and 10, the
examples show the total annual charges assessed during that time and assume that
you have elected the Max 7 Enhanced Death Benefit. For these examples, the
premium tax is assumed to be 0%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- --------------- ---------------- ----------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE GCG TRUST
Liquid Asset 2.45% 1.95% 0.56% 3.01% 2.51% $112 $106 $349 $296
- -------------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.45% 1.95% 0.57% 3.02% 2.52% $112 $107 $350 $297
- -------------------------------------------------------------------------------------------------------------------------
Global Fixed Income 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
- -------------------------------------------------------------------------------------------------------------------------
Fully Managed 2.70% 1.95% 0.97% 3.67% 2.92% $118 $111 $408 $337
- -------------------------------------------------------------------------------------------------------------------------
Total Return 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- -------------------------------------------------------------------------------------------------------------------------
Equity Income 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Investors 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- -------------------------------------------------------------------------------------------------------------------------
Value Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Rising Dividends 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Managed Global 2.70% 1.95% 1.25% 3.95% 3.20% $121 $114 $433 $364
- -------------------------------------------------------------------------------------------------------------------------
Large Cap Value 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- -------------------------------------------------------------------------------------------------------------------------
All Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- -------------------------------------------------------------------------------------------------------------------------
Research 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- -------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Capital Growth 2.70% 1.95% 1.05% 3.75% 3.00% $119 $112 $415 $345
- -------------------------------------------------------------------------------------------------------------------------
Strategic Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- -------------------------------------------------------------------------------------------------------------------------
Small Cap 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Growth 2.70% 1.95% 1.04% 3.74% 2.99% $119 $111 $414 $344
- -------------------------------------------------------------------------------------------------------------------------
Real Estate 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Hard Assets 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- -------------------------------------------------------------------------------------------------------------------------
Developing World 2.70% 1.95% 1.75% 4.45% 3.70% $126 $119 $476 $411
- -------------------------------------------------------------------------------------------------------------------------
The PIMCO Variable Insurance Trust
PIMCO High Yield Bond 2.70% 1.95% 0.75% 3.45% 2.70% $116 $108 $388 $315
- -------------------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.70% 1.95% 0.65% 3.35% 2.60% $115 $107 $379 $305
- -------------------------------------------------------------------------------------------------------------------------
The Warburg Pincus Trust
International Equity 2.70% 1.95% 1.33% 4.02% 3.27% $122 $114 $439 $371
- -------------------------------------------------------------------------------------------------------------------------
ING Variable Insurance Trust
ING Global Brand
Names 2.70% 1.95% 1.23% 3.93% 3.18% $121 $113 $431 $362
- -------------------------------------------------------------------------------------------------------------------------
The Prudential Series Fund
Prudential Jennison 2.70% 1.95% 1.03% 3.73% 2.98% $119 $111 $413 $343
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
5 PREMIUM PLUS PROFILE
<PAGE>
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 can
calculate and pay you the minimum required distribution amounts at your request.
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 taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page 11.
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 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. The following chart shows average
annual total return for each portfolio that was in operation for the entire year
of 1999. These numbers reflect the deduction of the mortality and expense risk
charge (based on the Max 7 Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee and the maximum optional benefit
rider charge on a rider base that accumulates at 7%, but do not reflect
deductions for any surrender charges. If surrender charges were reflected, they
would have the effect of reducing performance. Please keep in mind that past
performance is not a guarantee of future results.
6 PREMIUM PLUS PROFILE
<PAGE>
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CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
- --------------------------------------------------------------------------------
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.65% 9.94%
Strategic Equity(2) 52.53% -1.61%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.52% 9.25%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 57.89% --
Global Fixed Income -10.91% 9.13%
Hard Assets(2) 20.43% -31.31%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.44% 26.18%
Small Cap(3) 47.05% 18.05%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.96% -0.93%
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.34% 4.26%
Liquid Asset 2.19% 2.49%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.00% 23.75%
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.08% 11.36%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 74.88% 19.83%
Research 21.23% 20.06%
Total Return 0.84% 8.88%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.19% -15.56%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -3.16% 5.63%
Fully Managed 4.32% 3.31%
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.49% --
PIMCO StocksPLUS Growth and Income 16.96% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 49.80% 2.79%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- --
- --------------------------------------------------------------------------------
- -----------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
7 PREMIUM PLUS PROFILE
<PAGE>
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced
Death Benefit, (iii) the Annual Ratchet Enhanced Death Benefit or (iv) the Max 7
Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit, the Annual
Ratchet Enhanced Death Benefit and the Max 7 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 79 years old at the time of purchase. The 7%
Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be available
where a Contract is held by joint owners.
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
written notice and due proof of death, as well as required claim forms, 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.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
prorata adjustment for any withdrawal;
3) the cash surrender value; or
4) the total premium payments plus credits made under the Contract
reduced by a prorata adjustment for any withdrawals, minus any credits
added within 1 year prior to death.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
prorata adjustment for any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which we determine as follows: we credit interest each
business day at the 7% annual effective rate to the enhanced death
benefit from the preceding day (which would be the initial premium and
the credit added if the preceding day is the contract date), then we
add additional premiums paid and credits added since the preceding
day, then we adjust for any withdrawals (including any market value
adjustment applied to such withdrawal and any associated surrender
charges) since the preceding day. Special withdrawals are withdrawals
of up to 7% per year of cumulative premiums and premium credits.
Special withdrawals shall reduce the 7% Solution Benefit by the amount
of contract value withdrawn. For any withdrawals in excess of the
amount available as a special withdrawal, a prorata adjustment to the
death benefit is made. The maximum enhanced death benefit is 3 times
all premium payments and credits added, adjusted to reflect
withdrawals. Each accumulated initial or additional premium payment
and credit will continue to grow at the 7% annual effective rate until
reaching the maximum enhanced death benefit or attained age 80 of the
contract owner, if earlier.
Note for current Special Funds: The actual interest rate used for
calculating the 7% Solution Enhanced Death Benefit for the Liquid
Asset and Limited Maturity Bond investment portfolios
8 PREMIUM PLUS PROFILE
<PAGE>
and the Fixed Account, will be the lesser of (1) 7% and (2) the
interest rate, positive or negative, providing a yield on the enhanced
death benefit equal to the net return for the current valuation period
on the contract value allocated to Special Funds. We may, with 30 days
notice to you, designate any fund as a Special Fund on existing
contracts with respect to new premiums added to such fund and also
with respect to new transfers to such funds.
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 minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which is determined as follows: On each contract anniversary
that occurs on or before the contract owner turns age 80, 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 and credit added if the preceding day is
the contract date), then we add additional premiums paid and credits
added since the preceding day, and then we adjust for any withdrawals
on a pro rata basis (including any market value adjustment applied to
such withdrawal and any associated surrender charges) since the
preceding day. That amount becomes the new enhanced death benefit.
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the Annual
Ratchet Enhanced Death Benefit are calculated in the same manner as if each were
the elected benefit.
Note: In all cases described above, the amount of the death benefit 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 refund of the adjusted contract value. We determine your
contract value at the close of business on the day we receive your written
refund request. For purposes of the refund during the free look period, (i) we
adjust your contract value for any market value adjustment (if you have invested
in the fixed account), (ii) then we exclude any credit initially applied, and
(iii) then we include 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,
excluding any credit, (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.
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. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. 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
9 PREMIUM PLUS PROFILE
<PAGE>
adjustment could increase or decrease your contract value and/or the amount you
transfer or withdraw. Transfers between Special Funds and other investment
portfolios will result in a transfer of the Enhanced Death Benefit in proportion
to the account value transferred. In cases where more than one Enhanced Death
Benefit exists because of such transfers, each death benefit will be combined to
calculate the total death benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge for
each rider. Once elected, the riders generally may not be cancelled. This means
once added the rider may not be removed and charges will be assessed regardless
of the performance of your Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment plus credits at the end of ten years, or, at least
equal two times your initial premium payment plus credits at the end of
twenty years, depending on the waiting period you select, reduced pro rata
for withdrawals and certain transfers. The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one.
Withdrawals and certain transfers may reduce the guarantee by more than the
amount withdrawn or transferred. The MGAB rider may offer you protection in
the event of a lower contract value that may result from unfavorable
investment performance of your Contract. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGAB rider. You should read the prospectus for more complete information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the greater
of the amounts that are ordinarily available to you under your Contract and
the MGIB annuity benefit, which is based on your MGIB Base, the MGIB
annuity option you selected and the MGIB guaranteed income factors
specified in your rider. Your MGIB Base generally depends on the amount of
premiums you pay during the first five contract years after you purchase
the rider, the credit(s) applied, and when you pay the premiums,
accumulated at the MGIB rate, less adjustments for withdrawals and
transfers. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGIB rider. You should read
the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that you will receive annual periodic
payments, when added together, equal to all premium payments and credits
paid during the first two contract years, less adjustments for any prior
withdrawals. If your contract value is reduced to zero, your periodic
payments will be 7% of your Eligible Payment Amount every year. (Of course,
any applicable income and penalty taxes will apply to amounts withdrawn.)
Your original Eligible Payment Amount is your premium payments and credits
received during the first two contract years. Withdrawals that you make in
excess of the above periodic payment amount may substantially reduce the
guarantee. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGWB rider. You should read
the prospectus for more complete information.
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. It may give
you a lower average cost per unit over time than a single
10 PREMIUM PLUS PROFILE
<PAGE>
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 surrender 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 profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
11 PREMIUM PLUS PROFILE
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS(R)
- --------------------------------------------------------------------------------
MAY 1, 2000
This prospectus describes GoldenSelect Premium Plus(R), 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 and
credits in one or more of 27 mutual fund investment portfolios. You may also
allocate premium payments and credits 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 listed on the back of this
cover.
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 refund of the adjusted
contract value less credits we added (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 and in certain
situations.
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, 2000, 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 SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST OR THE
PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY
ANY BANK OR 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 VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE
INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
<PAGE>
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
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.
<PAGE>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms................................................. 1
Fees and Expenses...................................................... 2
Performance Information................................................ 10
Accumulation Unit................................................. 10
Net Investment Factor............................................. 10
Condensed Financial Information................................... 10
Financial Statements.............................................. 10
Performance Information........................................... 10
Golden American Life Insurance Company................................. 11
The Trusts............................................................. 12
Golden American Separate Account B..................................... 12
The Investment Portfolios.............................................. 13
Investment Objectives............................................. 13
Investment Management Fees........................................ 16
The Fixed Interest Allocation.......................................... 17
Selecting a Guaranteed Interest Period............................ 17
Guaranteed Interest Rates......................................... 18
Transfers from a Fixed Interest Allocation........................ 18
Withdrawals from a Fixed Interest Allocation...................... 19
Market Value Adjustment........................................... 19
The Annuity Contract................................................... 20
Contract Date and Contract Year................................... 20
Annuity Start Date................................................ 20
Contract Owner.................................................... 20
Annuitant......................................................... 21
Beneficiary....................................................... 21
Purchase and Availability of the Contract......................... 22
Crediting of Premium Payments..................................... 22
Additional Credit to Premium...................................... 23
Adminstrative Procedures.......................................... 24
Contract Value.................................................... 24
Cash Surrender Value.............................................. 24
Surrendering to Receive the Cash Surrender Value.................. 25
The Subaccounts................................................... 25
Addition, Deletion or Substitution of Subaccounts and Other
Changes........................................................ 25
The Fixed Account................................................. 25
Optional Riders................................................... 25
Rider Date........................................................ 26
Special Funds..................................................... 26
No Cancellation................................................... 26
Termination....................................................... 26
Minimum Guaranteed Accumulation Benefit Rider..................... 26
Minimum Guaranteed Income Benefit Rider........................... 28
Minimum Guaranteed Withdrawal Benefit Rider....................... 31
Other Contracts................................................... 33
Other Important Provisions........................................ 33
Withdrawals............................................................ 33
Regular Withdrawals............................................... 33
Systematic Withdrawals............................................ 33
IRA Withdrawals................................................... 35
Transfers Among Your Investments....................................... 35
Dollar Cost Averaging............................................. 36
Automatic Rebalancing............................................. 37
Death Benefit Choices.................................................. 37
Death Benefit During the Accumulation Phase....................... 37
Standard Death Benefit............................................ 38
i
<PAGE>
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TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Enhanced Death Benefits........................................... 38
Death Benefit During the Income Phase............................. 39
Continuation after Death-- Spouse................................. 39
Continuation after Death-- Non Spouse............................. 39
Required Distributions upon Contract Owner's Death................ 39
Charges and Fees....................................................... 40
Charge Deduction Subaccount....................................... 40
Charges Deducted from the Contract Value.......................... 40
Surrender Charge.................................................. 40
Waiver of Surrender Charge for Extended Medical Care.............. 41
Free Withdrawal Amount............................................ 41
Surrender Charge for Excess Withdrawals........................... 41
Premium Taxes..................................................... 41
Administrative Charge............................................. 41
Transfer Charge................................................... 42
Charges Deducted from the Subaccounts............................. 42
Mortality and Expense Risk Charge................................. 42
Asset-Based Administrative Charge................................. 42
Optional Rider Charges............................................ 42
Trust Expenses.................................................... 43
The Annuity Options.................................................... 43
Annuitization of Your Contract.................................... 43
Selecting the Annuity Start Date.................................. 44
Frequency of Annuity Payments..................................... 44
The Annuity Options............................................... 44
Income for a Fixed Period......................................... 44
Income for Life with a Period Certain............................. 45
Joint Life Income................................................. 45
Annuity Plan...................................................... 45
Payment When Named Person Dies.................................... 45
Other Contract Provisions.............................................. 45
Reports to Contract Owners........................................ 45
Suspension of Payments............................................ 45
In Case of Errors in Your Application............................. 46
Assigning the Contract as Collateral.............................. 46
Contract Changes-Applicable Tax Law............................... 46
Free Look......................................................... 46
Group or Sponsored Arrangements................................... 46
Selling the Contract.............................................. 46
Other Information...................................................... 47
Voting Rights..................................................... 47
State Regulation.................................................. 47
Legal Proceedings................................................. 47
Legal Matters..................................................... 48
Experts........................................................... 48
Federal Tax Considerations............................................. 48
More Information About Golden American................................. 54
Financial Statements of Golden American Life Insurance Company......... 74
Statement of Additional Information
Table of Contents................................................. 105
Appendix A
Condensed Financial Information................................... A1
Appendix B
Market Value Adjustment Examples.................................. B1
Appendix C
Surrender Charge for Excess Withdrawals Example.................. C1
ii
<PAGE>
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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 10
Annual Ratchet Enhanced Death Benefit 38
Annuitant 21
Annuity Start Date 20
Cash Surrender Value 24
Max 7 Enhanced Death Benefit 38
Contract Date 20
Contract Owner 20
Contract Value 24
Contract Year 20
Fixed Interest Allocation 17
Free Withdrawal Amount 41
Market Value Adjustment 19
Net Investment Factor 10
Rider Date 26
7% Solution Enhanced Death Benefit 24
Special Funds 26
Standard Death Benefit 38
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
<PAGE>
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FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 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.............................................. $40
(We waive this charge if the total of your premium payments is $100,000 or
more or if your contract value at the end of a contract year is $100,000 or
more.)
*** We deduct this charge on each contract anniversary and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES****
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
------------- -------------- ----------- -----
<S> <C> <C> <C> <C>
Mortality & Expense Risk Charge............. 1.30% 1.45% 1.65% 1.75%
Asset-Based Administrative Charge........... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total Separate Account Charges.............. 1.45% 1.60% 1.80% 1.90%
</TABLE>
**** As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
OPTIONAL RIDER CHARGES*****
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year.......... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year.......... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%............... 0.125% of the MGIB Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
***** We deduct optional rider charges from the subaccounts in which you
are invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation nearest maturity.
2
<PAGE>
(1) The MGAB Charge Base is the total of premiums and credits added during
the two year period commencing on the rider date if you purchase the
rider on the contract date, or, your contract value on the rider date
plus premiums and credits added during the two year period commencing
on the rider date if you purchased the rider after the contract date,
reduced pro rata for all withdrawals taken while the MGAB rider is in
effect, and reduced pro rata for transfers made during the three year
period before the MGAB Benefit Date.
(2) The MGIB Base generally depends on the amount of premiums you pay
during the first five contract years after you purchase the rider, and
the credit(s) applied, when you pay the premiums, and less a pro rata
deduction for any withdrawal made while the MGIB rider is in effect.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums and
credit paid during the 2-year period commencing on the rider date if
you purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums and credits received
during the two-year period commencing on the rider date.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
- --------------------------------------------------------------------------------
Liquid Asset 0.56% 0.00% 0.56%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.56% 0.01% 0.57%
- --------------------------------------------------------------------------------
Global Fixed Income 1.60% 0.00% 1.60%
- --------------------------------------------------------------------------------
Fully Managed 0.96% 0.01% 0.97%
- --------------------------------------------------------------------------------
Total Return 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Equity Income 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Value Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Rising Dividends 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.00% 1.25%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Capital Appreciation 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
- --------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Small Cap 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Growth 1.04% 0.00% 1.04%
- --------------------------------------------------------------------------------
Real Estate 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Hard Assets 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.00% 1.75%
- --------------------------------------------------------------------------------
(1) Fees decline as the total assets of certain combined portfolios
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, 1999, except for portfolios that commenced operations in
2000 where the charges have been estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
3
<PAGE>
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
- --------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
- --------------------------------------------------------------------------------
(1) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.65% and 0.75% for the
High Yield Bond and the StocksPLUS Growth and Income Portfolios,
respectively, of average daily net assets. Without such reductions,
total annual operating expenses for the fiscal year ended December 31,
1999 would have remained unchanged for both Portfolios. Under the
Expense Limitation Agreement, PIMCO may recoup any such waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit. The fees expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
- --------------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
- --------------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE(3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Since the portfolio had not commenced operations as of December 31,
1999, expenses as shown are based on estimates of the portfolio's
operating expenses for the portfolio's first fiscal year.
(2) ING Mutual Funds Management Co. LLC, the investment manager, has
entered into an expense limitation contract with the portfolio, under
which it will limit expenses of the portfolio as shown, excluding
interest, taxes, brokerage, and extraordinary expenses through
December 31, 2000. Fee waiver and/or reimbursements by the investment
manager may vary in order to achieve such contractually obligated
Total Expenses. Without this contract, and based on estimates for the
fiscal year ending December 31, 2000, total expenses are estimated to
be 2.03% for the portfolio.
(3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule
12b-1 under the 1940 Act, the portfolio pays its distributor an annual
fee of up to 0.25% of average daily net assets attributable to
portfolio shares. The distribution fee may be used by the distributor
for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the portfolio. For more information
see the portfolio's Statement of Additional Information.
4
<PAGE>
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
- --------------------------------------------------------------------------------
(1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to
enable to portfolio to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses for
delivery to prospective investors and advertising costs for the
portfolio. Over a long period of time, the total amount of 12b-1 fees
paid may exceed the amount of sales charges imposed by the product.
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 Variable Insurance Trust and the Warburg Pincus Trust,
the ING Variable Insurance Trust, and the Prudential Series Fund 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.
EXAMPLES:
The following four examples are designed to show you the expenses you would pay
on a $1,000 investment, plus a credit of $40, that earns 5% annually. Each
example assumes election of the Max 7 Enhanced Death Benefit. The examples
reflect the deduction of a mortality and expense risk charge, an asset-based
administrative charge, and the annual contract administrative charge as an
annual charge of 0.05% of assets (based on an average contract value of
$77,000). In addition, Examples 1 and 2 assume you elected an optional benefit
rider with the highest charge 0.75% annually where the rider base is equal to
the initial premium and increases by 7% annually, except for the Liquid Asset
and Limited Maturity Bond portfolios, where the charge is 0.50% annually and
assume the rider charge is assessed each quarter on a base equal to the
hypothetical $1,000 premium increasing at 7% per year (the assumed net rate for
Liquid Asset and Limited Maturity Bond portfolios). The annual charge of 0.75%
results from the assumption of a 7% annual increase in the rider base but only a
5% earnings increase in the contract value before expenses. Thus, 0.75%
represents an annual charge over the 10-year period which is equivalent to an
increasing charge of 0.125% per quarter over the same period. If the Standard
Death Benefit, the Annual Ratchet Enhanced Death Benefit or 7% Solution Enhanced
Death Benefit is elected instead of the Max 7 Enhanced Death Benefit used in the
examples, the actual expenses will be less than those represented in the
examples. Note that surrender charges may apply if you choose to annuitize your
Contract within the first 5 contract years, and under certain circumstances,
within the first 9 contract years. Thus, in the event you annuitize your
Contract under circumstances which require a surrender charge, you should refer
to Examples 1 and 3 below which assume applicable surrender charges.
5
<PAGE>
Example 1
If you surrender your Contract at the end of the applicable time period and
elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $112 $177 $236 $349
Limited Maturity Bond $112 $178 $236 $350
Global Fixed Income $125 $216 $298 $463
Fully Managed $118 $197 $267 $408
Total Return $118 $195 $264 $403
Equity Income $118 $197 $267 $407
Investors $119 $198 $269 $412
Value Equity $118 $197 $267 $407
Rising Dividends $118 $197 $267 $407
Managed Global $121 $205 $281 $433
Large Cap Value $119 $198 $269 $412
All Cap $119 $198 $269 $412
Research $118 $195 $264 $403
Capital Appreciation $118 $197 $267 $407
Capital Growth $119 $199 $271 $415
Strategic Equity $118 $197 $267 $407
Mid-Cap Growth $118 $195 $264 $403
Small Cap $118 $197 $267 $407
Growth $119 $199 $271 $414
Real Estate $118 $197 $267 $407
Hard Assets $118 $197 $267 $407
Developing World $126 $220 $305 $476
THE PIMCO TRUST
PIMCO High Yield Bond $116 $190 $256 $388
PIMCO StocksPLUS
Growth and Income $115 $187 $252 $379
THE WARBURG PINCUS TRUST
International Equity $122 $207 $284 $439
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $121 $205 $280 $431
PRUDENTIAL SERIES FUND
Prudential Jennison $119 $199 $270 $413
6
<PAGE>
Example 2
If you do not surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $32 $ 97 $166 $349
Limited Maturity Bond $32 $ 98 $166 $350
Global Fixed Income $45 $136 $228 $463
Fully Managed $38 $117 $197 $408
Total Return $38 $115 $194 $403
Equity Income $38 $117 $197 $407
Investors $39 $118 $199 $412
Value Equity $38 $117 $197 $407
Rising Dividends $38 $117 $197 $407
Managed Global $41 $125 $211 $433
Large Cap Value $39 $118 $199 $412
All Cap $39 $118 $199 $412
Research $38 $115 $194 $403
Capital Appreciation $38 $117 $197 $407
Capital Growth $39 $119 $201 $415
Strategic Equity $38 $117 $197 $407
Mid-Cap Growth $38 $115 $194 $403
Small Cap $38 $117 $197 $407
Growth $39 $119 $201 $414
Real Estate $38 $117 $197 $407
Hard Assets $38 $117 $197 $407
Developing World $46 $140 $235 $476
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $36 $110 $186 $388
PIMCO StocksPLUS
Growth and Income $35 $107 $182 $379
THE WARBURG PINCUS TRUST
International Equity $42 $127 $214 $439
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $41 $125 $210 $431
PRUDENTIAL SERIES FUND
Prudential Jennison $39 $119 $200 $413
7
<PAGE>
Example 3
If you surrender your Contract at the end of the applicable time period and did
not elect any optional benefit rider, you would pay the following expenses for
each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $106 $161 $209 $296
Limited Maturity Bond $107 $162 $209 $297
Global Fixed Income $117 $193 $261 $397
Fully Managed $111 $174 $230 $337
Total Return $110 $172 $227 $331
Equity Income $111 $174 $229 $336
Investors $111 $175 $232 $341
Value Equity $111 $174 $229 $336
Rising Dividends $111 $174 $229 $336
Managed Global $114 $183 $244 $364
Large Cap Value $111 $175 $232 $341
All Cap $111 $175 $232 $341
Research $110 $172 $227 $331
Capital Appreciation $111 $174 $229 $336
Capital Growth $112 $176 $234 $345
Strategic Equity $111 $174 $229 $336
Mid-Cap Growth $110 $172 $227 $331
Small Cap $111 $174 $229 $336
Growth $111 $176 $233 $344
Real Estate $111 $174 $229 $336
Hard Assets $111 $174 $229 $336
Developing World $119 $198 $269 $411
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $108 $167 $219 $315
PIMCO StocksPLUS
Growth and Income $107 $164 $214 $305
THE WARBURG PINCUS TRUST
International Equity $114 $185 $248 $371
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $113 $182 $243 $362
PRUDENTIAL SERIES FUND
Prudential Jennison $111 $176 $233 $343
8
<PAGE>
Example 4
If you do not surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $26 $ 81 $139 $296
Limited Maturity Bond $27 $ 82 $139 $297
Global Fixed Income $37 $113 $191 $397
Fully Managed $31 $ 94 $160 $337
Total Return $30 $ 92 $157 $331
Equity Income $31 $ 94 $159 $336
Investors $31 $ 95 $162 $341
Value Equity $31 $ 94 $159 $336
Rising Dividends $31 $ 94 $159 $336
Managed Global $34 $103 $174 $364
Large Cap Value $31 $ 95 $162 $341
All Cap $31 $ 95 $162 $341
Research $30 $ 92 $157 $331
Capital Appreciation $31 $ 94 $159 $336
Capital Growth $32 $ 96 $164 $345
Strategic Equity $31 $ 94 $159 $336
Mid-Cap Growth $30 $ 92 $157 $331
Small Cap $31 $ 94 $159 $336
Growth $31 $ 96 $163 $344
Real Estate $31 $ 94 $159 $336
Hard Assets $31 $ 94 $159 $336
Developing World $39 $118 $199 $411
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 87 $149 $315
PIMCO StocksPLUS
Growth and Income $27 $ 84 $144 $305
THE WARBURG PINCUS TRUST
International Equity $34 $105 $178 $371
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $33 $102 $173 $362
PRUDENTIAL SERIES FUND
Prudential Jennison $31 $ 96 $163 $343
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
9
<PAGE>
- --------------------------------------------------------------------------------
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 certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
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 the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 1999, 1998 and 1997 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
accumulation 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 Separate Account B has
been investing in the portfolio. 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 when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current 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. Quotations of average annual
return for the Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as
10
<PAGE>
a subaccount of Golden American Separate Account D. In addition, we may present
historic performance data for the 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 before the
separate account began investing in the portfolios.
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, assuming no
surrender and the selection of the Max 7 Enhanced Death Benefit and the MGIB
optional benefit rider.
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 determine the real
rate of return of 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.
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 based in The
Netherlands. 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.
11
<PAGE>
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies 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 address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The PIMCO Variable Insurance 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 to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
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 address of the Warburg Pincus Trust is 153 East 53rd
Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund whose shares are offered to
separate accounts funding variable annuity contracts offered by Golden American.
Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to
variable annuity and variable life insurance policies offered by other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund is also a mutual fund whose shares are available to
separate accounts funding variable annuity and variable life insurance polices
offered by The Prudential Insurance Company of America, its affiliated insurers
and other life insurance companies not affiliated with Prudential, including
Golden American. The address of the Prudential Series Fund is 751 Broad Street,
Newark, NJ 07102.
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 Variable
Insurance Trust, the Warburg Pincus Trust, and the ING Variable Insurance Trust,
the Board of Directors of the Prudential Series Fund, and the management of
Directed Services, Inc., Pacific Investment Management Company, Credit Suisse
Asset Management, LLC, ING Mutual Funds Management Co. LLC, Prudential Insurance
Company of America 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 VARIABLE
INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST, AND THE
PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD
READ THEM CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
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, the PIMCO Variable
Insurance Trust, the Warburg Pincus Trust, the ING Variable Insurance Trust or
the Prudential Series Fund. 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
12
<PAGE>
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 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. Under certain
circumstances, we may make certain changes to the subaccounts. For more
information, see "The Annuity Contract -- Addition, Deletion, or Substitution of
Subaccounts and Other Changes."
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THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU 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. Account B also has other subaccounts investing in other
portfolios which are not available to the Contract described in this prospectus.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE
PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE WARBURG
PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. YOU
SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
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 Bond Seeks highest current income consistent with 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 Income Seeks high total return.
Invests primarily in high-grade fixed income securities,
both foreign and domestic.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Investors Seeks long-term growth of capital. Current income is a
secondary objective.
Invests primarily in equity securities of U.S. companies
and to a lesser degree, debt securities.
--------------------------------------------------------
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.
--------------------------------------------------------
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."
--------------------------------------------------------
Managed Global Seeks capital appreciation. Current income is only an
incidental consideration.
Invests primarily in common stocks traded in securities
markets throughout the world.
--------------------------------------------------------
Large Cap Value Seeks long-term growth of capital and income.
Invests primarily in equity and equity-related
securities of companies with market capitalization
greater than $1 billion.
--------------------------------------------------------
All Cap Seeks capital appreciation through investment in
securities which the portfolio manager believes have
above-average capital appreciation potential.
Invests primarily in equity securities of U.S. companies
of any size.
--------------------------------------------------------
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.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium- and
small-sized companies.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
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THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests 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 the total
Growth and Income return performance of the S&P 500.
Invests primarily in common stocks, options, futures,
options on futures and swaps.
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity Seeks long-term appreciation.
Invests primarily in a broadly diversified portfolio of
equity securities of companies that have their principal
business activities outside of the United States.
--------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Seeks to provide investors with long-term capital
Fund appreciation.
Invests at least 65% of its total assets in equity
securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
--------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
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INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios. Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios Directed Services (and not the GCG Trust) pays each portfolio manager
a monthly fee for managing the assets of a portfolio, based on the annual rates
of the average daily net assets of a portfolio. For a list of the portfolio
managers, see the front cover of this prospectus. Directed Services does 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.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee 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 Variable
Insurance Trust. PIMCO does 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 expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of the
Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset Management a
monthly advisory fee based on the average daily net assets of the investment
portfolio and also procures the services necessary for the operation of its
portfolios. The Warburg Trust pays monthly administrative fees to two
co-administrators for administrative services, one of which is an affiliate of
Credit Suisse Asset Management. The monthly administrative fee is based on the
portfolio's average daily net assets. Credit Suisse Asset Management does not
bear any portfolio expenses.
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ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager
of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's
operations and provides investment advisory services to the portfolios of the
Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING MFMC, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V.
The Prudential Insurance Company of America ("Prudential") serves as the overall
investment adviser for the Prudential Series Fund. Prudential is responsible for
the management of the Prudential Series Fund and provides investment advice and
related services to each portfolio. For the Prudential Jennison Portfolio,
Prudential engages Jennison Associates LLC to serve as sub-adviser and to
provide day-to-day management. Prudential pays the sub-advisor out of the fee
Prudential receives from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct a
distribution of 12b-1 fee, which is used to finance any activity that is
primarily intended to result in the sale of shares of the applicable portfolio.
For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees
and Expenses" in this prospectus.
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
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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 customer, 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
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information on DCA Fixed Interest Allocations, 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 do not take your money out 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. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our Customer
Service Center or your registered representative. 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 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. 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 that was offered exclusively with our dollar cost averaging program,
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
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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.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
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, as well as state income tax consequences.
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.
Please be aware that the benefit we pay under any of the optional riders will be
reduced on a pro rata basis by any withdrawals you make from the Fixed Interest
Allocations during the period while the rider is in effect. See "Optional
Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. 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 program) 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.
We determine the Market Value Adjustment by multiplying the amount you withdraw,
transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the first day
of the 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
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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 B.
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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
Variable Insurance Trust, the Warburg Pincus Trust, the ING Variable Annuity
Trust and the Prudential Series Funds through 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 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
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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 and the death benefit is paid upon the death
of the first of the joint owners to die. Joint owners may only select the
Standard Death Benefit option. Upon adding an additional owner to a contract
which was issued with an Enhanced Death Benefit option, generally, your death
benefit will be changed automatically to a Standard Death Benefit and your
mortality and expense risk charges will be lowered correspondingly to that which
is charged under the Standard Death Benefit Option. Also note that if any
owner's age is 86 or greater, even the standard death benefit guarantee will
also be lost. Note that returning a Contract to single owner status will not
restore any Enhanced Death Benefit. Unless otherwise specified, the term "age"
when used for joint owners shall mean the age of the oldest owner.
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 adviser 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, the guaranteed death benefit, and/or
the death benefit option applied to the contract. The new owner's age, as of the
date of the change, will be used as the basis for determining which option to
use. The new owner's death will determine when a death benefit is payable.
If the new owner's age is less than 80, the death benefit option in effect prior
to the change in owner will remain in effect. If the new owner's age is greater
than 79, but less than or equal to 85, and if the contract was issued with an
enhanced death benefit, the death benefit will become the Standard Death
Benefit. If the new owner's age is greater than 85, the death benefit will be
the cash surrender value. Once a death benefit has been changed due to a change
in owner, a subsequent change to a younger owner will not restore any Enhanced
Death Benefits and the death benefit will continue to be the cash surrender
value.
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 $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for qualified
Contracts) 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. An 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.
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See "Fees
and Expenses" in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days after
receipt, if the application and all information necessary for processing the
Contract are complete. Subsequent premium payments and credits will be processed
within 1 business day if we receive all information necessary. In certain states
we also accept initial and additional premium payments by wire order. Wire
transmittals must be accompanied by sufficient electronically transmitted data.
We may retain your initial premium payment 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.
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We will allocate your initial payment according to the instructions you
specified. If a subaccount is not available or requested in error, we will make
inquiry about a replacement subaccount. If we are unable to reach you or your
representative, we will allocate your initial payment proportionally among the
other subaccount(s) in your instructions. For initial premium payments, the
payment will be credited at the accumulation unit value next determined after we
receive your premium payment and the completed application. Once the completed
application is received, we will allocate the payment and credit to the
subaccount(s) 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. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment and credit will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
Once we allocate your premium payment and credit to the subaccounts selected by
you, we convert the premium payment and credit into accumulation units. We
divide the amount of the premium payment and credit 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 5 days of the premium payment.
If we do not receive the application or form within 5 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 or your
representative, 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. We may require additional
information before complying with your request (e.g., signature
guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated with the added credit
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 and credit 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 with the added credit to a Fixed
Interest Allocation with the guaranteed interest period you have chosen;
however, in the future we may allocate the premiums and credits to the specially
designated subaccount during the free look period.
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium payment. The
credit will be added proportionally to each subaccount and Fixed Interest
Allocation as the premium payment is allocated. The credit is a minimum of 4% of
the premium payment. We may increase the credit at our discretion. If we
increase the credit we may reduce it also at our discretion, but we will not
reduce it below the minimum credit of 4%, and we will give at least 30 days
notice of any planned reduction.
The credit constitutes earnings (and not premiums paid by you) for federal tax
purposes.
In any of the following circumstances, we deduct a credit from the amount we pay
to you or your beneficiary:
(1) If you return your Contract within the free look period, we will
deduct the credit from the refund amount;
(2) If a death benefit of contract value becomes payable, we will deduct
any credits added to your contract within 1 year prior to death; and
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(3) If we waive any surrender charge, we will deduct any credit added to
your contract value within 1 year.
If we deduct a credit from any amount we pay to you, we will deduct the full
dollar amount of the credit. You will retain any gains, and you will also bear
any losses, that are attributable to the credit we deduct.
Once we have waived any surrender charge, we will not add any additional credit
to any additional premium you pay on or after the date of any such waiver.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or other
approved electronic means, subject to our administrative procedures, which vary
depending on the type of service requested and may include proper completion of
certain forms, providing appropriate identifying information, and/or other
administrative requirements. We will process your request at the accumulation
value next determined only after you have met all administrative requirements.
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 and credits 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 (including,
in some cases, fees for optional benefit riders) 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 added credit that was 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 and added credit not allocated
to a Fixed Interest Allocation may 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 credits, 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 (including any rider charges) 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, and then we deduct any
surrender charge, any charge for premium taxes, the annual contract
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administrative fee (unless waived), any optional benefit rider charges, 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 all paperwork required in order for us to process your
surrender. 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 adviser 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.
THE SUBACCOUNTS
Each of the 27 subaccounts of Account B offered under this prospectus invests in
an investment portfolio with its own distinct investment objectives and
policies. Each subaccount of Separate Account B invests in a corresponding
portfolio of the GCG Trust, a corresponding portfolio of the PIMCO Variable
Insurance Trust, a corresponding portfolio of the Warburg Pincus Trust, a
corresponding portfolio of the ING Variable Insurance Trust, or a corresponding
portfolio of the Prudential Series Fund.
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. If you elected the dollar cost
averaging, systematic withdrawals or automatic rebalancing programs or if you
have other outstanding instructions, and we substitute or otherwise eliminate a
portfolio which is subject to those instructions, we will execute your
instructions using the substituted or proposed replacement portfolio, unless you
request otherwise.
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.
OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider.
Once elected, the riders generally may not be cancelled. This means once you add
the rider you may not remove it, and charges will be assessed regardless of the
performance of your Contract. Please see "Charges and Fees -- Optional Rider
Charges" for information on rider charges.
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THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider becomes
effective. The rider date is also the contract date if the rider was purchased
at the time the Contract is issued.
SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum
Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the
Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may designate new and/or existing subaccounts as a
Special Fund with 30 days notice at any time, including during the life of a
rider.
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you may not at any time cancel the rider, except with respect to a
one-time right to cancel the twenty-year option of the Minimum Guaranteed
Accumulation Benefit rider under specified conditions. The Company may, at its
discretion, cancel and/or replace a rider at your request in order to renew or
reset a rider.
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death of
annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase. The
optional rider will also terminate if there is a change in contract ownership
(other than a spousal beneficiary continuation on your death). Other
circumstances which may cause a particular optional rider to terminate
automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you
protection in the event your Contract loses value during the MGAB waiting
period. For a discussion of the charges we deduct under the MGAB rider, see
"Optional Rider Charges."
The MGAB rider offers a ten-year option and a twenty-year option, of which you
may purchase only one. The ten-year option has a waiting period of ten years and
guarantees that your contract value at the end of ten years will at least equal
your initial premium payment plus credits, reduced pro rata for withdrawals.
Transfers made within 3 years prior to the MGAB Benefit Date will also reduce
the benefit pro rata. The twenty-year option has a waiting period of twenty
years and guarantees that your contract value at the end of twenty years will at
least equal two times your initial premium payment plus credits, reduced pro
rata for withdrawals, and reduced for transfers made within 3 years prior to the
MGAB Benefit Date. On the MGAB Benefit Date, which is the next business day
after the applicable waiting period, we calculate your Minimum Guaranteed
Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation
used to determine the MGAB. The MGAB Base does not represent a
contract value, nor does it
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guarantee performance of the subaccounts in which you are invested. It
is also not used in determining the amount of your annuity income,
cash surrender value and death benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your rider date, reduced
pro rata for any withdrawals and reduced for any transfers made within
the last 3 years prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option, except for the Special Funds which
require special calculations, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rate, reduced pro rata for any
withdrawals and reduced for any transfers made within the last 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for allocations
other than allocations to the Special Funds is the annual effective
rate of 3.5265%. Accumulation of eligible additional premiums starts
on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus, the
MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus premiums
and credits added during the 2-year period after your rider date.
Withdrawals taken while the MGAB rider is in effect, as well as
transfers made within 3 years prior to the MGAB Benefit Date, will
reduce the value of your MGAB Base pro rata. This means that the MGAB
Base (and the MGAB Charge Base) will be reduced by the same percent as
the percent of contract value that was withdrawn (or transferred). We
will look to your contract value immediately before the withdrawal or
transfer when we determine this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the contract
value allocated to the Special Fund over the calculation period is
less than the amount calculated under the formula above, that lesser
amount becomes the increase in your MGAB Base for the Special Fund for
that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE
OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB
benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the
Special Funds, may prevent the MGAB Base from doubling over the
waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both the
contract value in the subaccounts in which you are invested and the
contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts in
which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not have
an investment in any subaccount on the MGAB Benefit Date, we will
allocate the MGAB to the Liquid Asset subaccount on your behalf. After
the crediting of the MGAB, the amount of your annuity income, cash
surrender value and death benefits will reflect the crediting of the
MGAB to your contract value to the extent the contract value is used
to determine such value.
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WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB
Charge Base pro rata to the percentage of contract value of any withdrawals you
make after the rider date but prior to the MGAB Benefit Date. Any transfers you
make after the rider date but within three years prior to the MGAB Benefit Date
will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of
contract value transferred. Transfers you make before this date will have no
immediate impact on the MGAB Base. Any transfers more than 3 years prior to the
MGAB Benefit Date between the subaccounts and Special Funds in which you are
invested will cause your MGAB Base to be reallocated pro rata based on the
percentage of contract value. Transfers to one or more Special Funds could
reduce your MGAB benefit.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus, your MGAB Benefit Date will be the first contract
anniversary occurring after 10 years (for the ten-year option) or 20 years (for
the twenty-year option) after the rider date. The MGAB rider is not available if
the MGAB Benefit Date would fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, you one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our Customer Service Center at least 30 days before
such anniversary date. If the MGAB rider is terminated before the MGAB Benefit
Date, you will not be credited with the MGAB and we will assess the pro rata
portion of the MGAB rider charge for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional
benefit which guarantees that a minimum amount of annuity income will be
available to you if you annuitize on the MGIB Benefit Date, regardless of
fluctuating market conditions. The amount of the Minimum Guaranteed Income
Benefit will depend on the amount of premiums you pay during the five contract
years after you purchase the rider, the credit(s) we add, the amount of contract
value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all
portfolios except the Special Funds), the adjustments for Special Fund
transfers, and the dollar amount of any withdrawals you take while the rider is
in effect. For a discussion of the charges we deduct under the MGIB rider, see
"Optional Rider Charges." Ordinarily, the amount of income that will be
available to you on the annuity start date is based on your contract value, the
annuity option you selected and the guaranteed or income factors in effect on
the date you annuitize. If you purchase the MGIB rider, the minimum amount of
income that will be available to you upon annuitization on the MGIB Benefit Date
is the greatest of:
(i) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
guaranteed income factors specified in your Contract for the
annuity option you selected;
(ii) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
then current income factors in effect for the annuity option you
selected; and
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(iii)the MGIB annuity income based on your MGIB Base on the MGIB
Benefit Date applied to the MGIB income factors specified in your
rider for the MGIB annuity option you selected. Prior to applying
the MGIB income factors, we will adjust the MGIB Base for any
surrender charges, premium tax recovery and Market Value
Adjustments that would otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider on the MGIB Benefit Date. Payments
under the rider begin on the MGIB Benefit Date. We require a 10-year waiting
period before you can annuitize under the MGIB rider benefit. The MGIB must be
exercised in the 30-day period prior to the end of the waiting period or any
subsequent contract anniversary. At your request, the Company may in its
discretion extend the latest contract annuity start date without extending the
MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate
your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation
used to determine the MGIB. The MGIB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your cash surrender value and death benefits. Any reset of
contract value under provisions of the Contract or other riders will
not increase the MGIB Base or MGIB Base Maximum.
(i) If you purchased the MGIB rider on the contract date, except for
the Special Funds which require special calculations, the MGIB
Base is equal to your initial premium and credit, plus any
additional premiums and credits added to your Contract during the
5-year period after your contract date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Premiums and credits paid less than 5 years prior to
the earliest MGIB Benefit Date are excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date, except
for the Special Funds which require special calculations, your
MGIB Base is equal to your contract value on the rider date plus
any eligible premiums and credits added to your Contract during
the 5-year period after your rider date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Eligible additional premium payments and credits are
those added more than 5 years before the earliest MGIB Benefit
Date and are included in the MGIB Base. Premiums and credits paid
after the 5th rider anniversary are excluded from the MGIB Base.
(iii)For any Special Fund, if the actual earnings and/or the interest
credited to the contract value allocated to the Special Fund over
the calculation period is less than the amount determined under
the formula above, that lesser amount becomes the change in your
MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH
SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the
Special Funds may limit the MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata to
the percentage of the contract value withdrawn.
We offer a 7% MGIB Base Rate, except for the Special Funds. The
Company may at its discretion discontinue offering this rate. The
MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base
Maximum is the amount calculated above until the earlier of: (i)
the date the oldest contract owner reaches age 80, or (ii) the
date the MGIB Base reaches two times the MGIB Eligible Premiums
and
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credits, adjusted for any withdrawals. MGIB Eligible Premiums is
the total of premiums paid more than 5 years before the earliest
MGIB Benefit Date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND
PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection with
the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base
Maximum pro rata by the percentage of contract value of any withdrawals you
make. Any transfers to and from the subaccounts and Special Funds in which you
are invested will cause your MGIB Base to be reallocated pro rata based on the
percentage of contract value you transfer. Transfers to one or more Special
Funds could reduce the MGIB Benefit.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the
rider date and the ten-year waiting period must end at or prior to the latest
annuity start date. The MGIB rider must be purchased (i) on the contract date,
or (ii) within thirty days after the contract date. For contracts issued more
than 30 days before the date this rider first became available in your state,
the Company may in its discretion allow purchase of this rider during the 30-day
period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later. There is a ten
year waiting period before you can annuitize under the MGIB rider. This could
reduce the MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary on or after the tenth contract
anniversary when you decide to exercise your right to annuitize under the MGIB
rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is
the contract anniversary at least 10 years after the rider date when you decide
to exercise your right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIMES PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
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THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to zero
you will receive periodic payments equal to all premium payments and credits
paid during the first two contract years (Eligible Payment Amount) adjusted for
any prior withdrawals. To maintain this guarantee, withdrawals in any contract
year may not exceed 7% of your adjusted Eligible Payment Amount. If your
contract value is reduced to zero, your periodic payments will be 7% of your
Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal
Account is reduced to zero. For a discussion of the charges we deduct under the
MGWB rider, see "Optional Rider Charges." Each payment you receive under the
MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax.
See "Withdrawals" and "Federal Tax Considerations" for more information. Your
original Eligible Payment Amount depends on when you purchase the MGWB rider and
is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
(ii) if you purchased the MGWB rider after the contract date, your
contract value on the rider date, including any premiums and
credits received that day, and any subsequent premium payments
and credits received during the two-year period commencing on the
rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not represent a contract value, nor does
it guarantee performance of the subaccounts in which you are invested. It will
not affect your annuitization, surrender and death benefits. The MGWB Withdrawal
Account is equal to the Eligible Payment Amount adjusted for any withdrawals.
Withdrawals of up to 7% per year of the Eligible Payment Amount will reduce the
value of your MGWB Withdrawal Account by the dollar amount of the withdrawal.
Any withdrawals greater than 7% per year of the Eligible Payment Amount will
cause a reduction in both the MGWB Withdrawal Account and the Eligible Payment
Amount by the proportion that the withdrawal bears to the contract value at the
time of the withdrawal. The MGWB Withdrawal Account is also reduced by the
amount of any periodic payments paid under the MGWB rider once your contract
value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any
amount permitted under your Contract so long as your contract value is greater
than zero. See "Withdrawals." However, making any withdrawals in any year
greater than 7% per year of the Eligible Payment Amount will reduce the Eligible
Payment Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii)your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered
the Contract.
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The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii)you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, (that is, your contract value is zero) we will not accept any
additional premium payments in your Contract, and the Contract will not provide
any benefits except those provided by the MGWB rider. Any other rider
terminates. Your Contract will remain in Automatic Periodic Benefit Status until
the earliest of (i) payment of all MGWB periodic payments (ii) payment of the
Commuted Value (defined below) or (iii) the owner's death has occurred.
On the contract's latest annuity start date, in lieu of making the remaining
MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic
payments remaining. We may, at our option, extend your annuity start date in
order to continue the MGWB periodic payments. The Commuted Value is the present
value of any then remaining MGWB periodic payments at the current interest rate
plus 0.50%. The current interest rate will be determined by the average of the
Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB periodic
payment is made or we pay you the Commuted Value, your Contract and the MGWB
rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract (or you elected the Max
7 Enhanced Death Benefit resulting in the 7% Solution Enhanced Death Benefit as
the actual death benefit), the death benefit otherwise payable under the terms
of your Contract will remain in force during any Automatic Periodic Benefit
Status. In determining the amount of the death benefit during the Automatic
Periodic Benefit Status we deem your contract value to be zero and treat the
MGWB periodic payments as withdrawals. In all other cases, the death benefit
payable during Automatic Periodic Benefit Status is your MGWB Withdrawal Account
which equals the sum of the remaining MGWB periodic payments. If you elected the
Max 7 Enhanced Death Benefit, then 7% Solution and the Annual Ratchet components
shall each be calculated as if each were the elected death benefit option.
PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the
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Company may in its discretion allow purchase of this rider during the 30-day
period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later.
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 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 10% of your contract
value on the date of the withdrawal less any withdrawals during that 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.
Please be aware that the benefit we pay under certain optional benefit riders
will be reduced by any withdrawals you take while the rider is in effect. See
"Optional Riders."
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 withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make
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the withdrawals on the same calendar day of each month as your contract date. If
your contract date is after the 28th day of the month, your systematic
withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage and are willing to incur associated
surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which
you may add to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract value
and the amount to be withdrawn based on that percentage would be less than $100,
we will automatically increase the amount to $100 as long as it does not exceed
the maximum percentage. If the systematic withdrawal would exceed the maximum
percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. 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 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. If you submit a subsequent premium payment after you have
applied for systematic withdrawals, we will not adjust future withdrawals under
the systematic withdrawal program unless you specifically request that we do so.
The systematic withdrawal option may 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 the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any surrender charges or Market Value Adjustments.
Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar
Systematic Withdrawal Feature are available only in connection with Section
72(q) and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 10% of your contract value as
determined on the day we receive your election of this feature. The maximum
limit will not be recalculated when you make additional premium payments, unless
you instruct us to do so. We will assess a surrender charge on the withdrawal
date if the withdrawal exceeds the maximum limit as calculated on the withdrawal
date. We will assess a Market Value Adjustment on the withdrawal date if the
withdrawal from a Fixed Interest Allocation exceeds your interest earnings on
the withdrawal date. We will
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apply the surrender charge and any Market Value Adjustment directly to your
contract value (rather than to the withdrawal) so that the amount of each
systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to surrender charges and Market Value Adjustments
when they exceed the applicable Free Withdrawal Amount.
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 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 ADVISER 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.
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Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers
may also affect your optional rider base. See "The Annuity Contract -- Optional
Riders."
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 or other approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or over the internet.
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 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. If you make an additional premium payment
into a Fixed Interest Allocation subject to dollar cost averaging, the amount of
your transfers under the dollar cost averaging program remains the same, unless
you instruct us to increase the transfer amount.
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
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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 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 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 written notice
and due proof of death, as well as any required paperwork, 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. For
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
You may choose from the following 4 death benefit choices: (1) the Standard
Death Benefit; (2) the 7% Solution Enhanced Death Benefit; (3) the Annual
Ratchet Enhanced Death Benefit; and (4) the Max 7 Enhanced Death Benefit Option.
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.
A change in ownership of the Contract may affect the amount of the death benefit
and the enhanced death benefit. The MGWB rider may affect the death benefit. See
"Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefit during
Automatic Periodic Benefit Status."
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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 minus any
credits added within 1 year prior to death; (ii) total premium payments reduced
by a pro rata adjustment for any withdrawal; (iii) the cash surrender value; and
(iv) the total premium payments made under the Contract, plus all credits,
reduced by a pro rata adjustment for any withdrawals, then minus any credits
applied within 1 year prior to death.
ENHANCED DEATH BENEFITS. If the 7% Solution Enhanced Death Benefit, the
Annual Ratchet Enhanced Death Benefit or the Max 7 Enhanced Death Benefit is
elected, the death benefit under the Contract is the greatest of (i) the
contract value minus any credits added within 1 year prior to death; (ii) total
premium payments reduced by a pro rata adjustment for any withdrawal; (iii) the
cash surrender value; and (iv) the enhanced death benefit as calculated below
minus any credits added within 1 year prior to death.
The Max 7 Enhanced Death Benefit is the greater of (1) the 7% Solution Enhanced
Death Benefit or (2) the Annual Ratchet Enhanced Death Benefit. Under this death
benefit option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet
Enhanced Death Benefit are calculated in the same manner as if each were the
elected benefit.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
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On each business day that occurs on On each contract anniversary that
or before the contract owner turns occurs on or before the contract
80, we credit interest at the 7% owner turns age 80, we compare the
annual effective rate* to the prior enhanced death benefit to the
enhanced death benefit from the contract value and select the
preceding day (which would be the larger amount as the new enhanced
initial premium and credit if the death benefit.
preceding day is the contract
date), then we add additional On all other days, the enhanced
premiums paid and credits added death benefit is the amount
since the preceding day, then we determined below. We first take the
adjust for any withdrawals enhanced death benefit from the
made(including any Market Value preceding day (which would be the
Adjustment applied to such initial premium and credit if the
withdrawals and any associated valuation date is the contract
surrender charges**) since the date) and then we add additional
preceding day. At age 80 or at the premiums paid and credits added
time the maximum death benefit is since the preceding day, then
reached, the accumulation rate used reduce the enhanced death benefit
will change. pro rata for any contract value
withdrawn. That amount becomes the
The maximum enhanced death benefit new enhanced death benefit.
is 3 times all premium payments and
credits, as reduced by adjustments
for withdrawals.***
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* The actual interest rate used for calculating the 7% Solution Enhanced
Death Benefit for the Liquid Asset and Limited Maturity Bond
investment portfolios and the Fixed Account, will be the lesser of (1)
7% and (2) the interest rate, positive or negative, providing a yield
on the Enhanced Death Benefit equal to the net return for the current
valuation period on the contract value allocated to Special Funds. We
may, with 30 days notice to you, designate any fund as a Special Fund
on existing contracts with respect to new premiums added to such fund
and also with respect to new transfers to such funds. Thus, selecting
these investments may limit the enhanced death benefit.
** Each premium payment and credit reduced by adjustments for any
withdrawals and any associated surrender charges incurred will
continue to grow at the 7% annual effective rate until maximum is
reached.
*** Each withdrawal reduces the enhanced death benefit and the maximum
enhanced death benefit as follows: If total withdrawals in a contract
year do not exceed 7% of cumulative premiums and credits and did not
exceed 7% of cumulative premiums and credits in any prior contract
year, such withdrawals will reduce the enhanced death benefit and the
maximum enhanced death benefit by the amount of the withdrawal (and
any associated surrender charge) including any Market Value
Adjustment. Once withdrawals in any contract year exceed 7% of
cumulative premiums, withdrawals will reduce the
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enhanced death benefit and the maximum enhanced death benefit in
proportion to the reduction in contract value pro rata.
Pro rata withdrawal adjustment on all death benefit options is calculated by (i)
dividing the contract value withdrawn by the contract value immediately prior to
the withdrawal, and then (ii) multiplying the result by the amount of the
applicable death benefit component immediately prior to the withdrawal.
The enhanced death benefits 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 less than 80 years old at the time of purchase. The
enhanced death benefits are not available where a Contract is owned 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.
CONTINUATION AFTER DEATH -- SPOUSE
If at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of death,
minus the contract value also on that date, is greater than zero, we will add
such difference to the contract value. Such addition will be allocated to the
variable subaccounts in proportion to the contract value in the subaccounts. If
there is no contract value in any subaccount, the addition will be allocated to
the Liquid Asset subaccount, or its successor.
The death benefit will continue to apply, with all age criteria using the
surviving spouse's age as the determining age.
At subsequent surrender, any surrender charge applicable to premiums paid prior
to the date we receive due proof of death of the contract owner will be waived.
Any premiums paid later will be subject to any applicable surrender charge.
This addition to contract value is available only to the spouse of the owner as
of the date of death of the owner if such spouse under the provisions of the
contract elects to continue the contract as his or her own.
CONTINUATION AFTER DEATH -- NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the owner, the
contract may continue in force subject to the required distribution rules of the
Internal Revenue Code. See next section.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any contract 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
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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.
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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 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 9-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment withdrawn. 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 withdrawn as follows:
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COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. 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. If we waive the surrender charge, we will deduct any credit added to
your contract value within 1 year of the withdrawal, and we will not add any
additional credit to any additional premium you pay on or after the date of any
such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
10% of your contract value on the date of withdrawal less any withdrawals during
that 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 C. 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 your state of residence. The tax can range from 0% to 3.5% of the
premium payment. We have the right to change this amount to conform with changes
in the law or if you change your state of residence.
We deduct the premium tax from your contract value (or from the MGIB Base, if
exercised) 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 when you
surrender the Contract, when you take an excess withdrawals or on the annuity
start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge 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.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or more or under other conditions established by
Golden American. 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
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charge from your Fixed Interest Allocations starting with the guaranteed
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 such 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 mortality and expense risk charge is
deducted each business day. 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 1.30% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003585% 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
1.45% for the Annual Ratchet Enhanced Death Benefit, 1.65% for the 7% Solution
Enhanced Death Benefit or 1.75% for the Max 7 Enhanced Death Benefit, of the
assets you have in each subaccount. The charge is deducted each business day at
the rate of .004002%, .004558%, or .004837%, respectively, for each day since
the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
OPTIONAL RIDER CHARGES
Subject to state availability, you may purchase one of three optional benefit
riders that you may elect at issue. So long as the rider is in effect, we will
deduct a separate quarterly charge for each optional benefit rider through a pro
rata reduction of the contract value of the subaccounts in which you are
invested. If there is insufficient contract value in the subaccount, we will
deduct the charges from your Fixed Interest Allocations nearest their maturity
date. We deduct each rider charge on each quarterly contract anniversary in
arrears, meaning the first charge will be deducted on the first quarterly
anniversary following the rider date. For a description of the riders and the
defined terms used in connection with the riders, see "The Annuity Contract --
Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for
the MGAB rider is as follows:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year.............. 0.125% of the MGAB Charge Base (0.50% annually)
20 Year.............. 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums and credits during the 2-year period commencing on the rider date,
reduced pro rata for withdrawals and reduced for transfers made within the last
3 years prior to the MGAB Benefit Date. We will deduct charges only during your
ten-year or twenty-year waiting period, as applicable. If you surrender or
annuitize your Contract, we will deduct a pro rata portion of the charge for the
current quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization.
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MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB
rider is as follows:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%..................... 0.125% of the MGIB Base (0.50% annually)
The MGIB Base is the total of premiums paid and credits added more than 5 years
before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals
taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate
(7% for all portfolios except the Special Funds). If you surrender or annuitize
your Contract, we will deduct a pro rata portion of the charge for the current
quarter based on the current quarterly charge rate and your MGIB Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
and credits added during the first two contract years following the rider date.
When we calculate the MGWB rider charge, we do not reduce the Eligible Payment
Amount by the amount of any withdrawals taken while the MGWB rider is in effect.
We will deduct charges only during the period before your Contract's Automatic
Periodic Benefit Status. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on the
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, two portfolios deduct
12b-1 fees. For 1999, total portfolio fees and charges ranged from 0.56% to
1.75%. See "Fees and Expenses" in this prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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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 you chose. You may change an
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. The MGIB
annuity benefit may be available if you have purchased the MGIB rider, provided
the waiting period and other specified conditions have been met.
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.
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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 under applicable
law), 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 annuity start date, which is 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. For more information, 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 reach age 70 1/2 or, in some cases,
retire. Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
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
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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. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income 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, we will continue payments 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. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
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 your 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, including
rider charges if you have elected one of the optional riders offered in this
prospectus. You have 30 days to notify our Customer Service Center of any errors
or discrepancies contained in the report and in any confirmation notice. 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
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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 SEC 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 gender 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 gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
you should 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 should consult a tax adviser for tax advice. 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 under applicable federal tax law. 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, (i) we adjust your contract value for any market value
adjustment (if you have invested in the fixed account), (ii) then we exclude any
credit initially applied, and (iii) then we include 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. In these states, your
premiums designated for investment in the subaccounts may 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 and the investment is allocated to a subaccount specially
designated by the Company, 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 the 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.
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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 5.5% commission, and passes through 100%
of the commission to the broker-dealer whose registered representative sold the
contract.
- --------------------------------------------------------------------------------
UNDERWRITER COMPENSATION
- --------------------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 5.5% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments by registered
except when representatives
combined in connection
with some annual with the
trail commissions. distribution
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 5.5% of total premium payments).
We do not pay any additional commissions on the sale or exercise of any of the
optional benefit riders offered in this prospectus.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
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 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
47
<PAGE>
material settlement payments have been made. We believe that currently there are
no pending or threatened lawsuits that are reasonably likely to have a
materially 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 and Account B appearing in
this prospectus or 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 in this prospectus or 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.
- --------------------------------------------------------------------------------
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
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
whose 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 non-qualified
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.
INVESTOR CONTROL. 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
48
<PAGE>
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. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
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 you paid for the contract less any nontaxable withdrawals)
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
(including amounts paid to you under the MGWB rider), 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. Credits constitute earnings (not premiums) for federal
tax purposes and are not included in the owner's investment in the Contract. 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.
49
<PAGE>
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 adviser 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 non-qualified deferred 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
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<PAGE>
(or plan participant) reaches age 70 1/2. For IRAs described in Section 408,
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) 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.
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 IRA
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. A 10% penalty may apply to amounts
attributable to a conversion from an IRA if they are distributed during the five
taxable years beginning with the year in which the conversion was made.
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
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<PAGE>
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 BENEFIT
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
or Roth 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 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). You should consult a tax adviser
with respect to legislative developments and their effect on the Contract.
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<PAGE>
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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"), according 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 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.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER | POST-ACQUISITION
------------------------------------------ | --------------------------
| For the
For the | Period For the
For the For the Period | January 1, Period
Year Year October 25, | 1997 August 14,
Ended Ended 1997 through | through 1996 through
December 31, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ ------------ | ----------- ------------
<S> <C> <C> <C> <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768
Net Income before |
Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350
Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899
Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415
Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484
Pre-Acquisition
---------------
For the Period
January 1,
1996 through
August 13,
1996
---------------
Annuity and Interest
Sensitive Life
Product Charges......... $ 12,259
Net Income before
Federal Income Tax...... $ 1,736
Net Income (Loss)........... $ 3,199
Total Assets................ N/A
Total Liabilities........... N/A
Total Stockholder's Equity.. N/A
</TABLE>
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BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and 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.
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 is also 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. Golden American reports financial results on a
consolidated 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 OPERATION
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 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.
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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 included for the period
January 1, 1997 through October 24, 1997 are presented on the Post-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.
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................. 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............. 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Annuity and interest sensitive life
product charges.................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue................. 10.1 112.5 5.3 4.8
Net investment income.................. 59.2 39.3 16.7 42.5
Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5)
Other income........................... 10.8 94.4 5.2 5.6
-------- ----- ----- -----
$ 160.1 77.0% $69.6 $90.5
======== ===== ===== =====
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Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
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 $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
<TABLE>
<CAPTION>
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances ...................... 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions ............................. 188.4 55.5 67.2 121.2
General expenses ........................ 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1
Value of purchased insurance in force . 6.2 32.0 1.5 4.7
Goodwill .............................. 3.8 -- -- 3.8
-------- ----- -------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======== ===== ======== ========
</TABLE>
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
57
<PAGE>
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
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 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. 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. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from
$5.1 million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
58
<PAGE>
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> | <C>
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
========== ========== ========== | ==========
</TABLE>
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 $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
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
========== ========== ========== | ==========
</TABLE>
59
<PAGE>
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
included 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
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
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
========== ========= ========= | =========
</TABLE>
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 related 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
60
<PAGE>
incurred as the result of new sales including the extra credit bonus were
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.
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.
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.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying value and amortized cost basis of
the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999.
All of the Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. Therefore, growth
in the carrying value of the Companies' investment portfolio was due to 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 options. The Companies manage the
growth of insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance products,
cash flow was invested primarily in fixed maturities and short-term investments.
At December 31, 1999, the Companies investments had a yield of 6.6%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 97.6% of amortized cost value at December 31,
1999.
61
<PAGE>
FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with
an amortized cost of $858.1 million and an estimated fair value of $835.3
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $22.8 million was comprised of
gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net
unrealized holding losses on these securities, net of adjustments to VPIF, DPAC,
and deferred income taxes of $7.0 million were included in stockholder's equity
at December 31, 1999.
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 ($558.0 million or 65.0%), that are rated BBB+ to
BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.6% at December
31, 1999.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At December 31, 1999, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $72.3 million, or 6.9%, 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, 1999, the yield at
amortized cost on the Companies' below investment grade portfolio was 7.8%
compared to 6.5% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999.
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 1999, fixed maturities designated as available for sale with a combined
amortized cost of $221.8 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax
loss on the write-down of two bonds in 1999.
During the fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to
62
<PAGE>
their combined net realizable value of $2.9 million. During the second quarter
of 1999, further information was received regarding these bonds and Golden
American determined that the carrying value of the two bonds exceeded their
estimated net realizable value. As a result, at June 30, 1999, Golden American
recognized a total pre-tax loss of approximately $1.6 million to further reduce
the carrying value of the bonds to their combined net realizable value of $1.1
million.
EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment
portfolio. At December 31, 1999, the Companies owned equity securities with a
cost of $15.0 million and an estimated fair value of $17.3 million. Net
unrealized appreciation of equity securities was comprised entirely of gross
appreciation of $2.3 million. Equity securities are primarily comprised of
investments in shares of the mutual funds underlying the Companies' registered
separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $100.1 million at December 31, 1999 with an estimated fair value of $95.5
million. The Companies' mortgage loan portfolio includes 58 loans with an
average size of $1.7 million and average seasoning of 0.7 years if weighted by
the number of loans. The Companies' mortgage loans on real estate 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 1999 and
1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (34% in 1999, 36% in 1998),
industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999,
20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998).
At December 31, 1999, the yield on the Companies' mortgage loan portfolio was
7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90
days or more. The Companies' loan investment strategy is consistent with other
life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due
to an increase in the overall size of the portfolio resulting from the
investment of premiums allocated to the fixed account options of the Companies'
variable insurance products.
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credit, and
other expenses related to the production of new business after the merger. The
Companies' previous balances of DPAC and 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, 1999, the Companies had
DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During
1998, VPIF decreased $2.7 million to adjust the value of other receivables and
increased $0.2 million as a result of an adjustment to the merger costs.
Property and equipment increased $6.5 million, or 89.0%, during 1999, due to
leasehold improvements, the purchase of furniture and other equipment for Golden
American's new offices in West Chester, Pennsylvania, and 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 as of December 31, 1999 was $8.2
million.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
63
<PAGE>
At December 31, 1999, the Companies had $7.6 billion of separate account assets
compared to $3.4 billion at December 31, 1998. The increase in separate account
assets resulted from market appreciation, increased transfer activity, and
growth in sales of the Companies' variable annuity products, net of redemptions.
At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6%
increase from December 31, 1998.
LIABILITIES. Future policy benefits for annuity and interest sensitive life
products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium
growth in the Companies' fixed account options of the variable products, net of
transfers to the separate accounts. Market appreciation, increased transfer
activity, and premiums, net of redemptions, accounted for the $4.2 billion, or
122.7%, increase in separate account liabilities to $7.6 billion at December 31,
1999.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029.
On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. 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, the
surplus note is now payable to EIC.
Other liabilities increased $21.7 million from $34.7 million at December 31,
1998, due primarily to increases in remittances to be applied, outstanding
checks, accrued interest payable, and pension liability.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9
billion at December 31, 1999.
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 stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or
34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, 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 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 premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash used in operating activities was $73.4 million in 1999 compared to
$63.9 million in 1998. 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 products.
64
<PAGE>
Net cash used in investing activities was $177.5 million during 1999 as compared
to $390.0 million in 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans on real
estate during 1998 than in 1999. Net purchases of fixed maturities reached
$124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage
loans on real estate declined to $3.1 million from $12.6 million in the prior
year.
Net cash provided by financing activities was $258.6 million during 1999 as
compared to $439.5 million during the prior year. In 1999, net cash provided by
financing activities was positively impacted by net fixed account deposits of
$626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase
in net borrowings in 1999 compared to 1998. This increase was offset by net
reallocations to the Companies' separate accounts, which increased to $650.3
million from $239.7 million during the prior year. In 1999, another important
source of cash provided by financing activities was $121.0 million in capital
contributions from the Parent compared to $103.8 million in 1998. Another source
of cash provided by financing activities during 1999 was $160.0 million in
proceeds from surplus notes compared to $60.0 million in 1998
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, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes
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 sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding
surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%;
and 3) Golden American's statutory capital and surplus exceeds the "Amounts
Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3,
Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. During 1999, Golden American occupied
105,000 square feet of leased space; its affiliate occupies 20,000 square feet.
Previously, Golden American's home office operations were housed in leased
locations in Wilmington, Delaware and locations in Pennsylvania. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $2.4 million on capital needs for
2000.
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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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 dividends to Golden
American during 2000.
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
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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, 1999, 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.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Impact of Year 2000: In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
Golden American expensed approximately $264,000 during 1999 in connection with
remediating systems. The Companies are not aware of any material problems
resulting from Year 2000 issues, either with products, internal systems, or the
products and services of third parties. The Companies will continue to monitor
mission critical computer applications and those of suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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 insurance 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 1999 levels, variable separate account funds, which represent 88% of
the in force, pass the risk in underlying fund performance to the contractholder
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(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from year end 1999 levels, the remaining 12% 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, fee revenue,
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 tax status 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.
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 variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, Locust Street Securities, Inc.,
Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network
Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of
Golden American. As of December 31, 1999, two broker-dealers produce 10% or more
of Golden American's product sales.
REINSURANCE. Golden American reinsured its mortality risk associated with the
Contract's guaranteed death benefit on Contracts issued through December 31,
1999 with one or more appropriately licensed insurance companies. Golden
American is currently pursuing alternative reinsurance arrangements for new
business. 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
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<PAGE>
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
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 subsidiary First
Golden American Life Insurance Company of New York ("First Golden"), $1.3
million and $1.1 million, for the years ended December 31, 1999 and 1998,
respectively, 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 $10.1 million and $4.8 million for the years 1999 and 1998, 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 and accounting services for
a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden
American and First Golden incurred fees of $2.2 million and $1.5 million,
respectively, under this agreement.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Revenues for these services totaled
$6.1 million for 1999 and $5.8 million for 1998.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.4 million of 1999. Golden American provides resources and services to
ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services
totaled $0.2 million for 1999 and $0.1 million for 1998.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $0.5 million in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.2 million in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.1 million in 1999.
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, 1999, are sold primarily
through two broker/dealer institutions. For the years 1999 and 1998, commissions
paid by Golden American to DSI (including commissions paid by First Golden)
aggregated $181.5 million and $117.5 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.
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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 initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many states regulate affiliated groups of insurers, such as Golden
American, and its affiliates, under insurance holding company legislation. Under
such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions of
the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding Golden American's
estimated liability for future guaranty fund assessments, see Note 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.
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DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (57) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (51) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (42) Executive Vice President and Chief Actuary
E. Robert Koster (41) Senior Vice President and Chief Financial Officer
Patricia M. Corbett (35) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (46) Senior Vice President, Project Implementation
Steven G. Mandel (40) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
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. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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.
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. Mark A. Tullis became a Director of Golden American and First Golden in
December 1999. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999. From June, 1994 to
August, 1999, he was with Pimerica, serving as Executive Vice President at the
time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American and First Golden in December, 1997
as Executive Vice President. From 1982 through November, 1997, he held several
positions with the Endeavor Group and was President upon his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief Financial
Officer of Golden American and First Golden 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.
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Mr. David L. Jacobson joined Golden American in November 1993 as Vice President
and Assistant Secretary and became Senior Vice President in December, 1993. He
was elected Senior Vice President and Assistant Secretary for First Golden in
June, 1996.
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. He was elected Senior Vice President and Chief
Actuary of First Golden in June, 1996 and elected Executive Vice President in
June, 1998.
Mr. William L. 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.
Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior
Vice President and Chief Information Officer in June, 1998.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE 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,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
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<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 3
- ------------------ ---- ------ ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4
Executive Vice 1998 $ 173.870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
</TABLE>
- --------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on October 24,
1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee for
participation in company sponsored programs such as tuition reimbursement,
PC purchase assistance program, and other miscellaneous payments or
reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received
$636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel
received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received
$3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses of
the named executive.
5 In connection with the termination of his employment, Mr. Glover received
payments and benefits totaling $555,452.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3
OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
- ---- ----------- ------ --------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
</TABLE>
- ----------------
1 Stock appreciation rights granted in 1999 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 the
date of grant.
3 Total dollar gains based on indicated rates of appreciation of share price
over the total term of the rights.
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- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
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<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
76
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | hrough
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
<S> <C> <C> <C> <C>
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
</TABLE>
See accompanying notes.
77
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
</TABLE>
See accompanying notes.
78
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
</TABLE>
See accompanying notes.
79
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
</TABLE>
See accompanying notes.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding
all of the preceding items are inherently subject to change and are reassessed
periodically. Changes in estimates and assumptions could materially impact the
financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
</TABLE>
Realized gains (losses) on investments follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
</TABLE>
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
</TABLE>
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
Foreign governments.......................
.......
</TABLE>
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
<S> <C> <C> <C> <C>
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
</TABLE>
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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.
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
<TABLE>
<CAPTION>
POST-MERGER
-----------------------------------------------
December 31, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
</TABLE>
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 process. This pricing
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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.
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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
<TABLE>
<CAPTION>
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
</TABLE>
92
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary
based upon changes in assumptions and experience.
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.
93
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
<TABLE>
<CAPTION>
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
<S> <C>
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
</TABLE>
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
Internal Revenue Code, a newly acquired insurance company cannot file as part of
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
</TABLE>
95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
96
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
97
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|---------------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|---------------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
98
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
99
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
</TABLE>
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
100
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies 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 reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
101
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other
receivables from these reinsurers comprised of $493,000 and $439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
102
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers
during 1998 and 1997, respectively). The Premium Plus product generated 79% of
the Companies' sales during 1999 (63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively.
103
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction............................................................ 1
Description of Golden American Life Insurance Company................... 1
Safekeeping of Assets................................................... 1
The Administrator....................................................... 1
Independent Auditors.................................................... 1
Distribution of Contracts............................................... 1
Performance Information................................................. 2
IRA Partial Withdrawal Option........................................... 10
Other Information....................................................... 11
Financial Statements of Separate Account B.............................. 11
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE
FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS 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
106947 PREMIUM PLUS-4 (05/00)
105
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value, All Cap, Managed Global, the ING
Global Brand Names and the Prudential Jennison subaccounts which did not
commence operations as of December 31, 1999, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation units, and
(3) the total accumulation unit value, for each subaccount of Golden American
Separate Account B available under the Contract for the indicated periods. The
date on which the subaccount became available to investors and the starting
accumulation unit value are indicated on the last row of each table.
LIQUID ASSET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
A1
<PAGE>
FULLY MANAGED
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
A2
<PAGE>
RISING DIVIDENDS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
A3
<PAGE>
STRATEGIC EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
A4
<PAGE>
REAL ESTATE
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $17.37 130,846 $2,273 $17.09 175,931 3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
A5
<PAGE>
PIMCO STOCKSPLUS GROWTH AND INCOME
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $15.50 4,663,701 72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
</TABLE>
A6
<PAGE>
APPENDIX B
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
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 8%; and that no prior transfers or 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-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 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-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 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
withdrawals affecting this Fixed Interest Allocation have been made.
B1
<PAGE>
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
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge 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 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
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the 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.
B2
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third contract
years, for total premium payments under the Contract of $30,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 15% of the contract
value of $35,000.
In this example, $3,500 ($35,000 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 $5,250 ($35,000 x .15). Therefore, $1,750 ($5,250 -
$3,500) is considered an excess withdrawal of a part of the initial premium
payment of $10,000 and would be subject to a 7% surrender charge of $122.50
($1,750 x .07). This example does not take into account any Market Value
Adjustment or deduction of any premium taxes.
C1
<PAGE>
This page intentionally left blank.
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
106947 Premium Plus-4 05/01/2000
<PAGE>
<PAGE>
FORM TWO
VERSION B
<PAGE>
<PAGE>
PROFILE AND PROSPECTUS OF
GOLDENSELECT GALAXY-DB/R/
(4 DEATH BENEFITS)
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT PREMIUM PLUS(R)
FEATURING THE GALAXY VIP FUND
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
MAY 1, 2000
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
It is offered exclusively to customers of Fleet Financial Group, Inc. and its
affiliates. The Contract features a minimum 4% credit to each premium you pay.
The Contract provides a means for you to invest on a tax-deferred basis in (i)
one or more of 32 mutual fund investment portfolios through our Separate Account
B and/or (ii) in a fixed account of Golden American with guaranteed interest
periods. The 32 mutual fund portfolios are listed on page 3 below. We currently
offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years in the
fixed account. We set the interest rates in the fixed account (which will never
be less than 3%) periodically. 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 applicable interest period. If you 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
take out. Generally, 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.
Subject to state availability, you may elect one of three optional riders
offering specified benefits featured in the prospectus for the Contract. The
three optional benefit riders are listed on page 10 below. The optional benefit
riders can provide protection under certain circumstances in the event that
unfavorable investment performance has lowered your contract value below certain
targeted growth. These riders do not guarantee the performance of your
investment portfolios. Separate charges are assessed for the optional riders.
You
PLUS PROFILE PROSPECTUS BEGINS AFTER
PAGE 12 OF THIS PROFILE
<PAGE>
should carefully analyze and completely evaluate each rider before you purchase
any. Be aware that the benefit provided by any of the riders will be affected by
certain later actions you may take - such as withdrawals and transfers. The
riders are not available to Contracts issued before January 1, 2000. To find out
about availability, check with our Customer Service Center.
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 on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract. 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ANNUITY OPTIONS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Option 1 Income for a fixed Payments are made for a specified number of
period years to you or your beneficiary.
-----------------------------------------------------------------------------------------
Option 2 Income for life with Payments are made for the rest of your life
a period certain or longer for a specified 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 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.
-----------------------------------------------------------------------------------------
</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. 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 $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($250 for a qualified Contract) at any time before you
turn 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. Each
time you make a premium payment, we will add a credit of at least 4% of each
premium payment to your contract value. Within 1 year after any credit is added,
it may be deducted from your contract value under certain circumstances which
are described in the prospectus for the Contract. After 1 year, a credit added
to your contract value becomes permanent.
2 PREMIUM PLUS PROFILE
<PAGE>
Who may purchase this Contract? Contracts offered by the prospectus accompanying
this Profile are available only to customers of Fleet Boston Financial
Corporation and its affiliates. 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").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
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, and the credit we add, 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 32 mutual fund investment
portfolios through our Separate Account B. The investment portfolios are
described in the prospectuses for the GCG Trust, The Galaxy VIP Fund, the PIMCO
Variable Insurance Trust, the Warburg Pincus Trust, ING Variable Insurance Trust
and the Prudential Series Fund. Keep in mind that while an investment in the
fixed account earns a fixed interest rate, an investment in any investment
portfolio, depending on market conditions, may cause you to make or lose money.
The investment portfolios available under your Contract are:
<TABLE>
<S> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series
Limited Maturity Bond Series Managed Global Series Small Cap Series
Global Fixed Income Series Large Cap Value Series Growth Series
Fully Managed Series All Cap Series Real Estate Series
Total Return Series Research Series Hard Assets Series
Equity Income Series Capital Appreciation Series Developing World Series
Investors Series Capital Growth Series
Value Equity Series Strategic Equity Series
THE GALAXY VIP FUND
Equity Fund Small Company Growth Fund High Quality Bond Fund
Growth and Income Fund Asset Allocation Fund
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
THE WARBURG PINCUS TRUST
International Equity Portfolio
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund
PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
</TABLE>
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based
3 PREMIUM PLUS PROFILE
<PAGE>
administrative charge and an annual contract administrative charge of $40. We
deduct the mortality and expense risk charge and the asset-based administrative
charges daily directly from your contract value in the investment portfolios.
The mortality and expense risk charge (depending on the death benefit you
choose) and the asset-based administrative charge, on an annual basis, are as
follows:
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
------------- -------------- ----------- -----
<S> <C> <C> <C> <C>
Mortality & Expense Risk Charge.......... 1.30% 1.45% 1.65% 1.75%
Asset-Based Administrative Charge........ 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total............................ 1.45% 1.60% 1.80% 1.90%
</TABLE>
If you choose to purchase one of the optional benefit riders we offer, we will
deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
-------------- ----------------
10 Year............. 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year............. 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%.................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.56% to 1.75% 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, we 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
year is 10% of your contract value on the date of the withdrawal less any prior
withdrawals during that 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 withdrawn.
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column is divided into two: one part reflects
the maximum mortality and expense risk charge, (based on the Max 7 Enhanced
Death Benefit), the asset-based administrative charge, the annual contract
administrative charge as 0.05% (based on an average contract value of $77,000),
and the highest optional rider charge as 0.75% in most cases, assuming the rider
base is equal to the initial premium and the rider base increases by 7% each
year. (Note, however, for the Liquid Asset and Limited Maturity Bond portfolios,
4 PREMIUM PLUS PROFILE
<PAGE>
the rider charge is equal to 0.50% because the base for the rider accumulates at
the assumed net rate, not 7%.) The second part reflects the same insurance
charges, but without any rider charges. The "Total Annual Investment Portfolio
Charges" column reflects the portfolio charges for each portfolio and are based
on actual expenses as of December 31, 1999, except for (i) portfolios that
commenced operations during 2000 where the charges have been estimated, and (ii)
newly formed portfolios where the charges have been estimated. 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 and received a $40 credit 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 (based on the Max 7 Enhanced Death Benefit). For Years 1 and 10, the
examples show the total annual charges assessed during that time and assume that
you have elected the Max 7 Enhanced Death Benefit. For these examples, the
premium tax is assumed to be 0%.
5 PREMIUM PLUS PROFILE
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- -------------- -------------- ---------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- ------------------------------------------------------------------------------------------------------
THE GCG TRUST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liquid Asset 2.45% 1.95% 0.56% 3.01% 2.51% $112 $106 $349 $296
- ------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.45% 1.95% 0.57% 3.02% 2.52% $112 $107 $350 $297
- ------------------------------------------------------------------------------------------------------
Global Fixed Income 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
- ------------------------------------------------------------------------------------------------------
Fully Managed 2.70% 1.95% 0.97% 3.67% 2.92% $118 $111 $408 $337
- ------------------------------------------------------------------------------------------------------
Total Return 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- ------------------------------------------------------------------------------------------------------
Equity Income 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Investors 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- ------------------------------------------------------------------------------------------------------
Value Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Rising Dividends 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Managed Global 2.70% 1.95% 1.25% 3.95% 3.20% $121 $114 $433 $364
- ------------------------------------------------------------------------------------------------------
Large Cap Value 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- ------------------------------------------------------------------------------------------------------
All Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
- ------------------------------------------------------------------------------------------------------
Research 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- ------------------------------------------------------------------------------------------------------
Capital Appreciation 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Capital Growth 2.70% 1.95% 1.05% 3.75% 3.00% $119 $112 $415 $345
- ------------------------------------------------------------------------------------------------------
Strategic Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
- ------------------------------------------------------------------------------------------------------
Small Cap 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Growth 2.70% 1.95% 1.04% 3.74% 2.99% $119 $111 $414 $344
- ------------------------------------------------------------------------------------------------------
Real Estate 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Hard Assets 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Developing World 2.70% 1.95% 1.75% 4.45% 3.70% $126 $119 $476 $411
- ------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
- ------------------------------------------------------------------------------------------------------
Growth & Income 2.70% 1.95% 1.49% 4.19% 3.44% $124 $116 $454 $387
- ------------------------------------------------------------------------------------------------------
Small Company Growth 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
- ------------------------------------------------------------------------------------------------------
Asset Allocation 2.70% 1.95% 1.02% 3.72% 2.97% $119 $111 $413 $342
- ------------------------------------------------------------------------------------------------------
High Quality Bond 2.70% 1.95% 0.64% 3.34% 2.59% $115 $107 $378 $304
- ------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 2.70% 1.95% 0.75% 3.45% 2.70% $116 $108 $388 $315
- ------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.70% 1.95% 0.65% 3.35% 2.60% $115 $107 $379 $305
- ------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity 2.70% 1.95% 1.32% 4.02% 3.27% $122 $114 $439 $371
- ------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names 2.70% 1.95% 1.23% 3.93% 3.18% $121 $113 $431 $362
- ------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison 2.70% 1.95% 1.03% 3.73% 2.98% $119 $111 $413 $343
- ------------------------------------------------------------------------------------------------------
</TABLE>
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
6 PREMIUM PLUS PROFILE
<PAGE>
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 can
calculate and pay you the minimum required distribution amounts at your request.
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 taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page 11.
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 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. The following chart shows average
annual total return for each portfolio that was in operation for the entire year
of 1999. These numbers reflect the deduction of the mortality and expense risk
charge (based on the Max 7 Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee and the maximum optional benefit
rider charge on a rider base that accumulates at 7%, but do not reflect
deductions for any surrender charges. If surrender charges were reflected, they
would have the effect of reducing performance. Please keep in mind that past
performance is not a guarantee of future results.
7 PREMIUM PLUS PROFILE
<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
- --------------------------------------------------------------------------------
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.65% 9.94%
Strategic Equity(2) 52.53% -1.61%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.52% 9.25%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 57.89% --
Global Fixed Income -10.91% 9.13%
Hard Assets(2 20.43% -31.31%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.44% 26.18%
Small Cap(3) 47.05% 18.05%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.96% -0.93%
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.34% 4.26%
Liquid Asset 2.19% 2.49%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.00% 23.75%
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.08% 11.36%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 74.88% 19.83%
Research 21.23% 20.06%
Total Return 0.84% 8.88%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.19% -15.56%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -3.16% 5.63%
Fully Managed 4.32% 3.31%
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.49% --
PIMCO StocksPLUS Growth and Income 16.96% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 49.80% 2.79%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Fleet Investment Advisors Inc.
Equity Fund -- --
Growth and Income Fund -- --
Small Company Growth Fund -- --
Asset Allocation Fund -- --
High Yield Bond Fund -- --
- --------------------------------------------------------------------------------
- -----------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
8 PREMIUM PLUS PROFILE
<PAGE>
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced
Death Benefit, (iii) the Annual Ratchet Enhanced Death Benefit or (iv) the Max 7
Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit, the Annual
Ratchet Enhanced Death Benefit and the Max 7 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 79 years old at the time of purchase. The 7%
Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be available
where a Contract is held by joint owners.
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
written notice and due proof of death, as well as required claim forms, 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.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
prorata adjustment for any withdrawal;
3) the cash surrender value; or
4) the total premium payments plus credits made under the Contract
reduced by a prorata adjustment for any withdrawals, minus any credits
added within 1 year prior to death.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
prorata adjustment for any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which we determine as follows: we credit interest each
business day at the 7% annual effective rate to the enhanced death
benefit from the preceding day (which would be the initial premium and
the credit added if the preceding day is the contract date), then we
add additional premiums paid and credits added since the preceding
day, then we adjust for any withdrawals (including any market value
adjustment applied to such withdrawal and any associated surrender
charges) since the preceding day. Special withdrawals are withdrawals
of up to 7% per year of cumulative premiums and premium credits.
Special withdrawals shall reduce the 7% Solution Benefit by the amount
of contract value withdrawn. For any withdrawals in excess of the
amount available as a special withdrawal, a prorata adjustment to the
death benefit is made. The maximum enhanced death benefit is 3 times
all premium payments and credits added, adjusted to reflect
withdrawals. Each accumulated initial or additional premium payment
and credit will continue to grow at the 7% annual effective rate until
reaching the maximum enhanced death benefit or attained age 80 of the
contract owner, if earlier.
Note for current Special Funds: The actual interest rate used for
calculating the 7% Solution Enhanced Death Benefit for the Liquid
Asset and Limited Maturity Bond investment portfolios
9 PREMIUM PLUS PROFILE
<PAGE>
and the Fixed Account, will be the lesser of (1) 7% and (2) the
interest rate, positive or negative, providing a yield on the enhanced
death benefit equal to the net return for the current valuation period
on the contract value allocated to Special Funds. We may, with 30 days
notice to you, designate any fund as a Special Fund on existing
contracts with respect to new premiums added to such fund and also
with respect to new transfers to such funds.
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 minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year prior
to death, which is determined as follows: On each contract anniversary
that occurs on or before the contract owner turns age 80, 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 and credit added if the preceding day is
the contract date), then we add additional premiums paid and credits
added since the preceding day, and then we adjust for any withdrawals
on a pro rata basis (including any market value adjustment applied to
such withdrawal and any associated surrender charges) since the
preceding day. That amount becomes the new enhanced death benefit.
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the Annual
Ratchet Enhanced Death Benefit are calculated in the same manner as if each were
the elected benefit.
Note: In all cases described above, the amount of the death benefit 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 refund of the adjusted contract value. We determine your
contract value at the close of business on the day we receive your written
refund request. For purposes of the refund during the free look period, (i) we
adjust your contract value for any market value adjustment (if you have invested
in the fixed account), (ii) then we exclude any credit initially applied, and
(iii) then we include 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,
excluding any credit, (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.
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. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. 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
10 PREMIUM PLUS PROFILE
<PAGE>
adjustment could increase or decrease your contract value and/or the amount you
transfer or withdraw. Transfers between Special Funds and other investment
portfolios will result in a transfer of the Guaranteed Death Benefit in
proportion to the account value transferred. In cases where more than one
Guaranteed Death Benefit exists because of such transfers, each death benefit
will be combined to calculate the total death benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge for
each rider. Once elected, the riders generally may not be cancelled. This means
once added the rider may not be removed and charges will be assessed regardless
of the performance of your Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment plus credits at the end of ten years, or, at least
equal two times your initial premium payment plus credits at the end of
twenty years, depending on the waiting period you select, reduced pro rata
for withdrawals and certain transfers. The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one.
Withdrawals and certain transfers may reduce the guarantee by more than the
amount withdrawn or transferred. The MGAB rider may offer you protection in
the event of a lower contract value that may result from unfavorable
investment performance of your Contract. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGAB rider. You should read the prospectus for more complete information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the greater
of the amounts that are ordinarily available to you under your Contract and
the MGIB annuity benefit, which is based on your MGIB Base, the MGIB
annuity option you selected and the MGIB guaranteed income factors
specified in your rider. Your MGIB Base generally depends on the amount of
premiums you pay during the first five contract years after you purchase
the rider, the credit(s) applied, and when you pay the premiums,
accumulated at the MGIB rate, less adjustments for withdrawals and
transfers. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGIB rider. You should read
the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that you will receive annual periodic
payments, when added together, equal to all premium payments and credits
paid during the first two contract years, less adjustments for any prior
withdrawals. If your contract value is reduced to zero, your periodic
payments will be 7% of your Eligible Payment Amount every year. (Of course,
any applicable income and penalty taxes will apply to amounts withdrawn.)
Your original Eligible Payment Amount is your premium payments and credits
received during the first two contract years. Withdrawals that you make in
excess of the above periodic payment amount may substantially reduce the
guarantee. There are exceptions, conditions, eligibility requirements, and
important considerations associated with the MGWB rider. You should read
the prospectus for more complete information.
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. It may give
you a lower average cost per unit over time than a single
11 PREMIUM PLUS PROFILE
<PAGE>
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 surrender 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 profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
12 PREMIUM PLUS PROFILE
<PAGE>
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS(R)
FEATURING THE GALAXY VIP FUND
- --------------------------------------------------------------------------------
MAY 1, 2000
This prospectus describes GoldenSelect Premium Plus(R), 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 and
credits in one or more of 32 mutual fund investment portfolios. You may also
allocate premium payments and credits 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 listed on the back of this
cover.
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 refund of the adjusted
contract value less credits we added (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 and in certain
situations.
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, 2000, 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 SUBACCOUNTS THROUGH THE GCG TRUST, THE GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY ANY BANK OR 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 GALAXY VIP FUND, THE PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS
TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
<PAGE>
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
FLEET INVESTMENT ADVISORS INC.
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Yield Bond Fund
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
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.
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms................................................. 1
Fees and Expenses...................................................... 2
Performance Information................................................ 11
Accumulation Unit................................................. 11
Net Investment Factor............................................. 11
Condensed Financial Information................................... 11
Financial Statements.............................................. 11
Performance Information........................................... 11
Golden American Life Insurance Company................................. 12
The Trusts............................................................. 13
Golden American Separate Account B..................................... 14
The Investment Portfolios.............................................. 14
Investment Objectives............................................. 14
Investment Management Fees........................................ 18
The Fixed Interest Allocation.......................................... 19
Selecting a Guaranteed Interest Period............................ 20
Guaranteed Interest Rates......................................... 20
Transfers from a Fixed Interest Allocation........................ 20
Withdrawals from a Fixed Interest Allocation...................... 21
Market Value Adjustment........................................... 21
The Annuity Contract................................................... 22
Contract Date and Contract Year................................... 22
Annuity Start Date................................................ 22
Contract Owner.................................................... 23
Annuitant......................................................... 23
Beneficiary....................................................... 24
Purchase and Availability of the Contract......................... 24
Crediting of Premium Payments..................................... 24
Additional Credit to Premium...................................... 26
Administrative Procedures......................................... 26
Contract Value.................................................... 26
Cash Surrender Value.............................................. 27
Surrendering to Receive the Cash Surrender Value.................. 27
The Subaccounts................................................... 27
Addition, Deletion or Substitution of Subaccounts and Other
Changes........................................................ 27
The Fixed Account................................................. 28
Optional Riders................................................... 28
Rider Date........................................................ 28
Special Funds..................................................... 28
No Cancellation................................................... 28
Termination....................................................... 28
Minimum Guaranteed Accumulation Benefit Rider..................... 28
Minimum Guaranteed Income Benefit Rider........................... 30
Minimum Guaranteed Withdrawal Benefit Rider....................... 33
Other Contracts................................................... 35
Other Important Provisions........................................ 35
Withdrawals............................................................ 35
Regular Withdrawals............................................... 36
Systematic Withdrawals............................................ 36
IRA Withdrawals................................................... 37
Transfers Among Your Investments....................................... 38
Dollar Cost Averaging............................................. 38
Automatic Rebalancing............................................. 39
Death Benefit Choices.................................................. 40
Death Benefit During the Accumulation Phase....................... 40
Standard Death Benefit............................................ 40
Enhanced Death Benefits........................................... 40
i
<PAGE>
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TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Death Benefit During the Income Phase............................. 41
Continuation after Death--Spouse.................................. 42
Continuation after Death--Non Spouse.............................. 42
Required Distributions upon Contract Owner's Death................ 42
Charges and Fees....................................................... 43
Charge Deduction Subaccount....................................... 43
Charges Deducted from the Contract Value.......................... 43
Surrender Charge.................................................. 43
Waiver of Surrender Charge for Extended Medical Care.............. 43
Free Withdrawal Amount............................................ 44
Surrender Charge for Excess Withdrawals........................... 44
Premium Taxes..................................................... 44
Administrative Charge............................................. 44
Transfer Charge................................................... 44
Charges Deducted from the Subaccounts............................. 45
Mortality and Expense Risk Charge................................. 45
Asset-Based Administrative Charge................................. 45
Optional Rider Charges............................................ 45
Trust Expenses.................................................... 46
The Annuity Options.................................................... 46
Annuitization of Your Contract.................................... 46
Selecting the Annuity Start Date.................................. 47
Frequency of Annuity Payments..................................... 47
The Annuity Options............................................... 47
Income for a Fixed Period......................................... 47
Income for Life with a Period Certain............................. 47
Joint Life Income................................................. 47
Annuity Plan...................................................... 48
Payment When Named Person Dies.................................... 48
Other Contract Provisions.............................................. 48
Reports to Contract Owners........................................ 48
Suspension of Payments............................................ 48
In Case of Errors in Your Application............................. 48
Assigning the Contract as Collateral.............................. 49
Contract Changes-Applicable Tax Law............................... 49
Free Look......................................................... 49
Group or Sponsored Arrangements................................... 49
Selling the Contract.............................................. 49
Other Information...................................................... 50
Voting Rights..................................................... 50
State Regulation.................................................. 50
Legal Proceedings................................................. 50
Legal Matters..................................................... 50
Experts........................................................... 50
Federal Tax Considerations............................................. 51
More Information About Golden American................................. 56
Financial Statements of Golden American Life Insurance Company......... 76
Statement of Additional Information
Table of Contents................................................. 107
Appendix A
Condensed Financial Information................................... A1
Appendix B
Market Value Adjustment Examples.................................. B1
Appendix C
Surrender Charge for Excess Withdrawals Example................... C1
ii
<PAGE>
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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 11
Annual Ratchet Enhanced Death Benefit 40
Annuitant 23
Annuity Start Date 22
Cash Surrender Value 27
Max 7 Enhanced Death Benefit 40
Contract Date 22
Contract Owner 23
Contract Value 26
Contract Year 22
Fixed Interest Allocation 19
Free Withdrawal Amount 35
Market Value Adjustment 21
Net Investment Factor 11
Rider Date 28
7% Solution Enhanced Death Benefit 40
Special Fund 28
Standard Death Benefit 40
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
<PAGE>
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FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 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.............................................. $40
(We waive this charge if the total of your premium payments is $100,000 or
more or if your contract value at the end of a contract year is $100,000 or
more.)
*** We deduct this charge on each contract anniversary and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES****
<TABLE>
<CAPTION>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
------------- -------------- ----------- -----
<S> <C> <C> <C> <C>
Mortality & Expense Risk Charge........ 1.30% 1.45% 1.65% 1.75%
Asset-Based Administrative Charge...... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total Separate Account Charges......... 1.45% 1.60% 1.80% 1.90%
</TABLE>
**** As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
OPTIONAL RIDER CHARGES*****
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year........... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%................ 0.125% of the MGIB Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
***** We deduct optional rider charges from the subaccounts in which you
are invested on each quarterly contract anniversary and pro rata on
termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation nearest maturity.
2
<PAGE>
(1) The MGAB Charge Base is the total of premiums and credits added during
the two year period commencing on the rider date if you purchase the
rider on the contract date, or, your contract value on the rider date
plus premiums and credits added during the two year period commencing
on the rider date if you purchased the rider after the contract date,
reduced pro rata for all withdrawals taken while the MGAB rider is in
effect, and reduced pro rata for transfers made during the three year
period before the MGAB Benefit Date.
(2) The MGIB Base generally depends on the amount of premiums you pay
during the first five contract years after you purchase the rider, and
the credit(s) applied, when you pay the premiums, and less a pro rata
deduction for any withdrawal made while the MGIB rider is in effect.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums and
credit paid during the 2-year period commencing on the rider date if
you purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums and credits received
during the two-year period commencing on the rider date.
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
- --------------------------------------------------------------------------------
Liquid Asset 0.56% 0.00% 0.56%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.56% 0.01% 0.57%
- --------------------------------------------------------------------------------
Global Fixed Income 1.60% 0.00% 1.60%
- --------------------------------------------------------------------------------
Fully Managed 0.96% 0.01% 0.97%
- --------------------------------------------------------------------------------
Total Return 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Equity Income 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Value Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Rising Dividends 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.00% 1.25%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Capital Appreciation 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
- --------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Small Cap 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Growth 1.04% 0.00% 1.04%
- --------------------------------------------------------------------------------
Real Estate 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Hard Assets 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.00% 1.75%
- --------------------------------------------------------------------------------
(1) Fees decline as the total assets of certain combined portfolios
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, 1999, except for portfolios that commenced operations in
2000 where the charges have been estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
3
<PAGE>
THE GALAXY VIP FUND ANNUAL EXPENSES (as a percentage of the average daily net
assets of the portfolio):
- --------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1) REIMBURSEMENT(1) REIMBURSEMENT(1)
- --------------------------------------------------------------------------------
Equity 0.75% 0.21% 0.96%
Growth and Income 0.75% 0.74% 1.49%
Small Company Growth 0.75% 0.85% 1.60%
Asset Allocation 0.75% 0.27% 1.02%
High Quality Bond 0.29% 0.35% 0.64%
- --------------------------------------------------------------------------------
(1) Total Expenses are based on actual Expenses for the fiscal year ended
December 31, 1999. Fleet Investment Advisors Inc. and/or the
administrator have agreed to waive certain fees and/or reimburse Fund
expenses of 4.37% and 0.39% for the Small Company Growth Fund and High
Quality Bond Fund, respectively, for the year ending December 31,
2000. Without this agreement, and based on actual waivers and
reimbursements for the fiscal year ended December 31, 1999, total
expenses would have been 0.96%, 1.49%, 5.97%, 1.02% and 1.03% for the
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Asset
Allocation Fund and High Quality Bond, respectively.
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
- --------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
- --------------------------------------------------------------------------------
(1) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.65% and 0.75% for the
High Yield Bond and the StocksPLUS Growth and Income Portfolios,
respectively, of average daily net assets. Without such reductions,
total annual operating expenses for the fiscal year ended December 31,
1999 would have remained unchanged for both Portfolios. Under the
Expense Limitation Agreement, PIMCO may recoup any such waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit. The fees expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
- --------------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
- --------------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
4
<PAGE>
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE (3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Since the portfolio had not commenced operations as of December 31,
1999, expenses as shown are based on estimates of the portfolio's
operating expenses for the portfolio's first fiscal year.
(2) ING Mutual Funds Management Co. LLC, the investment manager, has
entered into an expense limitation contract with the portfolio, under
which it will limit expenses of the portfolio as shown, excluding
interest, taxes, brokerage, and extraordinary expenses through
December 31, 2000. Fee waiver and/or reimbursements by the investment
manager may vary in order to achieve such contractually obligated
Total Expenses. Without this contract, and based on estimates for the
fiscal year ending December 31, 2000, total expenses are estimated to
be 2.03% for the portfolio.
(3) Pursuant to a Plan of Distribution adopted by the portfolio under Rule
12b-1 under the 1940 Act, the portfolio pays its distributor an annual
fee of up to 0.25% of average daily net assets attributable to
portfolio shares. The distribution fee may be used by the distributor
for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the portfolio. For more information
see the portfolio's Statement of Additional Information.
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
- --------------------------------------------------------------------------------
(1) The 12b-1 fee for the Prudential Jennison Portfolio is imposed to
enable to portfolio to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses for
delivery to prospective investors and advertising costs for the
portfolio. Over a long period of time, the total amount of 12b-1 fees
paid may exceed the amount of sales charges imposed by the product.
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 Galaxy VIP Fund, the PIMCO Variable Insurance Trust and the
Warburg Pincus Trust, the ING Variable Insurance Trust, and the Prudential
Series Fund 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.
EXAMPLES:
The following four examples are designed to show you the expenses you would pay
on a $1,000 investment, plus a credit of $40, that earns 5% annually. Each
example assumes election of the Max 7 Enhanced Death Benefit. The examples
reflect the deduction of a mortality and expense risk charge, an asset-based
administrative charge, and the annual contract administrative charge as an
annual charge of 0.05% of assets (based on an average contract value of
$77,000). In addition, Examples 1 and 2 assume you elected an optional benefit
rider with the highest charge 0.75% annually where the rider base is equal to
the initial premium and increases by 7% annually, except for the Liquid Asset
and Limited Maturity Bond portfolios, where the charge is 0.50% annually and
assume the rider charge is assessed each quarter on a base equal to the
hypothetical $1,000 premium increasing at 7% per year (the assumed net rate for
Liquid Asset and Limited Maturity Bond portfolios). The annual charge of 0.75%
results from the assumption of a 7% annual
5
<PAGE>
increase in the rider base but only a 5% earnings increase in the contract value
before expenses. Thus, 0.75% represents an annual charge over the 10-year period
which is equivalent to an increasing charge of 0.125% per quarter over the same
period. If the Standard Death Benefit, the Annual Ratchet Enhanced Death Benefit
or 7% Solution Enhanced Death Benefit is elected instead of the Max 7 Enhanced
Death Benefit used in the examples, the actual expenses will be less than those
represented in the examples. Note that surrender charges may apply if you choose
to annuitize your Contract within the first 5 contract years, and under certain
circumstances, within the first 9 contract years. Thus, in the event you
annuitize your Contract under circumstances which require a surrender charge,
you should refer to Examples 1 and 3 below which assume applicable surrender
charges.
6
<PAGE>
Example 1
If you surrender your Contract at the end of the applicable time period and
elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $112 $177 $236 $349
Limited Maturity Bond $112 $178 $236 $350
Global Fixed Income $125 $216 $298 $463
Fully Managed $118 $197 $267 $408
Total Return $118 $195 $264 $403
Equity Income $118 $197 $267 $407
Investors $119 $198 $269 $412
Value Equity $118 $197 $267 $407
Rising Dividends $118 $197 $267 $407
Managed Global $121 $205 $281 $433
Large Cap Value $119 $198 $269 $412
All Cap $119 $198 $269 $412
Research $118 $195 $264 $403
Capital Appreciation $118 $197 $267 $407
Capital Growth $119 $199 $271 $415
Strategic Equity $118 $197 $267 $407
Mid-Cap Growth $118 $195 $264 $403
Small Cap $118 $197 $267 $407
Growth $119 $199 $271 $414
Real Estate $118 $197 $267 $407
Hard Assets $118 $197 $267 $407
Developing World $126 $220 $305 $476
THE GALAXY VIP FUND
Equity $118 $197 $267 $407
Growth and Income $124 $212 $292 $454
Small Company Growth $125 $216 $298 $463
Asset Allocation $119 $198 $270 $413
High Quality Bond $115 $187 $251 $378
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $116 $190 $256 $388
PIMCO StocksPLUS
Growth and Income $115 $187 $252 $379
THE WARBURG PINCUS TRUST
International Equity $122 $207 $284 $439
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $121 $205 $280 $431
PRUDENTIAL SERIES FUND
Prudential Jennison $119 $199 $270 $413
7
<PAGE>
Example 2
If you do not surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $32 $ 97 $166 $349
Limited Maturity Bond $32 $ 98 $166 $350
Global Fixed Income $45 $136 $228 $463
Fully Managed $38 $117 $197 $408
Total Return $38 $115 $194 $403
Equity Income $38 $117 $197 $407
Investors $39 $118 $199 $412
Value Equity $38 $117 $197 $407
Rising Dividends $38 $117 $197 $407
Managed Global $41 $125 $211 $433
Large Cap Value $39 $118 $199 $412
All Cap $39 $118 $199 $412
Research $38 $115 $194 $403
Capital Appreciation $38 $117 $197 $407
Capital Growth $39 $119 $201 $415
Strategic Equity $38 $117 $197 $407
Mid-Cap Growth $38 $115 $194 $403
Small Cap $38 $117 $197 $407
Growth $39 $119 $201 $414
Real Estate $38 $117 $197 $407
Hard Assets $38 $117 $197 $407
Developing World $46 $140 $235 $476
THE GALAXY VIP FUND
Equity $38 $117 $197 $407
Growth and Income $44 $132 $222 $454
Small Company Growth $45 $136 $228 $463
Asset Allocation $39 $118 $200 $413
High Quality Bond $35 $107 $181 $378
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $36 $110 $186 $388
PIMCO StocksPLUS
Growth and Income $35 $107 $182 $379
THE WARBURG PINCUS TRUST
International Equity $42 $127 $214 $439
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $41 $125 $210 $431
PRUDENTIAL SERIES FUND
Prudential Jennison $39 $119 $200 $413
8
<PAGE>
Example 3
If you surrender your Contract at the end of the applicable time period and did
not elect any optional benefit rider, you would pay the following expenses for
each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $106 $161 $209 $296
Limited Maturity Bond $107 $162 $209 $297
Global Fixed Income $117 $193 $261 $397
Fully Managed $111 $174 $230 $337
Total Return $110 $172 $227 $331
Equity Income $111 $174 $229 $336
Investors $111 $175 $232 $341
Value Equity $111 $174 $229 $336
Rising Dividends $111 $174 $229 $336
Managed Global $114 $183 $244 $364
Large Cap Value $111 $175 $232 $341
All Cap $111 $175 $232 $341
Research $110 $172 $227 $331
Capital Appreciation $111 $174 $229 $336
Capital Growth $112 $176 $234 $345
Strategic Equity $111 $174 $229 $336
Mid-Cap Growth $110 $172 $227 $331
Small Cap $111 $174 $229 $336
Growth $111 $176 $233 $344
Real Estate $111 $174 $229 $336
Hard Assets $111 $174 $229 $336
Developing World $119 $198 $269 $411
THE GALAXY VIP FUND
Equity $111 $174 $229 $336
Growth and Income $116 $190 $256 $387
Small Company Growth $117 $193 $261 $397
Asset Allocation $111 $176 $232 $342
High Quality Bond $107 $164 $213 $304
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $108 $167 $219 $315
PIMCO StocksPLUS
Growth and Income $107 $164 $214 $305
THE WARBURG PINCUS TRUST
International Equity $114 $185 $248 $371
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $113 $182 $243 $362
PRUDENTIAL SERIES FUND
Prudential Jennison $111 $176 $233 $343
9
<PAGE>
Example 4
If you do not surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
THE GCG TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Liquid Asset $26 $ 81 $139 $296
Limited Maturity Bond $27 $ 82 $139 $297
Global Fixed Income $37 $113 $191 $397
Fully Managed $31 $ 94 $160 $337
Total Return $30 $ 92 $157 $331
Equity Income $31 $ 94 $159 $336
Investors $31 $ 95 $162 $341
Value Equity $31 $ 94 $159 $336
Rising Dividends $31 $ 94 $159 $336
Managed Global $34 $103 $174 $364
Large Cap Value $31 $ 95 $162 $341
All Cap $31 $ 95 $162 $341
Research $30 $ 92 $157 $331
Capital Appreciation $31 $ 94 $159 $336
Capital Growth $32 $ 96 $164 $345
Strategic Equity $31 $ 94 $159 $336
Mid-Cap Growth $30 $ 92 $157 $331
Small Cap $31 $ 94 $159 $336
Growth $31 $ 96 $163 $344
Real Estate $31 $ 94 $159 $336
Hard Assets $31 $ 94 $159 $336
Developing World $39 $118 $199 $411
THE GALAXY VIP FUND
Equity $31 $ 94 $159 $336
Growth and Income $36 $110 $186 $387
Small Company Growth $37 $113 $191 $397
Asset Allocation $31 $ 96 $162 $342
High Quality Bond $27 $ 84 $143 $304
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 87 $149 $315
PIMCO StocksPLUS
Growth and Income $27 $ 84 $144 $305
THE WARBURG PINCUS TRUST
International Equity $34 $105 $178 $371
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $33 $102 $173 $362
PRUDENTIAL SERIES FUND
Prudential Jennison $31 $ 96 $163 $343
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
10
<PAGE>
- --------------------------------------------------------------------------------
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 certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
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 the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 1999, 1998 and 1997 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
accumulation 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 Separate Account B has
been investing in the portfolio. 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 when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current 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. Quotations of average annual
return for the Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as
11
<PAGE>
a subaccount of Golden American Separate Account D. In addition, we may present
historic performance data for the 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 before the
separate account began investing in the portfolios.
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, assuming no
surrender and the selection of the Max 7 Enhanced Death Benefit and the MGIB
optional benefit rider.
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 determine the real
rate of return of 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.
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 based in The
Netherlands. 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.
12
<PAGE>
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies 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 address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The Galaxy VIP Fund is a mutual fund whose shares are offered to separate
accounts of various life insurance companies for variable annuity contracts,
including certain variable contracts of Golden American and its affiliates. The
principal address of The Galaxy VIP Fund is 4400 Computer Drive, Westborough, MA
01581.
The PIMCO Variable Insurance 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 to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
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 address of the Warburg Pincus Trust is 153 East 53rd
Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund whose shares are offered to
separate accounts funding variable annuity contracts offered by Golden American.
Pending SEC approval, shares of ING Variable Insurance Trust may also be sold to
variable annuity and variable life insurance policies offered by other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
ING Variable Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund is also a mutual fund whose shares are available to
separate accounts funding variable annuity and variable life insurance polices
offered by The Prudential Insurance Company of America, its affiliated insurers
and other life insurance companies not affiliated with Prudential, including
Golden American. The address of the Prudential Series Fund is 751 Broad Street,
Newark, NJ 07102.
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 Galaxy VIP
Fund, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, and the ING
Variable Insurance Trust, the Board of Directors of the Prudential Series Fund,
and the management of Directed Services, Inc., Fleet Investment Advisors, Inc.,
Pacific Investment Management Company, Credit Suisse Asset Management, LLC, ING
Mutual Funds Management Co. LLC, Prudential Insurance Company of America 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 GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH
TRUST. 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, The Galaxy VIP Fund, the
PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING Variable
Insurance Trust or the Prudential Series Fund. 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 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. Under certain
circumstances, we may make certain changes to the subaccounts. For more
information, see "The Annuity Contract -- Addition, Deletion, or Substitution of
Subaccounts and Other Changes."
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU 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. Account B also has other subaccounts investing in other
portfolios which are not available to the Contract described in this prospectus.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE
PROSPECTUSES FOR THE GCG TRUST, THE GALAXY VIP FUND, THE PIMCO VARIABLE
INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE
PRUDENTIAL SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
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.
--------------------------------------------------------
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Limited Maturity Bond Seeks highest current income consistent with 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 Income Seeks high total return.
Invests primarily in high-grade fixed income securities,
both foreign and domestic.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Investors Seeks long-term growth of capital. Current income is a
secondary objective.
Invests primarily in equity securities of U.S. companies
and to a lesser degree, debt securities.
--------------------------------------------------------
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.
--------------------------------------------------------
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."
--------------------------------------------------------
Managed Global Seeks capital appreciation. Current income is only an
incidental consideration.
Invests primarily in common stocks traded in securities
markets throughout the world.
--------------------------------------------------------
Large Cap Value Seeks long-term growth of capital and income.
Invests primarily in equity and equity-related
securities of companies with market capitalization
greater than $1 billion.
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
All Cap Seeks capital appreciation through investment in
securities which the portfolio manager believes have
above-average capital appreciation potential.
Invests primarily in equity securities of U.S. companies
of any size.
--------------------------------------------------------
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.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
--------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium- and
small-sized companies.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity Seeks long-term growth by investing in companies that
the portfolio manager believes have above-average
earnings potential.
Invests normally at least 75% of its total assets in
common stocks and securities convertible into common
stocks issued by U.S. companies.
--------------------------------------------------------
Growth and Income Seeks to provide a relatively high total return through
long-term capital appreciation and current income.
Invests normally at least 65% of its total assets in the
common stocks of U.S. companies with large market
capitalizations (generally over $2 billion) that have
prospects for above-average growth and dividends.
--------------------------------------------------------
Small Company Growth Seeks capital appreciation.
Invests normally at least 65% of its total assets in the
equity securities, primarily common stocks, of small
companies that have market capitalizations of $1.5
billion or less. The portfolio invests primarily in the
common stock of U.S. companies, but may invest up to 20%
of its total assets in foreign equity securities.
--------------------------------------------------------
Asset Allocation Seeks a high total return by providing both a current
level of income that is greater than that provided by
the popular stock market averages, as well as long-term
growth in the value of the portfolio's assets.
Invests in a mix of stocks and bonds that the portfolio
manager believes will produce both income and long-term
capital growth. This mix will change from time to time
as a result of economic and market conditions. However,
the portfolio keeps at least 25% of its total assets in
fixed income investments, including debt securities and
preferred stocks, at all times.ll produce both income
and long-term capital growth. This mix will change from
time to time as a result of economic and market
conditions. However, the portfolio keeps at least 25% of
its total assets in fixed income investments, including
debt securities and preferred stocks, at all times.
--------------------------------------------------------
High Quality Bond Seeks a high level of current income consistent with
prudent risk of capital.
Invests primarily in obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities,
as well as in corporate debt obligations such as notes
and bonds. The portfolio also invests in asset-backed
and mortgage-backed securities and in money market
instruments, such as commercial paper and bank
obligations. Normally, at least 65% of the portfolio's
total assets will be invested in high quality debt
obligations that have one of the top two ratings
assigned by Standard & Poor's Ratings Group or Moody's
Investors Services, Inc. or are unrated securities
determined by the portfolio manager to be of comparable
quality.
--------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests 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.
--------------------------------------------------------
17
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- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income Seeks to achieve a total return which exceeds the total
return performance of the S&P 500
Invests primarily in common stocks, options, futures,
options on futures and swaps.
--------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity Seeks long-term appreciation.
Invests primarily in a broadly diversified portfolio of
equity securities of companies that have their principal
business activities outside of the United States.
--------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Seeks to provide investors with long-term capital
Fund appreciation.
Invests at least 65% of its total assets in equity
securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
--------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
--------------------------------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios Directed Services (and not the GCG Trust) pays each portfolio manager
a monthly fee for managing the assets of a portfolio, based on the annual rates
of the average daily net assets of a portfolio. For a list of the portfolio
managers, see the front cover of this prospectus. Directed Services does 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.
Fleet Investment Advisors Inc. serves as the investment advisor of The Galaxy
VIP Fund. The Galaxy VIP Fund pays Fleet Investment Advisors a monthly advisory
fee based on the average daily net assets of each investment portfolio. Each
portfolio pays its own administrative costs. Except for agreements to reimburse
certain expenses of some portfolios, Fleet Investment Advisors does not bear any
portfolio expenses.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee 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 Variable
Insurance
18
<PAGE>
Trust. PIMCO does 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 expense of the independent trustees, and extraordinary
expenses, such as litigation or indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of the
Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset Management a
monthly advisory fee based on the average daily net assets of the investment
portfolio and also procures the services necessary for the operation of its
portfolios. The Warburg Trust pays monthly administrative fees to two
co-administrators for administrative services, one of which is an affiliate of
Credit Suisse Asset Management. The monthly administrative fee is based on the
portfolio's average daily net assets. Credit Suisse Asset Management does not
bear any portfolio expenses.
ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager
of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's
operations and provides investment advisory services to the portfolios of the
Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING MFMC, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V.
The Prudential Insurance Company of America serves as the overall investment
adviser for the Prudential Series Fund. Prudential is responsible for the
management of the Prudential Series Fund and provides investment advice and
related services to each portfolio. For the Prudential Jennison Portfolio,
Prudential engages Jennison Associates LLC to serve as sub-adviser and to
provide day-to-day management. Prudential pays the sub-advisor out of the fee
Prudential receives from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, two portfolios deduct a
distribution or 12b-1 fee, which is used to finance any activity that is
primarily intended to result in the sale of shares of the applicable portfolio.
For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees
and Expenses" in this prospectus.
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
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.
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<PAGE>
Assets supporting amounts allocated to the Fixed Account are available to fund
the claims of all classes of our customer, 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 on DCA
Fixed Interest Allocations, 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 do not take your money out 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. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our Customer
Service Center or your registered representative. 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 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. 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 that was offered exclusively with our dollar cost averaging program,
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.
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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.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
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, as well as state income tax consequences.
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.
Please be aware that the benefit we pay under any of the optional riders will be
reduced on a pro rata basis by any withdrawals you make from the Fixed Interest
Allocations during the period while the rider is in effect. See "Optional
Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. 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 program) 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.
We determine the Market Value Adjustment by multiplying the amount you withdraw,
transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
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Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the first day
of the 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 B.
- --------------------------------------------------------------------------------
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 Galaxy VIP
Fund, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING
Variable Insurance Trust, and the Prudential Series Fund through 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 and the death benefit is paid upon the death
of the first of the joint owners to die. Joint owners may only select the
Standard Death Benefit option. Upon adding an additional owner to a contract
which was issued with an Enhanced Death Benefit option, generally, your death
benefit will be changed automatically to a Standard Death Benefit and your
mortality and expense risk charges will be lowered correspondingly to that which
is charged under the Standard Death Benefit Option. Also note that if any
owner's age is 86 or greater, even the standard death benefit guarantee will
also be lost. Note that returning a Contract to single owner status will not
restore any Enhanced Death Benefit. Unless otherwise specified, the term "age"
when used for joint owners shall mean the age of the oldest owner.
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 adviser for more information if you are
not an individual.
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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, the guaranteed death benefit, and/or
the death benefit option applied to the contract. The new owner's age, as of the
date of the change, will be used as the basis for determining which option to
use. The new owner's death will determine when a death benefit is payable.
If the new owner's age is less than 80, the death benefit option in effect prior
to the change in owner will remain in effect. If the new owner's age is greater
than 79, but less than or equal to 85, and if the contract was issued with an
enhanced death benefit, the death benefit will become the Standard Death
Benefit. If the new owner's age is greater than 85, the death benefit will be
the cash surrender value. Once a death benefit has been changed due to a change
in owner, a subsequent change to a younger owner will not restore any Enhanced
Death Benefits and the death benefit will continue to be the cash surrender
value.
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 $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for qualified
Contracts) 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. An 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.
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See "Fees
and Expenses" in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days after
receipt, if the application and all information necessary for processing the
Contract are complete. Subsequent premium payments and credits will be processed
within 1 business day if we receive all information necessary. In certain states
we also accept initial and additional premium payments by wire order. Wire
transmittals must be accompanied by sufficient electronically transmitted data.
We may retain your initial premium payment 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.
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We will allocate your initial payment according to the instructions you
specified. If a subaccount is not available or requested in error, we will make
inquiry about a replacement subaccount. If we are unable to reach you or your
representative, we will allocate your initial payment proportionally among the
other subaccount(s) in your instructions. For initial premium payments, the
payment will be credited at the accumulation unit value next determined after we
receive your premium payment and the completed application. Once the completed
application is received, we will allocate the payment and credit to the
subaccount(s) 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. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment and credit will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
Once we allocate your premium payment and credit to the subaccounts selected by
you, we convert the premium payment and credit into accumulation units. We
divide the amount of the premium payment and credit 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 5 days of the premium payment.
If we do not receive the application or form within 5 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 or your
representative, 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. We may require additional
information before complying with your request (e.g., signature
guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated with the added credit
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 and credit 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 with the added credit to a Fixed
Interest Allocation with the guaranteed interest period you have chosen;
however, in the future we may allocate the premiums and credits to the specially
designated subaccount during the free look period.
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium payment. The
credit will be added proportionally to each subaccount and Fixed Interest
Allocation as the premium payment is allocated. The credit is a minimum of 4% of
the premium payment. We may increase the credit at our discretion. If we
increase the credit we may reduce it also at our discretion, but we will not
reduce it below the minimum credit of 4%, and we will give at least 30 days
notice of any planned reduction.
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The credit constitutes earnings (and not premiums paid by you) for federal tax
purposes.
In any of the following circumstances, we deduct a credit from the amount we pay
to you or your beneficiary:
(1) If you return your Contract within the free look period, we will
deduct the credit from the refund amount;
(2) If a death benefit of contract value becomes payable, we will deduct
any credits added to your contract within 1 year prior to death; and
(3) If we waive any surrender charge, we will deduct any credit added to
your contract value within 1 year.
If we deduct a credit from any amount we pay to you, we will deduct the full
dollar amount of the credit. You will retain any gains, and you will also bear
any losses, that are attributable to the credit we deduct.
Once we have waived any surrender charge, we will not add any additional credit
to any additional premium you pay on or after the date of any such waiver.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or other
approved electronic means, subject to our administrative procedures, which vary
depending on the type of service requested and may include proper completion of
certain forms, providing appropriate identifying information, and/or other
administrative requirements. We will process your request at the accumulation
value next determined only after you have met all administrative requirements.
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 and credits 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 (including,
in some cases, fees for optional benefit riders) 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 added credit that was 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 and added credit not allocated
to a Fixed Interest Allocation may 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 credits, 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 (including any rider charges) and premium
taxes.
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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, and then we deduct any
surrender charge, any charge for premium taxes, the annual contract
administrative fee (unless waived), any optional benefit rider charges, 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 all paperwork required in order for us to process your
surrender. 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 adviser 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.
THE SUBACCOUNTS
Each of the 32 subaccounts of Account B offered under this prospectus invests in
an investment portfolio with its own distinct investment objectives and
policies. Each subaccount of Account B invests in a corresponding portfolio of
the GCG Trust, a corresponding portfolio of the Galaxy VIP Fund, a corresponding
portfolio of the PIMCO Variable Insurance Trust, a corresponding portfolio of
the Warburg Pincus Trust, a corresponding portfolio of the ING Variable
Insurance Trust, or a corresponding portfolio of the Prudential Series Fund.
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. If you elected the dollar cost
averaging, systematic withdrawals or automatic rebalancing programs or if you
have other outstanding instructions, and we substitute a portfolio subject to
those instructions, we will execute your instructions using the substituted
portfolio, unless you request otherwise.
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.
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OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider.
Once elected, the riders generally may not be cancelled. This means once you add
the rider you may not remove it, and charges will be assessed regardless of the
performance of your Contract. Please see "Charges and Fees -- Optional Rider
Charges" for information on rider charges.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider becomes
effective. The rider date is also the contract date if the rider was purchased
at the time the Contract is issued.
SPECIAL FUNDS. We use the term Special Funds in the discussion of the Minimum
Guaranteed Accumulation Benefit rider (with the 20-year waiting period) and the
Minimum Guaranteed Income Benefit rider. The Special Funds refer to the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may designate new and/or existing subaccounts as a
Special Fund with 30 days notice at any time, including during the life of a
rider.
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you may not at any time cancel the rider, except with respect to a
one-time right to cancel the twenty-year option of the Minimum Guaranteed
Accumulation Benefit rider under specified conditions. The Company may, at its
discretion, cancel and/or replace a rider at your request in order to renew or
reset a rider.
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death of
annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase. The
optional rider will also terminate if there is a change in contract ownership
(other than a spousal beneficiary continuation on your death). Other
circumstances which may cause a particular optional rider to terminate
automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you
protection in the event your Contract loses value during the MGAB waiting
period. For a discussion of the charges we deduct under the MGAB rider, see
"Optional Rider Charges."
The MGAB rider offers a ten-year option and a twenty-year option, of which you
may purchase only one. The ten-year option has a waiting period of ten years and
guarantees that your contract value at the end of ten years will at least equal
your initial premium payment plus credits, reduced pro rata for withdrawals.
Transfers made within 3 years prior to the MGAB Benefit Date will also reduce
the benefit pro rata. The twenty-year option has a waiting period of twenty
years and guarantees that your contract value at the end of twenty years will at
least equal two times your initial premium payment plus credits, reduced pro
rata for withdrawals, and reduced for transfers made within 3 years prior to the
MGAB Benefit Date. On the MGAB
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Benefit Date, which is the next business day after the applicable waiting
period, we calculate your Minimum Guaranteed Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a calculation
used to determine the MGAB. The MGAB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your annuity income, cash surrender value and death
benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your rider date, reduced
pro rata for any withdrawals and reduced for any transfers made within
the last 3 years prior to the MGAB Benefit Date; or
(ii) elected the twenty-year option, except for the Special Funds which
require special calculations, your MGAB Base is equal to your initial
premium and credit, plus any additional premium and credit added to
your Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rate, reduced pro rata for any
withdrawals and reduced for any transfers made within the last 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for allocations
other than allocations to the Special Funds is the annual effective
rate of 3.5265%. Accumulation of eligible additional premiums starts
on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus, the
MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus premiums
and credits added during the 2-year period after your rider date.
Withdrawals taken while the MGAB rider is in effect, as well as
transfers made within 3 years prior to the MGAB Benefit Date, will
reduce the value of your MGAB Base pro rata. This means that the MGAB
Base (and the MGAB Charge Base) will be reduced by the same percent as
the percent of contract value that was withdrawn (or transferred). We
will look to your contract value immediately before the withdrawal or
transfer when we determine this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the contract
value allocated to the Special Fund over the calculation period is
less than the amount calculated under the formula above, that lesser
amount becomes the increase in your MGAB Base for the Special Fund for
that period. THE MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE
OR NEGATIVE. Thus, investing in the Special Funds may limit the MGAB
benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the
Special Funds, may prevent the MGAB Base from doubling over the
waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both the
contract value in the subaccounts in which you are invested and the
contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts in
which you are invested pro rata based on the
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proportion of your contract value in the subaccounts on that date,
unless you have previously given us other allocation instructions. If
you do not have an investment in any subaccount on the MGAB Benefit
Date, we will allocate the MGAB to the Liquid Asset subaccount on your
behalf. After the crediting of the MGAB, the amount of your annuity
income, cash surrender value and death benefits will reflect the
crediting of the MGAB to your contract value to the extent the
contract value is used to determine such value.
WITHDRAWALS AND TRANSFERS. We will reduce your MGAB Base and the MGAB
Charge Base pro rata to the percentage of contract value of any withdrawals you
make after the rider date but prior to the MGAB Benefit Date. Any transfers you
make after the rider date but within three years prior to the MGAB Benefit Date
will reduce the MGAB Base and the MGAB Charge Base pro rata to the percentage of
contract value transferred. Transfers you make before this date will have no
immediate impact on the MGAB Base. Any transfers more than 3 years prior to the
MGAB Benefit Date between the subaccounts and Special Funds in which you are
invested will cause your MGAB Base to be reallocated pro rata based on the
percentage of contract value. Transfers to one or more Special Funds could
reduce your MGAB benefit.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus, your MGAB Benefit Date will be the first contract
anniversary occurring after 10 years (for the ten-year option) or 20 years (for
the twenty-year option) after the rider date. The MGAB rider is not available if
the MGAB Benefit Date would fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, you one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our Customer Service Center at least 30 days before
such anniversary date. If the MGAB rider is terminated before the MGAB Benefit
Date, you will not be credited with the MGAB and we will assess the pro rata
portion of the MGAB rider charge for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an optional
benefit which guarantees that a minimum amount of annuity income will be
available to you if you annuitize on the MGIB Benefit Date, regardless of
fluctuating market conditions. The amount of the Minimum Guaranteed Income
Benefit will depend on the amount of premiums you pay during the five contract
years after you purchase the rider, the credit(s) we add, the amount of contract
value you allocate or transfer to the Special Funds, the MGIB Rate (7% for all
portfolios except the Special Funds), the adjustments for Special Fund
transfers, and the dollar amount of any withdrawals you take while the rider is
in effect. For a discussion of the charges we deduct under the MGIB rider, see
"Optional Rider Charges." Ordinarily, the amount of income that will be
available to you on the annuity start date is based on your contract value, the
annuity option you selected and the guaranteed or income factors in effect on
the date you annuitize. If you purchase the MGIB rider, the minimum amount of
income that will be available to you upon annuitization on the MGIB Benefit Date
is the greatest of:
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(i) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
guaranteed income factors specified in your Contract for the
annuity option you selected;
(ii) your annuity income based on your contract value adjusted for any
Market Value Adjustment on the MGIB Benefit Date applied to the
then current income factors in effect for the annuity option you
selected; and
(iii)the MGIB annuity income based on your MGIB Base on the MGIB
Benefit Date applied to the MGIB income factors specified in your
rider for the MGIB annuity option you selected. Prior to applying
the MGIB income factors, we will adjust the MGIB Base for any
surrender charges, premium tax recovery and Market Value
Adjustments that would otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider on the MGIB Benefit Date. Payments
under the rider begin on the MGIB Benefit Date. We require a 10-year waiting
period before you can annuitize under the MGIB rider benefit. The MGIB must be
exercised in the 30-day period prior to the end of the waiting period or any
subsequent contract anniversary. At your request, the Company may in its
discretion extend the latest contract annuity start date without extending the
MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we calculate
your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a calculation
used to determine the MGIB. The MGIB Base does not represent a
contract value, nor does it guarantee performance of the subaccounts
in which you are invested. It is also not used in determining the
amount of your cash surrender value and death benefits. Any reset of
contract value under provisions of the Contract or other riders will
not increase the MGIB Base or MGIB Base Maximum.
(i) If you purchased the MGIB rider on the contract date, except for
the Special Funds which require special calculations, the MGIB
Base is equal to your initial premium and credit, plus any
additional premiums and credits added to your Contract during the
5-year period after your contract date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Premiums and credits paid less than 5 years prior to
the earliest MGIB Benefit Date are excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date, except
for the Special Funds which require special calculations, your
MGIB Base is equal to your contract value on the rider date plus
any eligible premiums and credits added to your Contract during
the 5-year period after your rider date, accumulated at the MGIB
Base Rate (7% for all portfolios except the Special Funds),
reduced pro rata by all withdrawals taken while the MGIB rider is
in effect. Eligible additional premium payments and credits are
those added more than 5 years before the earliest MGIB Benefit
Date and are included in the MGIB Base. Premiums and credits paid
after the 5th rider anniversary are excluded from the MGIB Base.
(iii)For any Special Fund, if the actual earnings and/or the interest
credited to the contract value allocated to the Special Fund over
the calculation period is less than the amount determined under
the formula above, that lesser amount becomes the change in your
MGIB Base for the Special Fund. THE MGIB BASE RATE FOR EACH
SPECIAL FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the
Special Funds may limit the MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata to
the percentage of the contract value withdrawn.
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We offer a 7% MGIB Base Rate, except for the Special Funds. The
Company may at its discretion discontinue offering this rate. The
MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB Base
Maximum is the amount calculated above until the earlier of: (i)
the date the oldest contract owner reaches age 80, or (ii) the
date the MGIB Base reaches two times the MGIB Eligible Premiums
and credits, adjusted for any withdrawals. MGIB Eligible Premiums
is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE AND
PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection with
the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB Base
Maximum pro rata by the percentage of contract value of any withdrawals you
make. Any transfers to and from the subaccounts and Special Funds in which you
are invested will cause your MGIB Base to be reallocated pro rata based on the
percentage of contract value you transfer. Transfers to one or more Special
Funds could reduce the MGIB Benefit.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on the
rider date and the ten-year waiting period must end at or prior to the latest
annuity start date. The MGIB rider must be purchased (i) on the contract date,
or (ii) within thirty days after the contract date. For contracts issued more
than 30 days before the date this rider first became available in your state,
the Company may in its discretion allow purchase of this rider during the 30-day
period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later. There is a ten
year waiting period before you can annuitize under the MGIB rider. This could
reduce the MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary on or after the tenth contract
anniversary when you decide to exercise your right to annuitize under the MGIB
rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is
the contract anniversary at least 10 years after the rider date when you decide
to exercise your right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
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NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIMES PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to zero
you will receive periodic payments equal to all premium payments and credits
paid during the first two contract years (Eligible Payment Amount) adjusted for
any prior withdrawals. To maintain this guarantee, withdrawals in any contract
year may not exceed 7% of your adjusted Eligible Payment Amount. If your
contract value is reduced to zero, your periodic payments will be 7% of your
Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal
Account is reduced to zero. For a discussion of the charges we deduct under the
MGWB rider, see "Optional Rider Charges." Each payment you receive under the
MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax.
See "Withdrawals" and "Federal Tax Considerations" for more information. Your
original Eligible Payment Amount depends on when you purchase the MGWB rider and
is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
(ii) if you purchased the MGWB rider after the contract date, your
contract value on the rider date, including any premiums and
credits received that day, and any subsequent premium payments
and credits received during the two-year period commencing on the
rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not represent a contract value, nor does
it guarantee performance of the subaccounts in which you are invested. It will
not affect your annuitization, surrender and death benefits. The MGWB Withdrawal
Account is equal to the Eligible Payment Amount adjusted for any withdrawals.
Withdrawals of up to 7% per year of the Eligible Payment Amount will reduce the
value of your MGWB Withdrawal Account by the dollar amount of the withdrawal.
Any withdrawals greater than 7% per year of the Eligible Payment Amount will
cause a reduction in both the MGWB Withdrawal Account and the Eligible Payment
Amount by the proportion that the withdrawal bears to the contract value at the
time of the withdrawal. The MGWB Withdrawal Account is also reduced by the
amount of any periodic payments paid under the MGWB rider once your contract
value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any
amount permitted under your Contract so long as your contract value is greater
than zero. See "Withdrawals." However, making any withdrawals in any year
greater than 7% per year of the Eligible Payment Amount will reduce the Eligible
Payment Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
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(iii)your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue the
contract), changed the ownership of the Contract or surrendered
the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii)you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, (that is, your contract value is zero) we will not accept any
additional premium payments in your Contract, and the Contract will not provide
any benefits except those provided by the MGWB rider. Any other rider
terminates. Your Contract will remain in Automatic Periodic Benefit Status until
the earliest of (i) payment of all MGWB periodic payments (ii) payment of the
Commuted Value (defined below) or (iii) the owner's death has occurred.
On the contract's latest annuity start date, in lieu of making the remaining
MGWB periodic payments, we will pay you the Commuted Value of your MGWB periodic
payments remaining. We may, at our option, extend your annuity start date in
order to continue the MGWB periodic payments. The Commuted Value is the present
value of any then remaining MGWB periodic payments at the current interest rate
plus 0.50%. The current interest rate will be determined by the average of the
Ask Yields for U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB periodic
payment is made or we pay you the Commuted Value, your Contract and the MGWB
rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract (or you elected the Max
7 Enhanced Death Benefit resulting in the 7% Solution Enhanced Death Benefit as
the actual death benefit), the death benefit otherwise payable under the terms
of your Contract will remain in force during any Automatic Periodic Benefit
Status. In determining the amount of the death benefit during the Automatic
Periodic Benefit Status we deem your contract value to be zero and treat the
MGWB periodic payments as withdrawals. In all other cases, the death benefit
payable during Automatic Periodic Benefit Status is your MGWB Withdrawal Account
which equals the sum of the
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remaining MGWB periodic payments. If you elected the Max 7 Enhanced Death
Benefit, then 7% Solution and the Annual Ratchet components shall each be
calculated as if each were the elected death benefit option.
PURCHASE. To purchase the MGWB rider, your must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the Company may
in its discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this prospectus, or
the date of state approval, whichever is later.
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 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 10% of your contract
value on the date of the withdrawal less any withdrawals during that 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.
Please be aware that the benefit we pay under certain optional benefit riders
will be reduced by any withdrawals you take while the rider is in effect. See
"Optional Riders."
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.
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SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the month, your
systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage and are willing to incur associated
surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which
you may add to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract value
and the amount to be withdrawn based on that percentage would be less than $100,
we will automatically increase the amount to $100 as long as it does not exceed
the maximum percentage. If the systematic withdrawal would exceed the maximum
percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. 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 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. If you submit a subsequent premium payment after you have
applied for systematic withdrawals, we will not adjust future withdrawals under
the systematic withdrawal program unless you specifically request that we do so.
The systematic withdrawal option may 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 the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any surrender charges or Market
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Value Adjustments. Systematic withdrawals from Fixed Interest Allocations under
the Fixed Dollar Systematic Withdrawal Feature are available only in connection
with Section 72(q) and 72(t) distributions. You choose the amount of the fixed
systematic withdrawals, which may total up to a maximum of 10% of your contract
value as determined on the day we receive your election of this feature. The
maximum limit will not be recalculated when you make additional premium
payments, unless you instruct us to do so. We will assess a surrender charge on
the withdrawal date if the withdrawal exceeds the maximum limit as calculated on
the withdrawal date. We will assess a Market Value Adjustment on the withdrawal
date if the withdrawal from a Fixed Interest Allocation exceeds your interest
earnings on the withdrawal date. We will apply the surrender charge and any
Market Value Adjustment directly to your contract value (rather than to the
withdrawal) so that the amount of each systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to surrender charges and Market Value Adjustments
when they exceed the applicable Free Withdrawal Amount.
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 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 ADVISER 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.
Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers
may also affect your optional rider base. See "The Annuity Contract -- Optional
Riders."
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 or other approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or over the internet.
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 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. If you make an additional premium payment
into a Fixed Interest
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Allocation subject to dollar cost averaging, the amount of your transfers under
the dollar cost averaging program remains the same, unless you instruct us to
increase the transfer amount.
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 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 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 written notice
and due proof of death, as well as any required paperwork, 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
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payment. For information on required distributions under federal income tax
laws, you should see "Required Distributions upon Contract Owner's Death."
You may choose from the following 4 death benefit choices: (1) the Standard
Death Benefit; (2) the 7% Solution Enhanced Death Benefit; (3) the Annual
Ratchet Enhanced Death Benefit; and (4) the Max 7 Enhanced Death Benefit Option.
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.
A change in ownership of the Contract may affect the amount of the death benefit
and the enhanced death benefit. The MGWB rider may affect the death benefit. See
"Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefit during
Automatic Periodic Benefit Status."
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 minus any
credits added within 1 year prior to death; (ii) total premium payments reduced
by a pro rata adjustment for any withdrawal; (iii) the cash surrender value; and
(iv) the total premium payments made under the Contract, plus all credits,
reduced by a pro rata adjustment for any withdrawals, then minus any credits
applied within 1 year prior to death.
ENHANCED DEATH BENEFITS. If the 7% Solution Enhanced Death Benefit, the
Annual Ratchet Enhanced Death Benefit or the Max 7 Enhanced Death Benefit is
elected, the death benefit under the Contract is the greatest of (i) the
contract value minus any credits added within 1 year prior to death; (ii) total
premium payments reduced by a pro rata adjustment for any withdrawal; (iii) the
cash surrender value; and (iv) the enhanced death benefit as calculated below
minus any credits added within 1 year prior to death.
The Max 7 Enhanced Death Benefit is the greater of (1) the 7% Solution Enhanced
Death Benefit or (2) the Annual Ratchet Enhanced Death Benefit. Under this death
benefit option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet
Enhanced Death Benefit are calculated in the same manner as if each were the
elected benefit.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
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On each business day that occurs on On each contract anniversary that
or before the contract owner turns occurs on or before the contract
80, we credit interest at the 7% owner turns age 80, we compare the
annual effective rate* to the prior enhanced death benefit to the
enhanced death benefit from the contract value and select the
preceding day (which would be the larger amount as the new enhanced
initial premium and credit if the death benefit.
preceding day is the contract
date), then we add additional On all other days, the enhanced
premiums paid and credits added death benefit is the amount
since the preceding day, then we determined below. We first take the
adjust for any withdrawals enhanced death benefit from the
made(including any Market Value preceding day (which would be the
Adjustment applied to such initial premium and credit if the
withdrawals and any associated valuation date is the contract
surrender charges**) since the date) and then we add additional
preceding day. At age 80 or at the premiums paid and credits added
time the maximum death benefit is since the preceding day, then
reached, the accumulation rate used reduce the enhanced death benefit
will change. pro rata for any contract value
withdrawn. That amount becomes the
The maximum enhanced death benefit new enhanced death benefit.
is 3 times all premium payments and
credits, as reduced by adjustments
for withdrawals.***
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* The actual interest rate used for calculating the 7% Solution Enhanced
Death Benefit for the Liquid Asset and Limited Maturity Bond
investment portfolios and the Fixed Account, will be the lesser of (1)
7% and (2) the interest rate, positive or negative, providing a yield
on the Enhanced Death Benefit equal to the net return for the current
valuation period on the contract value allocated to Special Funds. We
may, with 30 days notice to you, designate any fund as a Special Fund
on existing contracts with respect to new premiums added to such fund
and also with respect to new transfers to such funds. Thus, selecting
these investments may limit the enhanced death benefit.
** Each premium payment and credit reduced by adjustments for any
withdrawals and any associated surrender charges incurred will
continue to grow at the 7% annual effective rate until maximum is
reached.
*** Each withdrawal reduces the enhanced death benefit and the maximum
enhanced death benefit as follows: If total withdrawals in a contract
year do not exceed 7% of cumulative premiums and credits and did not
exceed 7% of cumulative premiums and credits in any prior contract
year, such withdrawals will reduce the enhanced death benefit and the
maximum enhanced death benefit by the amount of the withdrawal (and
any associated surrender charge) including any Market Value
Adjustment. Once withdrawals in any contract year exceed 7% of
cumulative premiums, withdrawals will reduce the enhanced death
benefit and the maximum enhanced death benefit in proportion to the
reduction in contract value pro rata.
Pro rata withdrawal adjustment on all death benefit options is calculated by (i)
dividing the contract value withdrawn by the contract value immediately prior to
the withdrawal, and then (ii) multiplying the result by the amount of the
applicable death benefit component immediately prior to the withdrawal.
The enhanced death benefits 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 less than 80 years old at the time of purchase. The
enhanced death benefits are not available where a Contract is owned 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.
CONTINUATION AFTER DEATH-SPOUSE
If at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of death,
minus the contract value also on that date, is greater than zero, we will add
such difference to the contract value. Such addition will be allocated to the
variable subaccounts in proportion to the contract value in the subaccounts. If
there is no contract value in any subaccount, the addition will be allocated to
the Liquid Asset subaccount, or its successor.
The death benefit will continue to apply, with all age criteria using the
surviving spouse's age as the determining age.
At subsequent surrender, any surrender charge applicable to premiums paid prior
to the date we receive due proof of death of the contract owner will be waived.
Any premiums paid later will be subject to any applicable surrender charge.
This addition to contract value is available only to the spouse of the owner as
of the date of death of the owner if such spouse under the provisions of the
contract elects to continue the contract as his or her own.
CONTINUATION AFTER DEATH-NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the owner, the
contract may continue in force subject to the required distribution rules of the
Internal Revenue Code. See next section.
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REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any contract 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.
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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 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.
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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 9-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment withdrawn. 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 withdrawn as follows:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7 8 9+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 8% 8% 8% 8% 7% 6% 5% 3% 1% 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. 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. If we waive the surrender charge, we will deduct any credit added to
your contract value within 1 year of the withdrawal, and we will not add any
additional credit to any additional premium you pay on or after the date of any
such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
10% of your contract value on the date of withdrawal less any withdrawals during
that 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 C. 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 your state of residence. The tax can range from 0% to 3.5% of the
premium payment. We have the right to change this amount to conform with changes
in the law or if you change your state of residence.
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We deduct the premium tax from your contract value (or from the MGIB Base, if
exercised) 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 when you
surrender the Contract, when you take an excess withdrawals or on the annuity
start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge 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.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or under other conditions established by Golden
American. 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 guaranteed
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 such 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 mortality and expense risk charge is
deducted each business day. 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 1.30% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003585% 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
1.45% for the Annual Ratchet Enhanced Death Benefit, 1.65% for the 7% Solution
Enhanced Death Benefit or 1.75% for the Max 7 Enhanced Death Benefit, of the
assets you have in each subaccount. The charge is deducted each business day at
the rate of .004002%, .004558%, or .004837%, respectively, for each day since
the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
OPTIONAL RIDER CHARGES
Subject to state availability, you may purchase one of three optional benefit
riders that you may elect at issue. So long as the rider is in effect, we will
deduct a separate quarterly charge for each optional benefit rider through a pro
rata reduction of the contract value of the subaccounts in which you are
invested. If there is insufficient contract value in the subaccount, we will
deduct the charges from your Fixed Interest Allocations nearest their maturity
date. We deduct each rider charge on each quarterly contract anniversary in
arrears, meaning the first charge will be deducted on the first quarterly
anniversary following the rider date. For a description of the riders and the
defined terms used in connection with the riders, see "The Annuity Contract --
Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for
the MGAB rider is as follows:
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Waiting Period Quarterly Charge
-------------- ----------------
10 Year................ 0.125% of the MGAB Charge Base (0.50% annually)
20 Year................ 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums and credits during the 2-year period commencing on the rider date,
reduced pro rata for withdrawals and reduced for transfers made within the last
3 years prior to the MGAB Benefit Date. We will deduct charges only during your
ten-year or twenty-year waiting period, as applicable. If you surrender or
annuitize your Contract, we will deduct a pro rata portion of the charge for the
current quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the MGIB
rider is as follows:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%.................... 0.125% of the MGIB Base (0.50% annually)
The MGIB Base is the total of premiums paid and credits added more than 5 years
before the earliest MGIB Benefit Date, reduced pro rata for all withdrawals
taken while the MGIB rider is in effect, and accumulated at the MGIB Base Rate
(7% for all portfolios except the Special Funds). If you surrender or annuitize
your Contract, we will deduct a pro rata portion of the charge for the current
quarter based on the current quarterly charge rate and your MGIB Base
immediately prior to the surrender or annuitization.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
and credits added during the first two contract years following the rider date.
When we calculate the MGWB rider charge, we do not reduce the Eligible Payment
Amount by the amount of any withdrawals taken while the MGWB rider is in effect.
We will deduct charges only during the period before your Contract's Automatic
Periodic Benefit Status. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on the
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, two portfolios deduct
12b-1 fees. For 1999, total portfolio fees and charges ranged from .056% to
1.75%. See "Fees and Expenses" in this prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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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 you chose. You may change an
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
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chose. The MGIB annuity benefit may be available if you have purchased the MGIB
rider, provided the waiting period and other specified conditions have been met.
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 under applicable
law), 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 annuity start date, which is 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. For more information, 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 reach age 70 1/2 or, in some cases,
retire. Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
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.
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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. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income 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, we will continue payments 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. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
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 your 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
- --------------------------------------------------------------------------------
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, including
rider charges if you have elected one of the optional riders offered in this
prospectus. You have 30 days to notify our Customer Service Center of any errors
or discrepancies contained in the report and in any confirmation notice. 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 SEC 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 gender 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 gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
you should 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 should consult a tax adviser for tax advice. 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 under applicable federal tax law. 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, (i) we adjust your contract value for any market value
adjustment (if you have invested in the fixed account), (ii) then we exclude any
credit initially applied, and (iii) then we include 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. In these states, your
premiums designated for investment in the subaccounts may 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
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the close of business on the day we receive your written request. If you keep
your Contract after the free look period, and the investment is allocated to a
subaccount specially designated by the company, 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 the 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 affiliated
with Fleet Financial Group, Inc. 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 4.5% commission, and passes through 100% of the commission to the
Fleet affiliated broker-dealer whose registered representative sold the
contract.
- --------------------------------------------------------------------------------
UNDERWRITER COMPENSATION
- --------------------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 4.5% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments by registered
except when representatives
combined in connection
with some annual with the
trail commissions. distribution
of the Contracts.
- --------------------------------------------------------------------------------
We do not pay any additional commissions on the sale or exercise of any of the
optional benefit riders offered in this prospectus.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
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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.
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 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 materially
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 and Account B appearing in
this prospectus or 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 in this prospectus or 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.
- --------------------------------------------------------------------------------
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
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
whose 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
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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 non-qualified
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.
INVESTOR CONTROL. 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. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
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 you paid for the contract less any nontaxable withdrawals)
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
(including amounts paid to you under the MGWB rider), 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. Credits constitute earnings (not premiums) for federal
tax purposes and are not included in the owner's investment in the Contract. 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
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<PAGE>
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.
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 adviser 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 non-qualified deferred 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
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<PAGE>
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 the later of 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.
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.
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ROTH IRA
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. A 10% penalty may apply to amounts
attributable to a conversion from an IRA if they are distributed during the five
taxable years beginning with the year in which the conversion was made.
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 BENEFIT
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
or Roth 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 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). You should consult a tax adviser
with respect to legislative developments and their effect on the contract.
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<PAGE
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
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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"), according 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 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.
<TABLE>
<CAPTION>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER | POST-ACQUISITION
------------------------------------------ | --------------------------
| For the
For the | Period For the
For the For the Period | January 1, Period
Year Year October 25, | 1997 August 14,
Ended Ended 1997 through | through 1996 through
December 31, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ ------------ | ----------- ------------
<S> <C> <C> <C> <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges......... $ 82,935 $ 39,119 $ 3,834 | $ 18,288 $ 8,768
Net Income before |
Federal Income Tax ..... $ 19,737 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)........... $ 11,214 $ 5,074 $ (425) | $ 729 $ 350
Total Assets................ $ 9,392,857 $ 4,754,623 $ 2,446,395 | N/A $ 1,677,899
Total Liabilities........... $ 8,915,008 $ 4,400,729 $ 2,219,082 | N/A $ 1,537,415
Total Stockholder's Equity.. $ 477,849 $ 353,894 $ 227,313 | N/A $ 140,484
Pre-Acquisition
---------------
For the Period
January 1,
1996 through
August 13,
1996
---------------
Annuity and Interest
Sensitive Life
Product Charges......... $ 12,259
Net Income before
Federal Income Tax...... $ 1,736
Net Income (Loss)........... $ 3,199
Total Assets................ N/A
Total Liabilities........... N/A
Total Stockholder's Equity.. N/A
</TABLE>
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BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and 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.
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 is also 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. Golden American reports financial results on a
consolidated 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 OPERATION
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 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.
57
<PAGE>
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 included for the period
January 1, 1997 through October 24, 1997 are presented on the Post-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.
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account............... $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................. 770.7 30.9 182.0 588.7
-------- ----- -------- --------
Total variable annuity premiums.... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............. 8.6 (37.8) (5.2) 13.8
-------- ----- -------- --------
Total premiums..................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ===== ======== ========
For the Companies' variable insurance contracts, premiums collected are not
reported as revenues, but as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment spread and
product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers each having at least ten percent of total sales for the year
ended December 31, 1999 totaled $918.4 million, or 28% of premiums compared to
$528.9 million, or 26%, from two significant broker/dealers for the year ended
December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
Annuity and interest sensitive life
product charges.................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue................. 10.1 112.5 5.3 4.8
Net investment income.................. 59.2 39.3 16.7 42.5
Realized gains (losses) on investments. (2.9) 96.1 (1.4) (1.5)
Other income........................... 10.8 94.4 5.2 5.6
-------- ----- ----- -----
$ 160.1 77.0% $69.6 $90.5
======== ===== ===== =====
58
<PAGE>
Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
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 $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
<TABLE>
<CAPTION>
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---- ------ ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances ...................... 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions ............................. 188.4 55.5 67.2 121.2
General expenses ........................ 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred ....... (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs ..... 33.1 543.3 28.0 5.1
Value of purchased insurance in force . 6.2 32.0 1.5 4.7
Goodwill .............................. 3.8 -- -- 3.8
-------- ----- -------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======== ===== ======== ========
</TABLE>
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
59
<PAGE>
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
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 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. 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. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME. Net income for 1999 was $11.2 million, an increase of $6.1 million from
$5.1 million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
60
<PAGE>
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> | <C>
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
========== ========== ========== | ==========
</TABLE>
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 $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
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
========== ========== ========== | ==========
</TABLE>
61
<PAGE>
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
included 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
<TABLE>
<CAPTION>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
----------------- ----------------- ----------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
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
========== ========= ========= | =========
</TABLE>
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 related 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
62
<PAGE>
incurred as the result of new sales including the extra credit bonus were
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.
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.
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.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying value and amortized cost basis of
the Companies' total investments grew 15.5% and 17.5%, respectively, in 1999.
All of the Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. Therefore, growth
in the carrying value of the Companies' investment portfolio was due to 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 options. The Companies manage the
growth of insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance products,
cash flow was invested primarily in fixed maturities and short-term investments.
At December 31, 1999, the Companies investments had a yield of 6.6%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 97.6% of amortized cost value at December 31,
1999.
63
<PAGE>
FIXED MATURITIES: At December 31, 1999, the Companies had fixed maturities with
an amortized cost of $858.1 million and an estimated fair value of $835.3
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $22.8 million was comprised of
gross appreciation of $0.9 million and gross depreciation of $23.7 million. Net
unrealized holding losses on these securities, net of adjustments to VPIF, DPAC,
and deferred income taxes of $7.0 million were included in stockholder's equity
at December 31, 1999.
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 ($558.0 million or 65.0%), that are rated BBB+ to
BBB- by Standard & Poor's ($123.5 million or 14.4%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($64.6 million or 7.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($112.0 million or 13.1%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.6% at December
31, 1999.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At December 31, 1999, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $72.3 million, or 6.9%, 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, 1999, the yield at
amortized cost on the Companies' below investment grade portfolio was 7.8%
compared to 6.5% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $69.1 million, or 95.5% of amortized cost value, at December 31, 1999.
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 1999, fixed maturities designated as available for sale with a combined
amortized cost of $221.8 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $1.3 million in 1999, excluding the $1.6 million pre-tax
loss on the write-down of two bonds in 1999.
During the fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
approximately $1.0 million to reduce the carrying value of the bonds to
64
<PAGE>
their combined net realizable value of $2.9 million. During the second quarter
of 1999, further information was received regarding these bonds and Golden
American determined that the carrying value of the two bonds exceeded their
estimated net realizable value. As a result, at June 30, 1999, Golden American
recognized a total pre-tax loss of approximately $1.6 million to further reduce
the carrying value of the bonds to their combined net realizable value of $1.1
million.
EQUITY SECURITIES: Equity securities represent 1.4% of the Companies' investment
portfolio. At December 31, 1999, the Companies owned equity securities with a
cost of $15.0 million and an estimated fair value of $17.3 million. Net
unrealized appreciation of equity securities was comprised entirely of gross
appreciation of $2.3 million. Equity securities are primarily comprised of
investments in shares of the mutual funds underlying the Companies' registered
separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 9.5% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $100.1 million at December 31, 1999 with an estimated fair value of $95.5
million. The Companies' mortgage loan portfolio includes 58 loans with an
average size of $1.7 million and average seasoning of 0.7 years if weighted by
the number of loans. The Companies' mortgage loans on real estate 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 1999 and
1998), Utah (10% in 1999, 11% in 1998), and Georgia (9% in 1999, 10% in 1998).
There are no other concentrations of mortgage loans on real estate in any state
exceeding ten percent at December 31, 1999 and 1998. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (34% in 1999, 36% in 1998),
industrial buildings (33% in 1999, 32% in 1998), retail facilities (19% in 1999,
20% in 1998), and multi-family apartments (10% in 1999 and 8% in 1998).
At December 31, 1999, the yield on the Companies' mortgage loan portfolio was
7.3%. At December 31, 1999, no mortgage loan on real estate was delinquent by 90
days or more. The Companies' loan investment strategy is consistent with other
life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. Accrued investment income increased $1.6 million during 1999, due
to an increase in the overall size of the portfolio resulting from the
investment of premiums allocated to the fixed account options of the Companies'
variable insurance products.
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credit, and
other expenses related to the production of new business after the merger. The
Companies' previous balances of DPAC and 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, 1999, the Companies had
DPAC and VPIF balances of $529.0 million and $31.7 million, respectively. During
1998, VPIF decreased $2.7 million to adjust the value of other receivables and
increased $0.2 million as a result of an adjustment to the merger costs.
Property and equipment increased $6.5 million, or 89.0%, during 1999, due to
leasehold improvements, the purchase of furniture and other equipment for Golden
American's new offices in West Chester, Pennsylvania, and 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 as of December 31, 1999 was $8.2
million.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
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At December 31, 1999, the Companies had $7.6 billion of separate account assets
compared to $3.4 billion at December 31, 1998. The increase in separate account
assets resulted from market appreciation, increased transfer activity, and
growth in sales of the Companies' variable annuity products, net of redemptions.
At December 31, 1999, the Companies had total assets of $9.4 billion, a 97.6%
increase from December 31, 1998.
LIABILITIES. Future policy benefits for annuity and interest sensitive life
products increased $152.6 million, or 17.3%, to $1.0 billion reflecting premium
growth in the Companies' fixed account options of the variable products, net of
transfers to the separate accounts. Market appreciation, increased transfer
activity, and premiums, net of redemptions, accounted for the $4.2 billion, or
122.7%, increase in separate account liabilities to $7.6 billion at December 31,
1999.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 7.979% surplus note
to First Columbine Life Insurance Company, an affiliate, which matures on
December 7, 2029.
On September 30, 1999, Golden American issued a $75 million, 7.75% surplus note
to ING AIH, which matures on September 29, 2029.
On December 30, 1999, ING AIH assigned the surplus note to Equitable Life. 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, the
surplus note is now payable to EIC.
Other liabilities increased $21.7 million from $34.7 million at December 31,
1998, due primarily to increases in remittances to be applied, outstanding
checks, accrued interest payable, and pension liability.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $4.5 billion, or 102.6%, during 1999 and totaled $8.9
billion at December 31, 1999.
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 stockholder's equity when monetary assets
exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $121.0 million, or
34.8%, from December 31, 1998 to $468.6 million at December 31, 1999, 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 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 premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash used in operating activities was $73.4 million in 1999 compared to
$63.9 million in 1998. 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 products.
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Net cash used in investing activities was $177.5 million during 1999 as compared
to $390.0 million in 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans on real
estate during 1998 than in 1999. Net purchases of fixed maturities reached
$124.0 million in 1999 versus $331.3 million in 1998. Net purchases of mortgage
loans on real estate declined to $3.1 million from $12.6 million in the prior
year.
Net cash provided by financing activities was $258.6 million during 1999 as
compared to $439.5 million during the prior year. In 1999, net cash provided by
financing activities was positively impacted by net fixed account deposits of
$626.5 million compared to $520.8 million in 1998 and by a $6.7 million increase
in net borrowings in 1999 compared to 1998. This increase was offset by net
reallocations to the Companies' separate accounts, which increased to $650.3
million from $239.7 million during the prior year. In 1999, another important
source of cash provided by financing activities was $121.0 million in capital
contributions from the Parent compared to $103.8 million in 1998. Another source
of cash provided by financing activities during 1999 was $160.0 million in
proceeds from surplus notes compared to $60.0 million in 1998
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, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 2000. Management believes
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 sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding
surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%;
and 3) Golden American's statutory capital and surplus exceeds the "Amounts
Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3,
Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. During 1999, Golden American occupied
105,000 square feet of leased space; its affiliate occupies 20,000 square feet.
Previously, Golden American's home office operations were housed in leased
locations in Wilmington, Delaware and locations in Pennsylvania. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $2.4 million on capital needs for
2000.
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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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 dividends to Golden
American during 2000.
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
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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, 1999, 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.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Impact of Year 2000: In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
Golden American expensed approximately $264,000 during 1999 in connection with
remediating systems. The Companies are not aware of any material problems
resulting from Year 2000 issues, either with products, internal systems, or the
products and services of third parties. The Companies will continue to monitor
mission critical computer applications and those of suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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 insurance 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 1999 levels, variable separate account funds, which represent 88% of
the in force, pass the risk in underlying fund performance to the contractholder
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(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from year end 1999 levels, the remaining 12% 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, fee revenue,
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 tax status 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.
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 variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, Locust Street Securities, Inc.,
Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network
Securities, Inc. and Multi-Financial Securities Corporation, are affiliates of
Golden American. As of December 31, 1999, two broker-dealers produce 10% or more
of Golden American's product sales.
REINSURANCE. Golden American reinsured its mortality risk associated with the
Contract's guaranteed death benefit on Contracts issued through December 31,
1999 with one or more appropriately licensed insurance companies. Golden
American is currently pursuing alternative reinsurance arrangements for new
business. 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
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insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
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 subsidiary First
Golden American Life Insurance Company of New York ("First Golden"), $1.3
million and $1.1 million, for the years ended December 31, 1999 and 1998,
respectively, 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 $10.1 million and $4.8 million for the years 1999 and 1998, 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 and accounting services for
a fee, payable quarterly. For the years ended December 31, 1999 and 1998, Golden
American and First Golden incurred fees of $2.2 million and $1.5 million,
respectively, under this agreement.
Since 1997, Golden American has provided certain advisory, computer and other
resources and services to Equitable Life. Revenues for these services totaled
$6.1 million for 1999 and $5.8 million for 1998.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.4 million of 1999. Golden American provides resources and services to
ING Mutual Funds Management Co., LLC, an affiliate. Revenues for these services
totaled $0.2 million for 1999 and $0.1 million for 1998.
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $0.5 million in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies totaled $0.2 million in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies totaled $0.1 million in 1999.
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, 1999, are sold primarily
through two broker/dealer institutions. For the years 1999 and 1998, commissions
paid by Golden American to DSI (including commissions paid by First Golden)
aggregated $181.5 million and $117.5 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.
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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 initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many states regulate affiliated groups of insurers, such as Golden
American, and its affiliates, under insurance holding company legislation. Under
such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions of
the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding Golden American's
estimated liability for future guaranty fund assessments, see Note 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.
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DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (57) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (51) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (42) Executive Vice President and Chief Actuary
E. Robert Koster (41) Senior Vice President and Chief Financial Officer
Patricia M. Corbett (35) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (46) Senior Vice President, Project Implementation
Steven G. Mandel (40) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
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. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From, 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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.
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. Mark A. Tullis became a Director of Golden American and First Golden in
December 1999. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999. From June, 1994 to
August, 1999, he was with Pimerica, serving as Executive Vice President at the
time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American and First Golden in December, 1997
as Executive Vice President. From 1982 through November, 1997, he held several
positions with the Endeavor Group and was President upon his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief Financial
Officer of Golden American and First Golden 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.
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Mr. David L. Jacobson joined Golden American in November 1993 as Vice President
and Assistant Secretary and became Senior Vice President in December, 1993. He
was elected Senior Vice President and Assistant Secretary for First Golden in
June, 1996.
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. He was elected Senior Vice President and Chief
Actuary of First Golden in June, 1996 and elected Executive Vice President in
June, 1998.
Mr. William L. 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.
Mr. Steven G. Mandel joined Golden American in October 1988 and became Senior
Vice President and Chief Information Officer in June, 1998.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998 he was with F&G Life
Insurance Company; serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE 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,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
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<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 3
- ------------------ ---- ------ ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $ 20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $ 15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $ 14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $ 12,564 4
Executive Vice 1998 $ 173.870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $ 11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $ 23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $ 558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
</TABLE>
- --------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on October 24,
1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee for
participation in company sponsored programs such as tuition reimbursement,
PC purchase assistance program, and other miscellaneous payments or
reimbursements. For 1999, Mr. Chernow received $2,464; Mr. McInnis received
$636; Mr. Tashman received $2,598; Mr. Preston received $564; Mr. Mandel
received $2,251; Mr. Armstrong received $1,421; and Mr. Glover received
$3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses of
the named executive.
5 In connection with the termination of his employment, Mr. Glover received
payments and benefits totaling $555,452.
74
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3
OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
- ---- ----------- ------ --------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow.......... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston....... 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong....... 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
</TABLE>
- ----------------
1 Stock appreciation rights granted in 1999 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 the
date of grant.
3 Total dollar gains based on indicated rates of appreciation of share price
over the total term of the rights.
75
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
78
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | hrough
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
<S> <C> <C> <C> <C>
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
</TABLE>
See accompanying notes.
79
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
</TABLE>
See accompanying notes.
80
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
</TABLE>
See accompanying notes.
81
<PAGE>
<TABLE>
<CAPTION>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
</TABLE>
See accompanying notes.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding
all of the preceding items are inherently subject to change and are reassessed
periodically. Changes in estimates and assumptions could materially impact the
financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
</TABLE>
Realized gains (losses) on investments follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
</TABLE>
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
</TABLE>
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
Foreign governments.......................
.......
</TABLE>
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
<S> <C> <C> <C> <C>
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
</TABLE>
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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.
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
<TABLE>
<CAPTION>
POST-MERGER
-----------------------------------------------
December 31, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
</TABLE>
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 process. This pricing
92
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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.
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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
93
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
<TABLE>
<CAPTION>
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
</TABLE>
94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. Actual amortization may vary
based upon changes in assumptions and experience.
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.
95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
<TABLE>
<CAPTION>
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
<S> <C>
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
</TABLE>
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
Internal Revenue Code, a newly acquired insurance company cannot file as part of
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
96
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
</TABLE>
97
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
98
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
99
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|---------------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|---------------------
(Dollars in thousands)
|
<S> <C> <C> <C> <C>
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
100
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
101
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
<S> <C> <C> <C> <C>
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
</TABLE>
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
102
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies 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 reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
103
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other
receivables from these reinsurers comprised of $493,000 and $439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
104
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers
during 1998 and 1997, respectively). The Premium Plus product generated 79% of
the Companies' sales during 1999 (63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively.
105
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction........................................................... 1
Description of Golden American Life Insurance Company.................. 1
Safekeeping of Assets.................................................. 1
The Administrator...................................................... 1
Independent Auditors................................................... 1
Distribution of Contracts.............................................. 1
Performance Information................................................ 2
IRA Partial Withdrawal Option.......................................... 11
Other Information...................................................... 11
Financial Statements of Separate Account B............................. 12
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE
FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS 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
106949 Galaxy PREMIUM PLUS-4 (05/00)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
107
<PAGE>
<PAGE>
This page intentionally left blank.
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value, All Cap, Managed Global, the ING
Global Brand Names and the Prudential Jennison subaccounts which did not
commence operations as of December 31, 1999, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation units, and
(3) the total accumulation unit value, for each subaccount of Golden American
Separate Account B available under the Contract for the indicated periods. The
date on which the subaccount became available to investors and the starting
accumulation unit value are indicated on the last row of each table.
LIQUID ASSET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
A1
<PAGE>
FULLY MANAGED
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
A2
<PAGE>
RISING DIVIDENDS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
A3
<PAGE>
STRATEGIC EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
A4
<PAGE>
REAL ESTATE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $17.37 130,846 $2,273 $17.09 175,931 3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
GALAXY EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $11.79 8,936 $105 $11.79 11,848 $140
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $11.78 4,420 $52
10/1/98 10.00 -- --
- ------------------------------------------------------------------
A5
<PAGE>
GALAXY GROWTH AND INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.55 8,512 $90 $10.55 1,122 $12
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.54 493 $5
10/1/98 10.00 -- --
- ------------------------------------------------------------------
GALAXY SMALL COMPANY GROWTH
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 -- -- -- -- -- --
10/1/98 $10.00 -- -- $10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 -- -- --
10/1/98 $10.00 -- --
GALAXY ASSET ALLOCATION
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.70 4,460 $48 $10.70 832 $9
10/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.70 7,153 $76
10/1/98 10.00 -- --
- ------------------------------------------------------------------
GALAXY HIGH QUALITY BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $9.93 2,756 $27 -- -- --
10/1/98 10.00 -- -- $10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 -- -- --
10/1/98 $10.00 -- --
- ------------------------------------------------------------------
A6
<PAGE>
PIMCO HIGH YIELD BOND
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
1999 $15.50 4,663,701 72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
</TABLE>
A7
<PAGE>
APPENDIX B
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
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 8%; and that no prior transfers or 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-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 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
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-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 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
withdrawals affecting this Fixed Interest Allocation have been made.
B1
<PAGE>
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
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge 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 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
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the 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.
B2
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third contract
years, for total premium payments under the Contract of $30,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 15% of the contract
value of $35,000.
In this example, $3,500 ($35,000 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 $5,250 ($35,000 x .15). Therefore, $1,750 ($5,250 -
$3,500) is considered an excess withdrawal of a part of the initial premium
payment of $10,000 and would be subject to a 7% surrender charge of $122.50
($1,750 x .07). This example does not take into account any Market Value
Adjustment or deduction of any premium taxes.
C1
<PAGE>
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<PAGE>
<PAGE>
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<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
106949 Galaxy Premium Plus-4 05/01/2000
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the Indemnification of
Directors and Officers of the Registrant are applicable:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS
Delaware General Corporation Law, Title 8, Section 145
provides that corporations incorporated in Delaware may
indemnify their officers, directors, employees or agents
for threatened, pending or past legal action by reason
of the fact he/she is or was a director, officer,
employee or agent. Such indemnification is provided for
under the Company's By-Laws under Article VI.
Indemnification includes all liability and loss suffered
and expenses (including attorneys' fees) reasonably
incurred by such indemnity. Prepayment of expenses is
permitted, however, reimbursement is required if it is
ultimately determined that indemnification should not
have been given.
DIRECTORS' AND OFFICERS' INSURANCE
The directors, officers, and employees of the
registrant, in addition to the indemnifications
described above, are indemnified through the blanket
liability insurance policy of Registrant's ultimate
parent, ING Groep, NV, or directly by Equitable of
Iowa Companies, Inc. for liabilities not covered through
the indemnification provided under the By-Laws.
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1 Underwriting Agreement Between Golden American Life
Insurance Company and Directed Services, Inc. (1)
3(a) Certificate of Amendment of the Restated Articles of
Incorporation of Golden American, dated (03/01/95). (4)
3(b) By-Laws of Golden American, dated (01/07/94). (4)
3(c) Resolution of Board of Directors for Powers of
Attorney, dated (04/23/99). (4)
4(a) Individual Deferred Variable and Fixed Annuity
Contract. (4)
4(b) Group Deferred Variable and Fixed Annuity Contract. (4)
4(c) Individual Deferred Variable Annuity Contract. (4)
4(d) Individual Retirement Annuity Rider Page. (1)
4(e) Individual Deferred Combination Variable and Fixed
Annuity Application. (6)
4(f) Group Deferred Combination Variable and Fixed Annuity
Enrollment Form. (6)
4(g) Individual Deferred Variable Annuity Application. (6)
4(h) Roth Individual Retirement Annuity Rider. (2)
4(i) Schedule Page to the Premium Plus Contract featuring
The Galaxy VIP Fund. (5)
4(j) Minimum Guaranteed Accumulation Benefit Rider. (6)
4(k) Minimum Guaranteed Income Benefit Rider. (6)
4(l) Minimum Guaranteed Withdrawal Benefit Rider. (6)
4(m) Death Benefit Endorsement No.1 (7% Solution Enhanced). (6)
4(n) Death Benefit Endorsement No.2 (Ratchet Enhanced).(6)
4(o) Death Benefit Endorsement No.3 (Standard).(6)
4(p) Death Benefit Endorsement No.4 (Max 7).(6)
5 Opinion and Consent of Myles R. Tashman, Esq.
10(a) Administrative Services Agreement between Golden American
and Equitable Life Insurance Company of Iowa. (3)
10(b) Service Agreement between Golden American and Directed
Services, Inc. (3)
10(c) Service Agreement between Golden American and EISI. (3)
10(d) Asset Management Agreement between Golden American and
ING Investment Management LLC. (4)
10(e) Reciprocal Loan Agreement between Golden American and ING
America Insurance Holdings, Inc. (4)
10(f) Revolving Note Payable between Golden American and SunTrust
Bank. (4)
10(g) Participation Agreement between Golden American and Warburg
Pincus Trust. (4)
10(h) Participation Agreement between Golden American and PIMCO Variable
Insurance Trust. (4)
10(i) Participation Agreement between Golden American and The Galaxy
VIP Fund.
10(j) Surplus Note, dated 12/17/96, between Golden American and
Equitable of Iowa Companies.
10(k) Surplus Note, dated 12/30/98, between Golden American and
Equitable Life Insurance Company of Iowa.
10(l) Surplus Note, dated 09/30/99, between Golden American and
ING AIH.
10(m) Surplus Note, dated 12/08/99, between Golden American and
First Columbine Life Insurance Company. (7)
10(n) Surplus Note, dated 12/30/99, between Golden American and
Equitable of Iowa Companies. (7)
10(o) Participation Agreement between Golden American and
Prudential Series Fund, Inc.
10(p) Participation Agreement between Golden American and
ING Variable Insurance Trust.
23(a) Consent of Sutherland Asbill & Brennan LLP.
23(b) Consent of Ernst & Young LLP, Independent Auditors.
23(c) Consent of Myles R. Tashman, included together with Opinion
of Myles R. Tashman, Esq. in Exhibit 5 to this Registration
Statement.
24 Powers of Attorney.
27 Financial Data Schedule.
<PAGE>
<PAGE>
(1) Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on
September 24, 1997 (File No. 333-28743).
(2) Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on February
12, 1998 (File No. 333-28743).
(3) Incorporated herein by reference to Amendment No. 3 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on April 30,
1998 (File No. 333-28743).
(4) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on April 23, 1999
(File No. 333-76945).
(5) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on September 24, 1999
(File No. 333-76945).
(6) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on December 2, 1999
(File No. 333-76945).
(7) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on January 26, 2000
(File No. 333-95457).
<PAGE>
<PAGE>
(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. All other schedules to the
consolidated financial statements required by Article 7 of
Regulation S-X are omitted because they are not applicable
or because the information is included elsewhere in the
consolidated financial statements or notes thereto.
<TABLE>
<CAPTION>
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
BALANCE
SHEET
DECEMBER 31, 1999 COST 1 VALUE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States government and governmental agencies and authorities.. $21,363 $21,103 $21,103
Public utilities.................................................... 53,754 51,315 51,315
Corporate securities................................................ 396,494 384,272 384,272
Other asset-backed securities....................................... 207,044 203,577 203,577
Mortgage-backed securities.......................................... 179,397 175,054 175,054
--------------------------------------------
Total fixed maturities, available for sale.......................... 858,052 835,321 835,321
Equity securities:
Common stocks: industrial, miscellaneous, and all other............. 14,952 17,330 17,330
Mortgage loans on real estate.......................................... 100,087 100,087
Policy loans........................................................... 14,157 14,157
Short-term investments................................................. 80,191 80,191
--------------- -------------
Total investments...................................................... $1,067,439 $1,047,086
=============== =============
</TABLE>
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.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, OTHER
LOSSES, POLICY
DEFERRED CLAIMS CLAIMS INSURANCE
POLICY AND UNEARNED AND PREMIUMS
ACQUISITION LOSS REVENUE BENEFITS AND
SEGMENT COSTS EXPENSES RESERVE PAYABLE CHARGES
- ---------------------------------------------------------------------------
POST-MERGER
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Life insurance $528,957 $1,033,701 $6,300 $8 $82,935
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
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- ---------------------------------------------------------------------------
AMORTIZA-
BENEFITS TION OF
CLAIMS, DEFERRED
LOSSES POLICY
NET AND ACQUI- OTHER
INVESTMENT SETTLEMENT SITION OPERATING PREMIUMS
SEGMENT INCOME EXPENSES COSTS EXPENSES* WRITTEN
- ---------------------------------------------------------------------------
POST-MERGER
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Life insurance $59,169 $182,221 $33,119 $(83,827) --
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 --
</TABLE>
* This includes policy acquisition costs deferred for first year commissions
and interest bonuses, premium credit, and other expenses related to the
production of new business. The costs related to first year interest
bonuses and the premium credit are included in benefits claims, losses, and
settlement expenses.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV
REINSURANCE
COLUMN A COLUMN B COLUMN C
- ----------------------------------------------------------------------------
CEDED TO
GROSS OTHER
AMOUNT COMPANIES
- ----------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Life insurance in force................. $225,000,000 $119,575,000
===============================
AT DECEMBER 31, 1998:
Life insurance in force................. $181,456,000 $111,552,000
===============================
AT DECEMBER 31, 1997:
Life insurance in force................. $149,842,000 $96,686,000
===============================
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE IV
REINSURANCE
COLUMN A COLUMN D COLUMN E COLUMN F
- ------------------------------------------------------------------------------------
PERCENTAGE
ASSUMED OF AMOUNT
FROM OTHER NET ASSUMED
COMPANIES AMOUNT TO NET
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
AT DECEMBER 31, 1999:
Life insurance in force................. -- $105,425,000 --
========================================
AT DECEMBER 31, 1998:
Life insurance in force................. -- $69,904,000 --
========================================
AT DECEMBER 31, 1997:
Life insurance in force................. -- $53,156,000 --
========================================
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<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 caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Chester and the Commonwealth
of Pennsylvania, on the 25th day of April, 2000.
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 25, 2000.
Signature Title
President and Director
- --------------------
Barnett Chernow*
Senior Vice President and
- -------------------- Chief Financial Officer
E. Robert Koster*
DIRECTORS OF DEPOSITOR
- -----------------------
Myles R. Tashman*
- -----------------------
Michael W. Cunningham*
- -----------------------
Phillip R. Lowery*
- -----------------------
Mark A. Tullis*
By: /s/Marilyn Talman, Attorney-in-Fact
---------------------
Marilyn Talman
_________________________
*Executed by Marilyn Talman on behalf of those indicated pursuant
to Power of Attorney.
<PAGE>
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
- ---- ------- ------
5 Opinion and Consent of Myles R. Tashman, Esq. EX-5
10(i) Participation Agreement between GALIC & Galaxy EX-10.I
10(j) Surplus Note between GALIC & EIC, 12/17/96 EX-10.J
10(k) Surplus Note between GALIC & EIC, 12/30/98 EX-10.K
10(l) Surplus Note between GALIC & ING AIH, 09/30/99 EX-10.L
10(o) Participation Agreement between GALIC and
Prudential Series Fund, Inc. EX-10.O
10(p) Participation Agreement between GALIC and
ING Variable Insurance Trust EX-10.P
23(a) Consent of Sutherland Asbill & Brennan LLP EX-23.A
23(b) Consent of Ernst & Young LLP, Independent Auditors EX-23.B
24 Powers of Attorney EX-24
27 Financial Data Schedule EX-27
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 5
ING VARIABLE ANNUITIES
MYLES R. TASHMAN
Executive Vice President,
General Counsel and Secretary
April 25, 2000
Members of the Board of Directors
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380-1478
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(i)
PARTICIPATION AGREEMENT
-----------------------
AMONG
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
THE GALAXY VIP FUND,
FLEET INVESTMENT ADVISORS INC.
AND
FIRST DATA DISTRIBUTORS, INC.
THIS AGREEMENT, dated as of the 1st day of October, 1999, by and
among Golden American Life Insurance Company (the "Company"), a life
insurance company organized under the laws of the State of Delaware,
on its own behalf and on behalf of each separate account of the
Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"),
The Galaxy VIP Fund (the "Fund"), a management investment company and
business trust organized under the laws of the Commonwealth of
Massachusetts, Fleet Investment Advisors Inc. (the "Adviser"), a
corporation organized under the laws of the State of New York, and
First Data Distributors, Inc. (the "Distributor"), a corporation
organized under the laws of the Commonwealth of Massachusetts.
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, Adviser and Distributor ("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"), and the
parties to this Agreement agree to comply with the conditions or
undertakings specified in the Mixed and Shared Funding Exemptive
Order to the extent applicable to each such party;
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");
<PAGE>
<PAGE>
WHEREAS, the Adviser, which serves as investment adviser to the
Designated Portfolios (as hereinafter defined) of the Fund, is duly
registered as an investment adviser under the federal Investment
Advisers Act of 1940, as amended;
WHEREAS, the Company has registered or will register certain
variable annuity contracts (the "Contracts") under the 1933 Act;
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by the Company under the
insurance laws of the State of Delaware, to set aside and invest
assets attributable to the Contracts;
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act;
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 Distributor, 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 B 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 Distributor 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, the Adviser, and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to the Company those shares of the
Designated Portfolios that each Account or the appropriate subaccount
of each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt and acceptance by the
Fund or its designee of the order for the shares of the Fund. For
purposes of this Section 1.1, the Company will be the designee of the
Fund for receipt of such orders from each Account or the appropriate
subaccount of each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives
notice of such order by 10:00 a.m. Eastern Time on the next following
business day ("T+1"). "Business Day" will mean any day on which the
New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order
to purchase Fund shares is made in accordance with Section 1.1 above.
Payment will be in federal funds transmitted by wire. This wire
transfer will be initiated by 12:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios
available indefinitely for purchase at the applicable net asset value
per share by Participating Insurance Companies and their separate
accounts on those days on which the Fund calculates its Designated
Portfolio net asset value pursuant to rules of the SEC and the Fund
shall use reasonable efforts to calculate such net asset value on
-2-
<PAGE>
<PAGE>
each day the New York Stock Exchange is open for trading; provided,
however, that the Board of Trustees of the Fund (the "Fund Board")
may refuse to sell shares of any Portfolio to any person, or suspend
or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Fund Board, acting in good faith
and in light of its fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.4. On each Business Day on which the Fund calculates its net
asset value, the Company will aggregate and calculate the net
purchase or redemption orders for each Account or the appropriate
subaccount of each Account maintained by the Fund in which
contractowner assets are invested. Net orders will only reflect
orders that the Company has received prior to the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") (currently
4:00 p.m., Eastern Time) on that Business Day. Orders that the
Company has received after the close of regular trading on the NYSE
will be treated as though received on the next Business Day. Each
communication of orders by the Company will constitute a
representation that such orders were received by it prior to the
close of regular trading on the NYSE on the Business Day on which the
purchase or redemption order is priced in accordance with Rule 22c-1
under the 1940 Act. Other procedures relating to the handling of
orders will be in accordance with the prospectus and statement of
information of the relevant Designated Portfolio or with oral or
written instructions that the Distributor or the Fund will forward to
the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only
to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of
1986, as amended, (the "Internal Revenue Code"), and regulations
promulgated thereunder, the sale to which will not impair the tax
treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in
this Section 1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset
value next computed after receipt and acceptance by the Fund or its
agent of the request for redemption. For purposes of this Section
1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account or the appropriate
subaccount of each Account and receipt by such designee will
constitute receipt by the Fund, provided the Fund receives notice of
request for redemption by 10:00 a.m. Eastern Time on the next
following Business Day. Payment will be in federal funds transmitted
by wire to the Company's account as designated by the Company in
writing from time to time, on the same Business Day the Fund receives
notice of the redemption order from the Company. The Fund reserves
the right to delay payment of redemption proceeds, but in no event
may such payment be delayed longer than the period permitted by the
1940 Act. The Fund will not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds; the
Company alone will be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for
redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or
any Account. Purchase and redemption orders for Fund shares will be
recorded in an appropriate title for each Account or the appropriate
subaccount of each Account.
-3-
<PAGE>
<PAGE>
1.9. The Fund will furnish same day notice (by telecopier,
followed by written confirmation) to the Company of the declaration
of any income, dividends or capital gain distributions payable on
each Designated Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the
Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Fund will notify the Company of the number
of shares so issued as payment of such dividends and distributions.
The Company reserves the right to revoke this election upon
reasonable prior notice to the Fund and to receive all such dividends
and distributions in cash.
1.10. The Fund will make the net asset value per share for
each Designated Portfolio available to the Company on a daily basis
as soon as reasonably practical after the net asset value per share
is calculated and will use its best efforts to make such net asset
value per share available by 6:00 p.m., Eastern Time, but in no event
later than 7:00 p.m., Eastern Time, each Business Day.
1.11. In the event adjustments are required to correct any
error in the computation of the net asset value of the Fund's shares,
the Fund or the Distributor will notify the Company as soon as
practicable after discovering the need for those adjustments that
result in an aggregate reimbursement of $150 or more to any one
subaccount of each Account maintained by a Designated Portfolio
unless notified otherwise by the Company (or, if greater, results in
an adjustment of $10 or more to each contractowner's account). Any
such notice will state for each day for which an error occurred the
incorrect price, the correct price and, to the extent communicated to
the Fund's shareholders, the reason for the price change. The
Company may send this notice or a derivation thereof (so long as such
derivation is approved in advance by the Distributor or the Adviser)
to contractowners whose accounts are affected by the price change.
The parties will negotiate in good faith to develop a reasonable
method for effecting such adjustments. The Fund shall provide the
Company, on behalf of the Account or the appropriate subaccount of
each Account, with a prompt adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value.
1.12.
(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 1.5 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
and funding vehicles other than those listed on Schedule B to
this Agreement may be available for the investment of the cash
value of the Contracts.
(b) The Company shall not, without prior notice to the
Advisor and the Distributor (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
Advisor and the Distributor (unless otherwise required by
applicable law), induce contractowners 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 contractowners to vote on any matter submitted for
consideration by the shareholders of the Fund in a manner other
than as recommended by the Fund Board.
-4-
<PAGE>
<PAGE>
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act and that the Contracts will
be issued and sold in compliance with all applicable federal and
state laws, including 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 and
that it has legally and validly established each Account as a
separate account under applicable state law and has registered the
Account as a unit investment trust in accordance with the provisions
of thin 1940 Act to serve as a segregated investment account for the
Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company will amend the
registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time
to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The
Company will register and qualify the Contracts for sale in
accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and
at the time of issuance will be treated as endowment, annuity or life
insurance contracts under applicable provisions of the Internal
Revenue Code, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it will not
purchase shares of the Designated Portfolios with assets derived from
tax-qualified retirement plans except, indirectly, through Contracts
purchased in connection with such plans.
2.4. The Fund represents and warrants that Fund shares of the
Designated Portfolios sold pursuant to this Agreement will be
registered under the 1933 Act and duly authorized for issuance in
accordance with applicable law and that the Fund is and will remain
registered under the 1940 Act for as long as such shares of the
Designated Portfolios are outstanding. The Fund will 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 will register and qualify the
shares of the Designated Portfolios for sale in accordance with the
laws of the various states only if and to the extent deemed advisable
by the Fund.
2.5. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal
Revenue Code, and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar
provision) 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.
2.6. The Fund represents and warrants that in performing the
services described in this Agreement, the Fund will comply with all
applicable laws, rules and regulations. The Fund makes no
representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies,
objectives and restrictions) complies with the insurance laws and
regulations of any state. The Fund and the Distributor agree that
upon request they will use their best efforts to furnish the
information required by state insurance laws so that the Company can
obtain the authority needed to issue the Contracts in the various
states.
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2.7. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, although it reserves the right to make such payments in the
future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 the Fund undertakes to have its Fund
Board formulate and approve any plan under Rule 12b-1 to finance
distribution expenses in accordance with the 1940 Act.
2.8. The Distributor represents and warrants that it will
distribute the Fund shares of the Designated Portfolios in accordance
with all applicable federal and state securities laws including,
without limitation, the 1933 Act, the 1934 Act and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts
and that it does and will comply in all material respects with
applicable provisions of the 1940 Act.
2.10. The Distributor represents and warrants that it is and
will remain duly registered under all applicable federal and state
securities laws and that it will perform its obligations for the Fund
in accordance in all material respects with any applicable state and
federal securities laws.
2.11. The Fund and the Distributor represent and warrant
that all of their trustees, officers, employees, investment advisers,
and other individuals/entities having access to the funds and/or
securities of the Fund are and 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 minimal 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 includes
coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Fund or the Distributor will provide the Company, at
the Fund's or its affiliate's expense, with as many copies of the
current Fund prospectus for the Designated Portfolios as the Company
may reasonably request for distribution, at the Company's expense, to
prospective contractowners and applicants. The Fund or the
Distributor will provide, at the Fund's or its affiliate's expense,
as many copies of said prospectus as necessary for distribution, at
the Company's expense, to existing contractowners. The Fund or the
Distributor will provide the copies of said prospectus to the Company
or to its mailing agent. If requested by the Company in lieu
thereof, the Fund or the Distributor will provide such documentation,
including a computer diskette or a final copy of a current prospectus
set in type at the Fund's or its affiliate's expense, and such other
assistance as is reasonably necessary in order for the Company at
least annually (or more frequently if the Fund prospectus is amended
more frequently) to have the Fund's prospectus and the prospectuses
of other mutual funds in which assets attributable to the Contracts
may be invested printed together in one document, in which case the
Fund or its affiliate will bear its reasonable share of expenses as
described above, allocated based on the proportionate number of pages
of the Fund's and other fund's respective portions of the document.
3.2. The Fund or the Distributor will provide the Company, at
the Fund's or its affiliate's expense, with as many copies of the
statement of additional information as the Company may reasonably
request for distribution, at the Company's expense, to prospective
contractowners and applicants. The Fund or the Distributor will
provide, at the Fund's or its affiliate's expense, as many copies of
said statement of additional information as necessary for
distribution, at the Company's expense, to any existing contractowner
who requests such statement or whenever state or federal law
otherwise requires that such
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statement be provided. The Fund or the Distributor will provide the
copies of said statement of additional information to the Company or to
its mailing agent.
3.3. The Fund or the Distributor, at the Fund's or its
affiliate's expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to shareholders
and other communications to shareholders in such quantity as the
Company will reasonably require. The Company will distribute this
proxy material, reports and other communications to existing
contractowners and tabulate the votes.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in
the Account in accordance with instructions received from
contractowners; and
(c) vote shares of the Designated Portfolios held in the
Account for which no timely instructions have been received, as
well as shares it owns, in the same proportion as shares of such
Designated Portfolio for which instructions have been received
from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contractowners. Except as set forth above, the Company reserves the
right to vote Fund shares held in any segregated asset account in its
own right, to the extent permitted by law. The Company will be
responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and
Shared Funding Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular, the Fund either
will provide for annual meetings (except insofar as the SEC may
interpret Section 16 of the 1940 Act not to require such meetings)
or, as the Fund currently intends to comply with Section 16(c) of the
1940 Act (although the Fund is not one of the trusts described in
Section 16(c) of that Act) as well as with Sections 16(a) and, if and
when applicable, 16(b). Further, the Fund will act in accordance
with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Distributor will provide the Company on a timely basis
with investment performance information for each Designated Portfolio
in which the Company maintains a subaccount of the Account, including
total return for the preceding calendar month and calendar quarter,
the calendar year to date, and the prior one-year, five-year, and ten
year (or life of the Fund) periods. The Company may, based on the
SEC mandated information supplied by the Distributor, prepare
communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials
concurrently with their first use for the Distributor's internal
recordkeeping purposes. It is understood that neither the
Distributor nor any Designated Portfolio will be responsible for
errors or omissions in, or the content of, Contractowner Materials
except to the extent that the error or omission resulted from
information provided by or on behalf of the Distributor or the
Designated Portfolio. Any printed information that is furnished to
the Company pursuant to this Agreement other than each Designated
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Portfolio's prospectus or statement of additional information (or
information supplemental thereto), periodic reports and proxy
solicitation materials is the Distributor's sole responsibility and
not the responsibility of any Designated Portfolio or the Fund. The
Company agrees that the Portfolios, the shareholders of the
Portfolios and the officers and governing Board of the Fund will have
no liability or responsibility to the Company in these respects.
4.2. The Company will not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund in connection with the sale of the Contracts other than the
information or representations contained in the registration
statement, prospectus or statement of additional information for Fund
shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published
reports for the Fund which are in the public domain or approved by
the Fund or the Distributor for distribution, or in sales literature
or other material provided by the Fund, Adviser or by the
Distributor, except with permission of the Distributor. Any piece of
sales literature or other promotional material intended to be used by
the Company which requires the permission of the Distributor prior to
use will be furnished by Company to the Distributor, or its designee,
at least ten (10) business days prior to its use. No such material
will be used if the Distributor reasonably objects to such use within
five (5) business days after receipt of such material.
Nothing in this Section 4.2 will be construed as preventing the
Company or its employees or agents from giving advice on investment
in the Fund.
4.3. The Fund, the Adviser or the Distributor will furnish, or
will cause to be furnished, to the Company or its designee, each
piece of sales literature or other promotional material in which the
Company or its Account is named, at least ten (10) business days
prior to its use. No such material will be used if the Company
reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund, the Adviser and the Distributor will not give any
information or make any representations or statements on behalf of
the Company or concerning the Company, each Account, or the Contracts
other than the information or representations contained in a
registration statement, prospectus or statement of additional
information for the Contracts, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved
by the Company for distribution to contractowners, or in sales
literature or other material provided by the Company, except with
permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of
additional information, 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, contemporaneously with
the filing of such document with the SEC, the NASD or other
regulatory authority.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of
additional information, 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 each
Account, contemporaneously with the filing of such document with the
SEC, the NASD or other regulatory authority.
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4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not
limited to, 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, (e.g., on-line
networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisements, sales
literature, or published article), educational or training materials
or other communications distributed or made generally available to
some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting
sales literature or advertising under the NASD rules, the 1933 Act or
the 1940 Act.
4.8. The Fund and the Distributor hereby consent to the
Company's use of the names Fleet Investment Advisors Inc., The Galaxy
VIP Fund, the portfolio names designated on Schedule B or other
designated names as may be used from time to time in connection with
the marketing of the Contracts, subject to the terms of Sections 4.1
and 4.2 of this Agreement. Such consent will terminate with the
termination of this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund, the Adviser and the Distributor will pay no fee
or other compensation to the Company under this Agreement except if
the Fund or any Designated Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses, then, subject to obtaining any required exemptive orders or
other regulatory approvals, the Fund may make payments to the Company
or to the underwriter for the Contracts if and in such amounts agreed
to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this
Agreement will be paid by the Fund to the extent permitted by law.
The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares; preparation and filing of the
Fund's prospectus, statement of additional information and
registration statement, proxy materials and reports; setting in type
and printing the Fund's prospectus; setting in type and printing
proxy materials and reports by it to contractowners (including the
costs of printing a Fund prospectus that constitutes an annual
report); the preparation of all statements and notices required by
any federal or state law; all taxes on the issuance or transfer of
the Fund's shares; any expenses permitted to be paid or assumed by
the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this
Agreement.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1. The Adviser will ensure that the Fund will at all times
invest money from the Contracts in such a manner as to ensure that
the Contracts will be treated as variable annuity contracts under the
Internal Revenue Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will comply with
Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulation. 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 Treasury
Regulation 1.817-5.
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6.2. The Fund represents that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Internal
Revenue 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
Internal Revenue Code, and that it will make every effort to maintain
such treatment, and that it will notify the Fund and the Distributor
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 Internal Revenue Code (or any
successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Fund Board will monitor the Fund for the existence of
any material irreconcilable conflict between the interests of the
contractowners 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 contractowners; or (f) a
decision by an insurer to disregard the voting instructions of
contractowners. The Fund 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 Fund Board. The Company will assist the
Fund Board in carrying out its responsibilities under the Mixed and
Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any
issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Fund Board whenever contractowner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Fund 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 Fund
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
contractowners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contractowners, life insurance
contractowners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contractowners the option of
making such a change; and (2) establishing a new registered
management investment company or managed separate account.
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7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contractowner 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 Fund
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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund Board.
7.7. If and to the extent the Mixed and Shared Funding Exemptive
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
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extent that terms and conditions substantially identical
to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By the Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the
Fund, the Adviser, the Distributor, and each person, if any, who
controls or is associated with the Fund, the Adviser or the
Distributor within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against
any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent
of the Company) or litigation (including reasonable legal and
other expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue
statements or alleged untrue statements of any material
fact contained in the registration statement, prospectus or
statement of additional information for the Contracts or
contained in the Contracts or sales literature or other
promotional material 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 or necessary
to make such statements not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify will 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 written information furnished to the
Company by the Fund, the Adviser or the Distributor for use
in the registration statement, prospectus or statement of
additional information 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
(2) arise out of or as a result of statements or
representations by or on behalf of the Company or wrongful
conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or
Fund shares; or
(3) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Fund
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
such statements not misleading in light of the
circumstances in which they were made, if such a statement
or omission was made in reliance upon and in conformity
with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company
to provide the services and furnish the materials under the
terms of this Agreement; or
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(5) arise out of 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 by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof.
This indemnification will be in addition to any liability that
the Company otherwise may have.
(b) No party will be entitled to indemnification under
Section 8.1(a) to the extent such loss, claim, damage, liability
or litigation is due to the willful misfeasance, bad faith, or
gross negligence in the performance of such party's duties under
this Agreement, or by reason of such party's reckless disregard
of its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties promptly will notify the
Company of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities 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 Adviser, the Fund and the Distributor
------------------------------------------------------------
(a) The Adviser, the Fund and the Distributor, in each
case solely to the extent relating to such party's
responsibilities hereunder, agree to indemnify and hold harmless
the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms
under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof)
or settlements:
(1) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement, prospectus or
statement of additional information for the Fund or sales
literature or other promotional material 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 or necessary to make such statements not misleading
in light of the circumstances in which they were made;
provided that this agreement to indemnify will 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
Adviser, the Distributor or the Fund by or on behalf of the
Company for use in the registration statement, prospectus
or statement of additional information for the Fund or in
sales literature of the Fund (or any amendment or
supplement thereto) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations or wrongful conduct of the Adviser, the
Fund or the Distributor or persons under the control of the
Adviser, the Fund or the Distributor respectively, with
respect to the sale of the Fund shares; or
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(3) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated or
necessary to make such statement or statements not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance
upon and in conformity with written information furnished
to the Company by the Adviser, the Fund or the Distributor
or persons under the control of the Adviser, the Fund or
the Distributor; or
(4) arise as a result of any failure by the Fund, the
Adviser or the Distributor 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
requirements and procedures related thereto specified in
Article VI of this Agreement); or
(5) arise out of or result from any material breach
of any representation and/or warranty made by the Adviser,
the Fund or the Distributor in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser, the Fund or the Distributor;
except to the extent provided in Sections 8.2(b) and 8.3 hereof.
This indemnification will be in addition to any liability that
the Fund, Adviser or the Distributor otherwise may have.
(b) No party will be entitled to indemnification under
Section 8.2(a) to the extent such loss, claim, damage, liability
or litigation is due to the willful misfeasance, bad faith, or
gross negligence in the performance of such party's duties under
this Agreement, or by reason of such party's reckless disregard
of its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the
Adviser, the Fund and the Distributor of the commencement of any
litigation, proceedings, complaints or actions by regulatory
authorities against them in connection with the issuance or sale
of the Contracts or the operation of the account.
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this
Article VIII ("Indemnifying Party" for the purpose of this Section
8.3) will not be liable under the indemnification provisions of this
Article VIII with respect to any claim made against a party entitled
to indemnification under this Article VIII ("Indemnified Party" for
the purpose of this Section 8.3) unless such Indemnified Party will
have notified the Indemnifying Party in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim will have been served upon
such Indemnified Party (or after such party will have received notice
of such service on any designated agent), but failure to notify the
Indemnifying Party of any such claim will not relieve the
Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than
on account of the indemnification provision of this Article VIII,
except to the extent that the failure to notify results in the
failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of failure to give
such notice. In case any such action is brought against the
Indemnified Party, the
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<PAGE>
<PAGE>
Indemnifying Party will be entitled to participate, at its own expense,
in the defense thereof. The Indemnifying Party also will be entitled
to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Indemnifying Party to the
Indemnified Party of the Indemnifying Party's election to assume the
defense thereof, the Indemnified Party will bear the fees and expenses of
any additional counsel retained by it, and the Indemnifying Party 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,
unless: (a) the Indemnifying Party and the Indemnified Party will
have mutually agreed to the retention of such counsel; or (b) the
named parties to any such proceeding (including any impleaded
parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The Indemnifying Party will not be liable for any settlement of
any proceeding effected without its written consent but if settled
with such consent or if there is a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or
judgment. A successor by law of the parties to this Agreement will
be entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this
Article VIII will survive any termination of this Agreement.
8.4 Distributor Limitation on Liability. Notwithstanding the
------------------------------------
foregoing, the Distributor shall not be liable to any party to this
Agreement for lost profits, punitive, special, incidental, indirect
or consequential damages.
ARTICLE IX. Applicable Law
--------------
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Delaware.
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
-----------
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause,
with respect to some or all of the Designated Portfolios, upon
sixty (60) days' advance written notice to the other parties or,
if later, upon receipt of any required exemptive relief or
orders from the SEC, unless otherwise agreed in a separate
written agreement among the parties; or
(b) at the option of the Company, upon receipt of the
Company's written notice by the other parties, with respect to
any Designated Portfolio if shares of the Designated Portfolio
are not reasonably available to meet the requirements of the
Contracts as determined in good faith by the Company; or
-15-
<PAGE>
<PAGE>
(c) at the option of the Company, upon receipt of the
Company's written notice by the other parties, with respect to
any Designated Portfolio 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 Company; or
(d) at the option of the Fund, upon receipt of the Fund's
written notice by the other parties, upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission 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 administration of the
Contracts, the operation of the Account, or the purchase of the
Fund shares, provided that the Fund determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the
Company's written notice by the other parties, upon institution
of formal proceedings against the Fund, Adviser or the
Distributor by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided that
the Company determines in its sole judgment, exercised in good
faith, that any such proceeding would have a material adverse
effect on the Fund's or the Distributor's ability to perform its
obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the
Company's written notice by the other parties, if the Fund
ceases to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, or under any
successor or similar provision, or if the Company reasonably and
in good faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the
Company's written notice by the other parties, with respect to
any Designated Portfolio if the Fund fails to meet the
diversification requirements specified in Article VI hereof or
if the Company reasonably and in good faith believes the Fund
may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon
written notice to the other parties, upon another party's
material breach of any provision of this Agreement which
material breach is not cured within thirty (30) days of said
notice; or
(i) at the option of the Company, if the Company
determines in its sole judgment exercised in good faith, that
either the Fund, the Adviser or the Distributor has suffered a
material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company,
such termination to be effective sixty (60) days' after receipt
by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or the Distributor, if the
Fund or the Distributor respectively, determines in its sole
judgment exercised in good faith, that the Company has suffered
a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Fund or the Adviser, such termination to be effective sixty (60)
days' after receipt by the other parties of written notice of
the election to terminate; or
-16-
<PAGE>
<PAGE>
(k) at the option of the Company or the Fund upon receipt
of any necessary regulatory approvals and/or the vote of the
contractowners having an interest in the Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Designated Portfolio shares of the
Fund in accordance with the terms of the Contracts for which
those Designated Portfolio shares had been selected to serve as
the underlying investment media. The Company will give sixty
(60) days' prior written notice to the Fund of the date of any
proposed vote or other action taken to replace the Fund's
shares; or
(l) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of
the disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of: (1) all
contractowners of variable insurance products of all separate
accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of
this Agreement; or
(m) at the option of the Fund in the event any of the
Contracts are not issued or sold in accordance with applicable
federal and/or state law. Termination will be effective
immediately upon such occurrence without notice.
10.2. Notice Requirement. No termination of this Agreement
------------------
will be effective unless and until the party terminating this
Agreement gives prior written notice to all other parties of its
intent to terminate, which notice will set forth the basis for the
termination.
10.3. Effect of Termination. Notwithstanding any
---------------------
termination of this Agreement, the Fund and the Distributor will, 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.") . Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Portfolios (as in effect on such date), redeem investments in the
Portfolios and/or invest in the Portfolios upon the making of
additional purchase payments under the Existing Contracts.
10.4. Surviving Provisions. Notwithstanding any termination
--------------------
of this Agreement, each party's obligations under Article VIII to
indemnify other parties will survive and not be affected by any
termination of this Agreement. In addition, each party's obligations
under Section 12.7 will survive and not be affected by any
termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not
be affected by any termination of this Agreement.
ARTICLE XI. Notices
-------
11.1. 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: THE GALAXY VIP FUND
c/o William Greilich
4400 Computer Drive
Westborough, MA 01581-9896
If to the Company: Golden American Life Insurance Company
c/o Myles Tashman
-17-
<PAGE>
<PAGE>
Executive Vice President and General Counsel
1475 Dunwoody Drive
West Chester, PA 19380
If to Adviser: Fleet Investment Advisers Inc.
c/o Tom O' Neill, President
4400 Computer Drive
Westborough, MA 01581-9896
If to Distributor: First Data Distributors, Inc.
c/o President
4400 Computer Drive
Westborough, MA 01581-9896
ARTICLE XII. Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against
the Fund as neither the directors, trustees, officers, partners,
employees, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. No Portfolio or
series of the Fund will be liable for the obligations or liabilities
of any other Portfolio or series.
12.2. The Fund, the Adviser and the Distributor acknowledge
that the identities of the customers of the Company or any of its
affiliates, except for customers of the Adviser or its affiliates
(collectively the "Company Protected Parties" for purposes of this
Section 12.2), information maintained regarding those customers, and
all computer programs and procedures or other information developed
or used by the Company Protected Parties or any of their employees or
agents in connection with the Company's performance of its duties
under this Agreement are the valuable property of the Company
Protected Parties. The Fund, the Adviser and the Distributor agree
that if they come into possession of any list or compilation of the
identities of or other information about the Company Protected
Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly
available or as may be independently developed or compiled by the
Fund, the Adviser or the Distributor from information supplied to
them by the Company Protected Parties' customers who also maintain
accounts directly with the Fund, the Adviser or the Distributor, the
Fund, the Adviser and the Distributor will hold such information or
property in confidence and refrain from using, disclosing or
distributing any of such information or other property except:
(a) with the Company's prior written consent; or (b) as required by
law or judicial process. The Company acknowledges that the
identities of the customers of the Fund, the Adviser, the Distributor
or any of their affiliates (collectively the "Adviser Protected
Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures
or other information developed or used by the Adviser Protected
Parties or any of their employees or agents in connection with the
Fund's, the Adviser's or the Distributor's performance of their
respective duties under this Agreement are the valuable property of
the Adviser Protected Parties. The Company agrees that if it comes
into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or
any other information or property of the Adviser Protected Parties,
other than such information as is publicly available or as may be
independently developed or compiled by the Company from information
supplied to them by the Adviser Protected Parties' customers who also
maintain accounts directly with the Company, the Company will hold
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Fund's, the Adviser's or the Distributor's prior
written
-18-
<PAGE>
<PAGE>
consent; or (b) as required by law or judicial process. Each
party acknowledges that any breach of the agreements in this Section
12.2 would result in immediate and irreparable harm to the other
parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be
entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
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 will constitute
one and the same instrument.
12.5. If any provision of this Agreement will be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement will not be affected thereby.
12.6. This Agreement will not be assigned by any party
hereto without the prior written consent of all the parties, except
that the Distributor may assign this Agreement to Provident
Distributors Inc. (or one of its properly qualified affiliates) with
prior written notice to all parties.
12.7. Each party to this Agreement will maintain all records
required by law, including records detailing the services it
provides. Such records will be preserved, maintained and made
available to the extent required by law and in accordance with the
1940 Act and the rules thereunder. Each party to this Agreement will
cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state
insurance regulators) and will permit each other and 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. Upon request by the Fund or the
Distributor, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of
services under this Agreement available to the Fund or the
Distributor, as the case may be. The Fund agrees that the Company
will have the right to inspect, audit and copy all records pertaining
to the performance of services under this Agreement pursuant to the
requirements of any state insurance department. Each party also
agrees to promptly notify the other parties if it experiences any
difficulty in maintaining the records in an accurate and complete
manner. This provision will survive termination of this Agreement.
12.8. Each party represents that the execution and delivery
of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary
corporate or board action, as applicable, by such party and when so
executed and delivered this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules
to this Agreement from time to time to reflect changes in or relating
to the Contracts, the Accounts or the Designated Portfolios of the
Fund or other applicable terms of this Agreement.
12.10. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights.
12.11. The names "The Galaxy VIP Fund" and "Trustees of The
Galaxy VIP Fund" refer respectively to the trust created and the
Trustees, as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated May 27, 1992 which is
hereby referred to and a
-19-
<PAGE>
<PAGE>
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Fund.
The obligations of "The Galaxy VIP Fund" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders, or representatives of the Fund personally, but
bind only the Trust Property, and all persons dealing with any class of
Shares of the Fund must look solely to the Trust Property belonging
to such class for the enforcement of any claims against the Fund.
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: /s/ David L. Jacobson
---------------------------
Title: Senior Vice President
------------------------
Date: January 4, 2000
-------------------------
THE GALAXY VIP FUND:
By: /s/ William Greilich
---------------------------
Title: Vice President
------------------------
Date: 10-1-99
-------------------------
FLEET INVESTMENT ADVISORS INC:
By: /s/ Tom O'Neill
---------------------------
Title: President and CEO
------------------------
Date: 12-14-99
-------------------------
FIRST DATA DISTRIBUTORS, INC.
By: /s/ Scott Hacker
---------------------------
Title: VP & Treasurer
------------------------
Date: 10-1-99
-------------------------
-20-
<PAGE>
<PAGE>
SCHEDULE A
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONTRACTS AND SEPARATE ACCOUNT(S)
CONTRACT(S):
Deferred Combination Variable and Fixed Annuity
Contract -- Premium Plus featuring The Galaxy VIP Fund
SEPARATE ACCOUNT(S):
Separate Account B of Golden American Life Insurance Company
SCHEDULE B
THE GALAXY VIP FUND
DESIGNATED PORTFOLIOS
PORTFOLIOS:
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Quality Bond Fund
Schedule Date: October 1, 1999
-21-
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10(j)
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SURPLUS NOTE
Golden American Life Insurance Company agrees to pay Equitable of
Iowa Companies, an Iowa corporation, the sum of $25 million
($25,000,000.00) plus interest at the rate of 8.25% per annum from
the date hereof, December 17, 1996 until paid. In any event, this
note will mature on December 17, 2026.
This Surplus Note and accrued interest thereon shall be subordinate
to payments due to policyholders, claimant and beneficiary claims, as
well as debts owed to all other classes of debtors of Golden American
Life Insurance Company in the event of (a) the institution of
bankruptcy, reorganization, insolvency or liquidation proceedings by
or against Golden American Life Insurance Company, or (b) the
appointment of a Trustee, receiver or other Conservator for a
substantial part of Golden American Life Insurance Company
properties.
Any payments made shall first apply to accrued interest, and the
balance of such payment shall apply to reduce the principal of this
Note.
Any payment of principal and/or interest made shall be subject to the
prior approval of the Delaware Insurance Commissioner. If the
Commissioner has not approved payment of principal to retire the note
prior to its maturity date, the maturity date will be automatically
extended until such time as the Commissioner authorizes payment of
the final balance of principal.
Golden American Life Insurance Company hereby waives presentment and
notice of dishonor.
In witness whereof, Golden American Life Insurance Company has caused
this Note to be executed and delivered.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: /s/ Terry L. Kendall
---------------------------------
Terry L. Kendall, President and CEO
Attest by:
/s/ Myles R. Tashman
- ------------------------------
Myles R. Tashman
Executive Vice President and
General Counsel
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10(k)
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SURPLUS NOTE
Golden American Life Insurance Company agrees to pay Equitable Life
Insurance Company of Iowa corporation, the sum of $60 million
($60,000,000.00) plus interest at the rate of 7.25% per annum from the
date hereof, December 30, 1998 until paid. In any event, this note
will mature on December 29, 2028.
This Surplus Note and accrued interest thereon shall be subordinate to
payments due to policyholders, claimant and beneficiary claims, as well
as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American Life Insurance Company in the event of (a)
the institution of bankruptcy, reorganization, insolvency or
liquidation proceedings by or against Golden American Life Insurance
Company, or (b) the appointment of a Trustee, receiver or other
Conservator for a substantial part of Golden American Life Insurance
Company properties.
Any payments made shall first apply to accrued interest, and the
balance of such payment shall apply to reduce the principal of this
Note.
Any payment of principal and/or interest made shall be subject to the
prior approval of the Delaware Insurance Commissioner. If the
Commissioner has not approved payment of principal to retire the note
prior to its maturity date, the maturity date will be automatically
extended until such time as the Commissioner authorizes payment of the
final balance of principal.
Golden American Life Insurance Company hereby waives presentment and
notice of dishonor.
In witness whereof, Golden American Life Insurance Company has caused
this Note to be executed and delivered.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: /s/ Stephen J. Preston
--------------------------------
Stephen J. Preston, Executive
Vice President
Attest by:
/s/ David L. Jacobson
- -------------------------
David L. Jacobson
Senior Vice President and
Assistant Secretary
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10(l)
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SURPLUS NOTE
Golden American Life Insurance Company agrees to pay ING America
Insurance Holdings, Inc. a Delaware corporation, the sum of $75 million
($75,000,000.00) plus interest at the rate of 7.75% per annum from the
date hereof, September 30, 1999 until paid. In any event, this note
will mature on September 29, 2029.
This Surplus Note and accrued interest thereon shall be subordinate to
payments due to policyholders, claimant and beneficiary claims, as well
as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American Life Insurance Company in the event of (a)
the institution of bankruptcy, reorganization, insolvency or
liquidation proceedings by or against Golden American Life Insurance
Company, or (b) the appointment of a Trustee, receiver or other
Conservator for a substantial part of Golden American Life Insurance
Company properties.
Any payments made shall first apply to accrued interest, and the
balance of such payment shall apply to reduce the principal of this
Note.
Any payment of principal and/or interest made shall be subject to the
prior approval of the Delaware Insurance Commissioner. If the
Commissioner has not approved payment of principal to retire the note
prior to its maturity date, the maturity date will be automatically
extended until such time as the Commissioner authorizes payment of the
final balance of principal.
Golden American Life Insurance Company hereby waives presentment and
notice of dishonor.
In witness whereof, Golden American Life Insurance Company has caused
this Note to be executed and delivered.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: /s/ Stephen J. Preston
--------------------------------
Stephen J. Preston, Executive
Vice President
Attest by:
/s/ David L. Jacobson
- --------------------------
David L. Jacobson
Senior Vice President and
Assistant Secretary
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10(o)
FUND PARTICIPATION AGREEMENT
THE PRUDENTIAL SERIES FUND, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares..........................................4
ARTICLE II. Representations and Warranties...............................8
ARTICLE III. Prospectuses and Proxy Statements; Voting...................11
ARTICLE IV. Sales Material and Information..............................13
ARTICLE V. Fees and Expenses...........................................15
ARTICLE VI. Diversification and Qualification...........................16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order ...................18
ARTICLE VIII. Indemnification ............................................21
ARTICLE IX. Applicable Law..............................................30
ARTICLE X. Termination.................................................31
ARTICLE XI. Notices.....................................................34
ARTICLE XII. Miscellaneous...............................................35
SCHEDULE A Contracts...................................................38
SCHEDULE B Designated Portfolios.......................................39
SCHEDULE C Expenses....................................................40
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
AMONG
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
THE PRUDENTIAL SERIES FUND, INC.,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
AND
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
THIS AGREEMENT, made and entered into as of this ___ day of April, 2000, by
and among GOLDEN AMERICAN LIFE INSURANCE COMPANY (hereinafter "GALIC"), a
Delaware life insurance company, on its own behalf and on behalf of its SEPARATE
ACCOUNT B (the "Account"); THE PRUDENTIAL SERIES FUND, INC., an open-end
management investment company organized under the laws of Maryland (hereinafter
the "Fund"); THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (hereinafter the
"Adviser"), a New Jersey mutual insurance company; and PRUDENTIAL INVESTMENT
MANAGEMENT SERVICES LLC (hereinafter the "Distributor"), 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 policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including GALIC, which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
2
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated March 5, 1999 (File No. IC-23728),
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,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, 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
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer 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, GALIC has registered certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in Schedule A attached hereto and incorporated herein by
reference, as such Schedule may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of GALIC in 1988
under the insurance laws of the State of Delaware, to set aside and invest
assets attributable to the Contracts; and
3
<PAGE>
WHEREAS, GALIC has registered the Account as a unit investment trust under
the 1940 Act and has registered the securities deemed to be issued by the
Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, GALIC intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, GALIC, the Fund,
the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares.
-------------------
1.1. The Fund agrees to sell to GALIC those shares of the Designated
Portfolio(s) which the Account orders, executing such orders on each Business
Day at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios. For purposes
of this Section 1.1, GALIC shall be the designee of the Fund for receipt of such
orders and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such order by 9:00 a.m. Eastern
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the
Designated Portfolio calculates its net asset value pursuant to the rules of the
SEC.
4
<PAGE>
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by GALIC and
the Account on those days on which the Fund calculates its Designated
Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, 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, necessary in the best interests of the shareholders of
such Designated Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to Delaware law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GALIC's request, any full or
fractional shares of the Fund held by GALIC, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. Requests for redemption identified
by GALIC, or its agent, as being in connection with surrenders, annuitizations,
or death benefits under the Contracts, upon prior written notice, may be
executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. This Section 1.4 may be amended, in
writing, by the parties consistent with the requirements of the 1940 Act and
interpretations thereof. For purposes of this Section 1.4, GALIC shall be the
designee of the Fund for receipt of requests for redemption and receipt by such
designee shall constitute receipt by the Fund, provided that the Fund receives
notice of any such request for redemption by 9:00 a.m. Eastern time on the next
following Business Day.
5
<PAGE>
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3) and the cash value of
the Contracts may be invested in other investment companies.
1.6. GALIC shall pay for Fund shares by 3:00 p.m. Eastern time on the next
Business Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire and/or by a credit for any shares redeemed the same day as
the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to GALIC or the Account. Shares purchased
from the Fund will be recorded in an appropriate title for the Account or the
appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to GALIC of any income, dividends or capital gain
distributions payable on the Designated Portfolio(s)' shares. GALIC hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Designated Portfolio shares in additional shares of that
Designated Portfolio. GALIC reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify GALIC by the end of the next following Business Day of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to GALIC on each Business Day as soon as reasonably
practical after the net asset value
6
<PAGE>
per share is calculated and shall use its best efforts to make such net asset
value per share available by 6:00 p.m. Eastern time. In the event of an error in
the computation of a Designated Portfolio's net asset value per share ("NAV") or
any dividend or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall immediately notify GALIC as soon as possible after discovery
of the error. Such notification may be verbal, but shall be confirmed promptly
in writing in accordance with Article XI of this Agreement. A pricing error
shall be corrected as follows: (a) if the pricing error results in a difference
between the erroneous NAV and the correct NAV of less than $0.01 per share, then
no corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse GALIC for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule C.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GALIC for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GALIC shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners. In no event shall GALIC be liable to Contractowners for any such
adjustments or underpayment amounts. A pricing error within categories (b) or
(c) above shall be deemed to be "materially incorrect" or constitute a "material
error" for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties
7
<PAGE>
shall amend the foregoing provisions of this Agreement to comport with the
appropriate applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
------------------------------
2.1. GALIC represents and warrants that the Contracts and the securities
deemed to be issued by the Account under the Contracts are or will be registered
under the 1933 Act; that the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements. GALIC further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale of units thereof as a segregated asset account under Delaware law, and has
registered 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 and that it will maintain such registration for so long as any
Contracts are outstanding as required by applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act 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.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
8
<PAGE>
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State of Delaware and all applicable state insurance and
securities laws. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states if and to the extent required by
applicable law. GALIC and the Fund will endeavor to mutually cooperate with
respect to the implementation of any modifications necessitated by any change in
state insurance laws, regulations or interpretations of the foregoing that
affect the Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law Change that becomes known to either party. In the event of a
Law Change, the Fund agrees that, except in those circumstances where the Fund
has advised GALIC that its Board of Directors has determined that implementation
of a particular Law Change is not in the best interest of all of the Fund's
shareholders with an explanation regarding why such action is lawful, any action
required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the
9
<PAGE>
Fund in compliance in all material respects with the laws of any applicable
state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective 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 one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bonds shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. The Fund will provide GALIC with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
GALIC in order to implement any such change in an orderly manner, recognizing
the expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred by GALIC as a
result of actions taken by the Fund, consistent with the allocation of expenses
contained in Schedule C attached hereto and incorporated herein by reference.
2.10. GALIC represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended ("the Code"), that the Contracts are currently and at the time of
issuance will be treated as annuity 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, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future. In addition, GALIC
represents and warrants that the Account is a "segregated asset account" and
that interests in the Account are offered exclusively through the purchase of or
10
<PAGE>
transfer into a "variable contract" within the meaning of such terms under
Section 817 of the Code and the regulations thereunder. GALIC will use every
effort to continue to meet such definitional requirements, and it will notify
the Fund, the Distributor and the Adviser immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not be met in the future. GALIC represents and warrants that it will not
purchase Fund shares with assets derived from tax-qualified retirement plans
except, indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting.
-----------------------------------------
3.1. At least annually, the Adviser or Distributor shall provide GALIC with
as many copies of the Fund's current prospectus for the Designated Portfolio(s)
as GALIC may reasonably request for marketing purposes (including distribution
to Contractowners with respect to new sales of a Contract), with expenses to be
borne in accordance with Schedule C hereof. If requested by GALIC in lieu
thereof, the Adviser, Distributor or Fund shall provide such documentation
(including a camera-ready copy and computer diskette of the current prospectus
for the Designated Portfolio(s)) and other assistance as is reasonably necessary
in order for GALIC once each year (or more frequently if the prospectuses for
the Designated Portfolio(s) are amended) to have the prospectus for the
Contracts and the Fund's prospectus for the Designated Portfolio(s) printed
together in one document. The Fund and Adviser agree that the prospectus (and
semi-annual and annual reports) for the Designated Portfolio(s) will describe
only the Designated Portfolio(s) and will not name or describe any other
portfolios or series that may be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund, Distributor and/or the Adviser shall provide
GALIC with copies of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule C hereof, as GALIC may reasonably require to permit timely distribution
thereof to Contractowners. The Adviser, Distributor and/or the Fund shall also
11
<PAGE>
provide SAIs to any Contractowner or prospective owner who requests such SAI
from the Fund (although it is anticipated that such requests will be made to
GALIC).
3.3. The Fund, Distributor and/or Adviser shall provide GALIC with copies
of the Fund's proxy material, reports to stockholders and other communications
to stockholders for the Designated Portfolio(s) in such quantity, with expenses
to be borne in accordance with Schedule C hereof, as GALIC may reasonably
require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding GALIC provided in writing by that party, GALIC shall not be
responsible for the content of the prospectus or SAI for the Designated
Portfolio(s). It is also understood and agreed that, except with respect to
information regarding the Fund, the Distributor, the Adviser or the Designated
Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser,
neither the Fund, the Distributor nor Adviser are responsible for the content of
the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GALIC shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners: and
(iii) vote Designated Portfolio shares held in the Account for which
no instructions have been received in the same proportion as
Designated Portfolio(s) shares for which instructions have been
received from Contractowners, 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.
GALIC reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
3.6. GALIC shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to
12
<PAGE>
by GALIC and the Fund. The Fund agrees to promptly notify GALIC of any changes
of interpretations or amendments of the Mixed and Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the SEC may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information.
------------------------------
4.1. GALIC shall furnish, or shall cause to be furnished, to the Fund or
its designee, a copy of each piece of sales literature or other promotional
material that GALIC develops or proposes to use and in which the Fund (or a
Portfolio thereof), its Adviser or one of its sub-advisers or the Distributor is
named in connection with the Contracts, at least ten (10) Business Days prior to
its use. No such material shall be used if the Fund objects to such use within
five (5) Business Days after receipt of such material.
4.2. GALIC shall not give any information or make any representations or
statements on behalf of the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement, including the prospectus or SAI for the Fund shares, as the same may
be amended or supplemented from time to time, or in sales literature or other
promotional material approved by the Fund, Distributor or Adviser, except with
the permission of the Fund, Distributor or Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished,
to GALIC, a copy of each piece of sales literature or other promotional material
in which GALIC and/or its
13
<PAGE>
separate account(s) is named at least ten (10) Business Days prior to its use.
No such material shall be used if GALIC objects to such use within five (5)
Business Days after receipt of such material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of GALIC or concerning GALIC,
the Account, or the Contracts other than the information or representations
contained in a registration statement, including the prospectus or SAI for the
Contracts, as the same may be amended or supplemented from time to time, or in
sales literature or other promotional material approved by GALIC or its
designee, except with the permission of GALIC.
4.5. The Fund will provide to GALIC at least one complete copy of all
registration statements, prospectuses, SAIs, 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 Designated
Portfolio(s) within a reasonable period of time following the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
4.6. GALIC will provide to the Fund at least one complete copy of all
registration statements, prospectuses, 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, contemporaneously with the
filing of such document(s) with the SEC, NASD, or other regulatory authority.
4.7. For purposes of Articles IV and VIII, the phrase "sales literature and
other promotional material" includes, but is not limited to, 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; e.g.,
on-line networks such as the Internet or other electronic media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or
14
<PAGE>
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 shareholder reports,
and proxy materials (including solicitations for voting instructions) and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and the Adviser shall pay no fee or other compensation to
GALIC under this Agreement, and GALIC shall pay no fee or other compensation to
the Fund or Adviser under this Agreement, although the parties hereto will bear
certain expenses in accordance with Schedule C, Articles III, V, and other
provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule C. The Fund shall see to it that all shares of the
Designated Portfolio(s) are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent required, in accordance
with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered by GALIC, in
accordance with Schedule C.
15
<PAGE>
ARTICLE VI. Diversification and Qualification.
---------------------------------
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code, and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund, Distributor and Adviser represent and warrant
that the Fund and each Designated Portfolio thereof will at all times comply
with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended
from time to time, 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. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund, Distributor or Adviser will notify GALIC immediately upon
having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4
hereof and without in any way limiting or restricting any other remedies
available to GALIC, the Adviser or
16
<PAGE>
Distributor will pay all costs associated with or arising out of any failure, or
any anticipated or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs
associated with reasonable and appropriate corrections or responses to any such
failure; such costs may include, but are not limited to, the costs involved in
creating, organizing, and registering a new investment company as a funding
medium for the Contracts and/or the costs of obtaining whatever regulatory
authorizations are required to substitute shares of another investment company
for those of the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act).
6.6. GALIC agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of GALIC or, to
GALIC's knowledge, of any Contractowner that any Designated Portfolio has failed
to comply with the diversification requirements of Section 817(h) of the Code or
GALIC otherwise becomes aware of any facts that could give rise to any claim
against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) GALIC shall promptly notify the Fund, the Distributor and the Adviser
of such assertion or potential claim;
(b) GALIC shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such failure
or alleged failure;
(c) GALIC shall use its best efforts to minimize any liability of the Fund,
the Distributor and the Adviser resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury Regulations,
Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was
inadvertent;
(d) any written materials to be submitted by GALIC to the IRS, any
Contractowner or any other claimant in connection with any of the foregoing
proceedings or contests (including, without limitation, any such materials
to be submitted to the IRS pursuant to
17
<PAGE>
Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by GALIC to
the Fund, the Distributor and the Adviser (together with any supporting
information or analysis) within at least two (2) business days prior to
submission;
(e) GALIC shall provide the Fund, the Distributor and the Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall reasonably
request (including, without limitation, by permitting the Fund, the
Distributor and the Adviser to review the relevant books and records of
GALIC) in order to facilitate review by the Fund, the Distributor and the
Adviser of any written submissions provided to it or its assessment of the
validity or amount of any claim against it arising from such failure or
alleged failure;
(f) GALIC shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the
Distributor and the Adviser (i) compromise or settle any claim, (ii) accept
any adjustment on audit, or (iii) forego any allowable administrative or
judicial appeals, without the express written consent of the Fund, the
Distributor and the Adviser, which shall not be unreasonably withheld;
provided that, GALIC shall not be required to appeal any adverse judicial
decision unless the Fund and the Adviser shall have provided an opinion of
independent counsel to the effect that a reasonable basis exists for taking
such appeal; and further provided that the Fund, the Distributor and the
Adviser shall bear the costs and expenses, including reasonable attorney's
fees, incurred by GALIC in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding
----------------------------------------------------------------
Exemptive Order
- ---------------
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)
18
<PAGE>
an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Designated Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity contract and
variable life insurance contract owners or by contract owners of different
Participating Insurance Companies; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform GALIC if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. GALIC will report any potential or existing conflicts of which it is
aware to the Board. GALIC 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 GALIC to inform the Board whenever contract owner voting instructions are to
be disregarded. Such responsibilities shall be carried out by GALIC with a view
only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, GALIC and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), 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
Designated 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
19
<PAGE>
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
GALIC to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, GALIC may be
required, at the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement; 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 Independent
Directors. 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 Adviser, the
Distributor and the Fund shall continue to accept and implement orders by GALIC
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 GALIC conflicts with the
majority of other state regulators, then GALIC will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs GALIC 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 GALIC for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 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.
GALIC shall not be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a majority of
Contractowners affected by the irreconcilable material conflict. In the event
that the
20
<PAGE>
Board determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then GALIC will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs GALIC 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 Independent Directors.
7.7. 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, 3.7, 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
---------------
8.1. Indemnification By GALIC
8.1(a). GALIC agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of GALIC) or litigation (including
reasonable 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, expenses, damages or liabilities (or actions in respect
21
<PAGE>
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus or SAI covering the Contracts or contained in
the Contracts or sales literature or other promotional material 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 in writing to GALIC by or on
behalf of the Adviser, Distributor or Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or sales
literature or other promotional material (or any amendment or
supplement to any of the foregoing) 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 or sales literature or other promotional
material of the Fund not supplied by GALIC or persons under its
control) or wrongful conduct of GALIC or persons under its 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 or other promotional material 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 in writing to the Fund by or on behalf of GALIC; or
(iv) arise as a result of any failure by GALIC to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by GALIC in this Agreement or arise out of or
result from any other material breach of this Agreement by GALIC,
including without limitation Section 2.10 and Section 6.6 hereof,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). GALIC shall not be liable under this indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or litigation to
which an Indemnified Party would
22
<PAGE>
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to any of the Indemnified Parties.
8.1(c). GALIC 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 GALIC 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 GALIC of any such claim shall not relieve GALIC
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,
except to the extent that GALIC has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
GALIC shall be entitled to participate, at its own expense, in the defense of
such action. GALIC also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from GALIC
to such party of GALIC's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and GALIC 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 GALIC 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 Adviser.
------------------------------
8.2(a). The Adviser agrees to indemnify and hold harmless GALIC and its
directors and officers and each person, if any, who controls GALIC within the
meaning of Section 15 of the
23
<PAGE>
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.2) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including reasonable 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 are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(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 or other promotional material
of the Fund prepared by the Fund, the Distributor or the Adviser (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 in
writing to the Adviser, the Distributor or the Fund by or on behalf of
GALIC for use in the registration statement, prospectus or SAI for the
Fund or in sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) or otherwise for use
in connection with the sale of the Contracts or the 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 or other promotional
material for the Contracts not supplied by the Adviser or persons
under its control) or wrongful conduct of the Fund, the Distributor or
the Adviser 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 or other promotional material 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 in writing to GALIC by or on
behalf of the Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or the
Adviser 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
24
<PAGE>
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 Fund, the Distributor or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, the Distributor or the Fund;
or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting by the Fund, the Distributor or the Adviser of the daily net
asset value per share (subject to Section 1.10 of this Agreement) or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, 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 negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.2(c). The Adviser 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 Adviser 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 Adviser of any
such claim shall not relieve the Adviser 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, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
25
<PAGE>
satisfactory to the party named in the action. After notice from the Adviser to
such party of the Adviser'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 Adviser 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.
8.2(d). GALIC agrees promptly to notify the Adviser 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 GALIC and its
directors and officers and each person, if any, who controls GALIC 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 and liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may be required to pay or 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;
or
(iii) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section
1.10 of this Agreement) or dividend or capital gain distribution rate;
26
<PAGE>
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, expenses, 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 negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
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 it 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, except to the extent that the Fund has been prejudiced by such
failure to give notice. 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 shall also 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). GALIC agrees promptly to notify the Fund of the commencement of any
litigation or proceeding against itself or any of its respective officers or
directors in connection with the
27
<PAGE>
Agreement, the issuance or sale of the Contracts, the operation of the Account,
or the sale or acquisition of shares of the Fund.
8.4. Indemnification by the Distributor.
----------------------------------
8.4(a). The Distributor agrees to indemnify and hold harmless GALIC and its
directors and officers and each person, if any, who controls GALIC within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.4) against any and all losses, claims, expenses,
damages and liabilities (including amounts paid in settlement with the written
consent of the Distributor) or litigation (including reasonable 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
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(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 or other promotional material
of the Fund prepared by the Fund, Adviser or Distributor (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 in
writing to the Adviser, the Distributor or Fund by or on behalf of
GALIC for use in the registration statement or SAI or prospectus for
the Fund or in sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) 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, sales literature or other promotional
material for the Contracts not supplied by the Distributor or persons
under its control) or wrongful conduct of the Fund, the Distributor or
Adviser or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
28
<PAGE>
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
sales literature or other promotional material 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 in writing to GALIC by or on
behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
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
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund, Adviser or Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section
1.10 of this Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
8.4(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, 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 negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.4(c) The Distributor 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 Distributor in writing within a
reasonable time after the summons or other first legal process
29
<PAGE>
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 Distributor of
any such claim shall not relieve the Distributor 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, except to the extent that the
Distributor has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor'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 Distributor 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.
8.4(d) GALIC agrees to promptly notify the Distributor 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.
ARTICLE IX. Applicable Law .
---------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New Jersey,
without regard to the New Jersey Conflict of Laws provisions.
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, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
30
<PAGE>
ARTICLE X. Termination .
------------
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect to
some or all Designated Portfolios, upon sixty (60) days advance
written notice delivered to the other parties; provided, however, that
such notice shall not be given earlier than six (6) months following
the date of this Agreement; or
(b) at the option of GALIC by written notice to the other parties with
respect to any Designated Portfolio based upon GALIC's determination
that shares of such Designated Portfolio are not reasonably available
to meet the requirements of the Contracts; or
(c) at the option of GALIC by written notice to the other parties with
respect to any Designated Portfolio 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 GALIC; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against GALIC by
the NASD, the SEC, the Insurance Commissioner or like official of any
state or any other regulatory body regarding GALIC's duties under this
Agreement or related to the sale of the Contracts, the operation of
any Account, or the purchase of the Fund shares, if, in each case, the
Fund, Distributor or Adviser, as the case may be, reasonably
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of GALIC to perform its obligations under this Agreement;
or
(e) at the option of GALIC in the event that formal administrative
proceedings are instituted against the Fund, the Distributor or the
Adviser by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, if GALIC reasonably
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, the Distributor or the Adviser to perform
their obligations under this Agreement; or
(f) at the option of GALIC by written notice to the Fund with respect
to any Designated Portfolio if GALIC reasonably believes that the
Designated Portfolio will fail to meet the Section 817(h)
diversification requirements or Subchapter M qualifications specified
in Article VI hereof; or
31
<PAGE>
(g) at the option of either the Fund, the Distributor or the Adviser,
if (i) the Fund, Distributor or Adviser, respectively, shall
determine, in its sole judgment reasonably exercised in good faith,
that GALIC has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity
and that material adverse change or publicity will have a material
adverse impact on GALIC's ability to perform its obligations under
this Agreement, (ii) the Fund, Distributor or Adviser notifies GALIC
of that determination and its intent to terminate this Agreement, and
(iii) after considering the actions taken by GALIC and any other
changes in circumstances since the giving of such a notice, the
determination of the Fund, Distributor or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(h) at the option of GALIC, if (i) GALIC shall determine, in its sole
judgment reasonably exercised in good faith, that the Fund,
Distributor or Adviser has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will have a
material adverse impact on the Fund's, Distributor's or Adviser's
ability to perform its obligations under this Agreement, (ii) GALIC
notifies the Fund, Distributor or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by the Fund, Distributor or
Adviser and any other changes in circumstances since the giving of
such a notice, the determination of GALIC shall continue to apply on
the sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
(i) at the option of any non-defaulting party hereto in the event of a
material breach of this Agreement by any party hereto (the "defaulting
party") other than as described in Section 10.1(a)-(j); provided, that
the non-defaulting party gives written notice thereof to the
defaulting party, with copies of such notice to all other
non-defaulting parties, and if such breach shall not have been
remedied within thirty (30) days after such written notice is given,
then the non-defaulting party giving such written notice may terminate
this Agreement by giving thirty (30) days written notice of
termination to the defaulting party; or
(j) at any time upon written agreement of all parties to this
Agreement.
10.2. Notice Requirement.
------------------
No termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties of
its intent to terminate, which notice shall set forth the basis for the
termination. Furthermore,
32
<PAGE>
(a) in the event any termination is based upon the provisions of Article
VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written notice shall be given in advance of the
effective date of termination as required by those provisions unless such
notice period is shortened by mutual written agreement of the parties;
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e) or 10.1(i) of this Agreement, the prior written notice
shall be given at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions of Section
10.1(b), 10.1(c) o 10.1(f), the prior written notice shall be given in
advance of the effective date of termination, which date shall be
determined by the party sending the notice.
10.3. Effect of Termination.
---------------------
Notwithstanding any termination of this Agreement, other than as a result of a
failure by either the Fund or GALIC to meet Section 817(h) of the Code
diversification requirements, the Fund, the Distributor and the Adviser shall,
at the option of GALIC, continue to make available additional shares of the
Designated Portfolio(s) 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"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Designated Portfolio(s), redeem investments in the
Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.3 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.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all
33
<PAGE>
provisions of this Agreement shall also survive and not be affected by any
termination of this Agreement.
ARTICLE XI. Notices.
--------
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 parties.
If to the Fund:
The Prudential Series Fund, Inc.
Gateway Center Three
100 Mulberry Street, 4th Floor
Newark, NJ 07102-4077
Attention: Secretary
If to the Adviser:
The Prudential Insurance Company of America
751 Broad Street, 21st Floor
Newark, NJ 07102
Attention: Secretary
If to the Distributor:
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street, 14th Floor
Newark, NJ 07102-4077
Attention: Secretary
If to GALIC:
Myles R. Tashman
Executive Vice President, General Counsel & Secretary
ING Variable Annuities
1475 Dunwoody Drive
West Chester, PA 19380
34
<PAGE>
ARTICLE XII. Miscellaneous.
-------------
12.1. 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 may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party has designated as proprietary.
12.2. 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.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. 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.
12.5. 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 Delaware Commissioner of Insurance 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 GALIC are being conducted in a
35
<PAGE>
manner consistent with the Delaware Variable Annuity Regulations and any other
applicable law or regulations.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
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. GALIC agrees that the obligations assumed by the Fund, Distributor
and the Adviser pursuant to this Agreement shall be limited in any case to the
Fund, Distributor and Adviser and their respective assets and GALIC shall not
seek satisfaction of any such obligation from the shareholders of the Fund,
Distributor or the Adviser, the Directors, officers, employees or agents of the
Fund, Distributor or Adviser, or any of them.
12.10. The Fund, the Distributor and the Adviser agree that the obligations
assumed by GALIC pursuant to this Agreement shall be limited in any case to
GALIC and its assets and neither the Fund, Distributor nor Adviser shall seek
satisfaction of any such obligation from the shareholders of GALIC, the
directors, officers, employees or agents of the GALIC, or any of them.
36
<PAGE>
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor and the Fund.
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/ David L. Jacobson
-----------------------------
Title: Senior Vice President
--------------------------
Date: April 25, 2000
---------------------------
THE PRUDENTIAL SERIES FUND, INC.
By its authorized officer,
By: /s/ John R. Strangfeld
-----------------------------
Title: President
--------------------------
Date: April 25, 2000
---------------------------
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By its authorized officer,
By: /s/ John R. Strangfeld
-----------------------------
Title: Executive Vice President
--------------------------
Date: April 25, 2000
---------------------------
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
By its authorized officer,
By: /s/ Robert F. Gunia
-----------------------------
Title: President
--------------------------
Date: April 25, 2000
---------------------------
37
<PAGE>
SCHEDULE A
----------
Contracts
- ---------
All Deferred Variable Annuity Contracts Issued By Golden American Life Insurance
Company Separate Account B
38
<PAGE>
SCHEDULE B
----------
Designated Portfolio(s)
- -----------------------
Prudential Series Fund, Inc.--Prudential Jennison Portfolio
39
<PAGE>
SCHEDULE C
EXPENSES
--------
The Fund and/or the Distributor and/or Adviser, and GALIC will coordinate the
functions and pay the costs of the completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PARTY
PARTY RESPONSIBLE RESPONSIBLE FOR
ITEM FUNCTION FOR COORDINATION EXPENSE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Printing of combined GALIC GALIC
Prospectus prospectuses
- --------------------------------------------------------------------------------------------------
Fund, Distributor or GALIC Fund, Distributor or
Adviser shall supply Adviser, as
GALIC with such
numbers of the
Designated
Portfolio(s)
prospectus(es) as
GALIC shall reasonably
request
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
(including postage) to
New and Inforce
Clients
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
(including postage) to
Prospective Clients
- --------------------------------------------------------------------------------------------------
Product Prospectus Printing and GALIC GALIC
Distribution for
Inforce and
Prospective Clients
- --------------------------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------------------------
PARTY
PARTY RESPONSIBLE RESPONSIBLE FOR
ITEM FUNCTION FOR COORDINATION EXPENSE
- --------------------------------------------------------------------------------------------------
Mutual Fund If Required by Fund, Fund, Distributor or Fund, Distributor or
Prospectus Update & Distributor or Adviser Adviser
Distribution Adviser
- --------------------------------------------------------------------------------------------------
If Required by GALIC GALIC (Fund, GALIC
Distributor or
Adviser to provide
GALIC with document
in PDF format)
- --------------------------------------------------------------------------------------------------
Product Prospectus If Required by Fund, GALIC Fund, Distributor or
Update & Distributor or Adviser
Distribution Adviser
- --------------------------------------------------------------------------------------------------
If Required by GALIC GALIC GALIC
- --------------------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor or
Adviser Adviser
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
(including postage)
- --------------------------------------------------------------------------------------------------
Product SAI Printing GALIC GALIC
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
- --------------------------------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund, Distributor or Fund, Distributor or
Mutual Fund: required by Law Adviser Adviser
- --------------------------------------------------------------------------------------------------
Distribution GALIC Fund, Distributor or
(including labor)if Adviser
proxy required by
Law
- --------------------------------------------------------------------------------------------------
Printing & GALIC GALIC
distribution if
required by GALIC
- --------------------------------------------------------------------------------------------------
Mutual Fund Annual Printing of reports Fund, Distributor or Fund, Distributor or
& Semi-Annual Adviser (Designated Adviser
Report Portfolio only)
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
- --------------------------------------------------------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------------------------
PARTY
PARTY RESPONSIBLE RESPONSIBLE FOR
ITEM FUNCTION FOR COORDINATION EXPENSE
- --------------------------------------------------------------------------------------------------
Other communication If Required by the GALIC Fund, Distributor or
to New and Fund, Distributor or Adviser
Prospective clients Adviser
- --------------------------------------------------------------------------------------------------
If Required by GALIC GALIC GALIC
- --------------------------------------------------------------------------------------------------
Other communication Distribution GALIC Fund, Distributor
to inforce (including labor and or Adviser
printing) if required
by the Fund,
Distributor or
Adviser
- --------------------------------------------------------------------------------------------------
Distribution GALIC GALIC
(including labor and
printing)if required by
GALIC
- --------------------------------------------------------------------------------------------------
Errors in Share Price Cost of error to GALIC Fund or Adviser
calculation pursuant participants
to Section 1.10
- --------------------------------------------------------------------------------------------------
Cost of reasonable GALIC Fund or Adviser
expenses related to
administrative work
to correct error
- --------------------------------------------------------------------------------------------------
Operations of the All operations and Fund, Distributor or Fund or Adviser
Fund related expenses, Adviser
including the cost of
registration and
qualification of
shares, taxes on the
issuance or transfer
of shares, cost of
management of the
business affairs of the
Fund, and expenses
paid or assumed by
the fund pursuant to
any Rule 12b-1 plan
- --------------------------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------------------------
PARTY
PARTY RESPONSIBLE RESPONSIBLE FOR
ITEM FUNCTION FOR COORDINATION EXPENSE
- --------------------------------------------------------------------------------------------------
Operations of the Federal registration GALIC GALIC
Account of units of separate
account (24f-2 fees)
- --------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10(p)
PARTICIPATION AGREEMENT
-----------------------
AMONG
GOLDEN AMERICAN LIFE INSURANCE COMPANY,
ING VARIABLE INSURANCE TRUST,
ING MUTUAL FUNDS MANAGEMENT CO. LLC
AND
ING FUNDS DISTRIBUTOR, INC.
THIS AGREEMENT, dated as of the 28th day of April 2000, by and among Golden
American Life Insurance Company (the "Company"), a life insurance company
organized under the laws of the State of Delaware, on its own behalf and on
behalf of each separate account of the Company set forth on Schedule A hereto as
may be amended from time to time (each such account hereinafter referred to as
the "Account"), ING Variable Insurance Trust (the "Fund"), a management
investment company and business trust organized under the laws of the State of
Delaware, ING Mutual Funds Management Co. LLC (the "Adviser"), a limited
liability company organized under the laws of the State of Delaware, and ING
Funds Distributors, Inc. (the "Distributor"), a corporation organized under the
laws of the State of Iowa.
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, Adviser and Distributor
("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, or will obtain before entering into a
Participation Agreement with any other party, 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"), and the parties to this
Agreement agree to comply with the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order to the extent applicable to each such
party;
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");
<PAGE>
WHEREAS, the Adviser, which serves as investment adviser to the Designated
Portfolios (as hereinafter defined) of the Fund, is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940, as
amended;
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act;
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by the Company under the insurance laws of the State of
Delaware, to set aside and invest assets attributable to the Contracts;
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act;
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 Distributor, 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 B 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 Distributor 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, the Adviser, and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account or the appropriate subaccount of each Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account or the
appropriate subaccount of each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following business day ("T+1").
"Business Day" will mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order to purchase
Fund shares is made in accordance with Section 1.1 above. Payment will be in
federal funds transmitted by wire. This wire transfer will be initiated by 12:00
p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on
-2-
<PAGE>
each day the New York Stock Exchange is open for trading; provided, however,
that the Board of Trustees of the Fund (the "Fund Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Fund Board,
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset value,
the Company will aggregate and calculate the net purchase or redemption orders
for each Account or the appropriate subaccount of each Account maintained by the
Fund in which contractowner assets are invested. Net orders will only reflect
orders that the Company has received prior to the close of regular trading on
the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern
Time) on that Business Day. Orders that the Company has received after the close
of regular trading on the NYSE will be treated as though received on the next
Business Day. Each communication of orders by the Company will constitute a
representation that such orders were received by it prior to the close of
regular trading on the NYSE on the Business Day on which the purchase or
redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated Portfolio
or with oral or written instructions that the Distributor or the Fund will
forward to the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account or the appropriate subaccount of each
Account and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone will be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
-3-
<PAGE>
1.9. The Fund will furnish same day notice (by telecopier, followed by
written confirmation) to the Company of the declaration of any income, dividends
or capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Company
reserves the right to revoke this election upon reasonable prior notice to the
Fund and to receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or the
Distributor will notify the Company as soon as practicable after discovering the
need for those adjustments that result in an aggregate reimbursement of $150 or
more to any one subaccount of each Account maintained by a Designated Portfolio
unless notified otherwise by the Company (or, if greater, results in an
adjustment of $10 or more to each contractowner's account). Any such notice will
state for each day for which an error occurred the incorrect price, the correct
price and, to the extent communicated to the Fund's shareholders, the reason for
the price change. The Company may send this notice or a derivation thereof (so
long as such derivation is approved in advance by the Distributor or the
Adviser) to contractowners whose accounts are affected by the price change. The
parties will negotiate in good faith to develop a reasonable method for
effecting such adjustments. The Fund shall provide the Company, on behalf of the
Account or the appropriate subaccount of each Account, with a prompt adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value.
1.12.
(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 1.5 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 and funding vehicles other
than those listed on Schedule B to this Agreement may be available for the
investment of the cash value of the Contracts.
(b) The Company shall not, without prior notice to the Advisor and the
Distributor (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 Advisor and the
Distributor (unless otherwise required by applicable law), induce
contractowners 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
contractowners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Fund
Board.
-4-
<PAGE>
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including 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
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered 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, and that it will maintain such
registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as endowment, annuity or life insurance
contracts under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Adviser immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will 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 will register and qualify the shares of the Designated
Portfolios for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) 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.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the insurance
laws and regulations of any state. The Fund and the Distributor agree that upon
request they will use their best efforts to furnish the information required by
state insurance laws so that the Company can obtain the authority needed to
issue the Contracts in the various states.
-5-
<PAGE>
2.7. The Fund represents and warrants its Fund Board has formulated and
approved a plan under Rule 12b-1 to finance distribution expenses in accordance
with the 1940 Act.
2.8. The Distributor represents and warrants that it will distribute the
Fund shares of the Designated Portfolios in accordance with all applicable
federal and state securities laws including, without limitation, the 1933 Act,
the 1934 Act and the 1940 Act.
2.9. 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 applicable provisions of the 1940 Act.
2.10. The Distributor represents and warrants that it is and will remain
duly registered under all applicable federal and state securities laws and that
it will perform its obligations for the Fund in accordance in all material
respects with any applicable state and federal securities laws.
2.11. The Fund and the Distributor represent and warrant that all of their
trustees, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and 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
minimal 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
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Fund or the Distributor will provide the Company in conjunction
with the Company's standard printing cycle, at the Company's expense, with as
many copies of the current Fund prospectus for the Designated Portfolios as the
Company may reasonably request for distribution, at the Company's expense, to
prospective contractowners and applicants. The Fund or the Distributor will
provide the Company in conjunction with the Company's standard printing cycle,
at the Company's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The Fund or
the Distributor will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company in lieu thereof, the Fund or the
Distributor will provide such documentation, including a computer diskette or a
final copy of a current prospectus set in type at the Fund's or Distributor's
expense, and such other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is amended
more frequently) to have the Fund's prospectus and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document. If in the event the Fund issues a new
prospectus outside of the Company's standard printing cycle, then the Fund or
the Distributor will provide the Company, at the Fund's or Distributor's
expense, with as many copies of the current Fund prospectus for the Designated
Portfolios as the Company may reasonably request for distribution, at the
Company's expense, to existing and prospective contractowners and applicants.
3.2. The Fund or the Distributor will provide the Company, at the Company's
expense, with as many copies of the statement of additional information as the
Company may reasonably request for distribution, at the Company's expense, to
prospective contractowners and applicants. The Fund or the Distributor will
provide, at the Company's expense, as many copies of said statement of
additional information as necessary for distribution, at the Company's expense,
to any existing contractowner who requests such statement or whenever state or
federal law otherwise requires that such statement be provided. The Fund or the
Distributor will provide the copies of said statement of additional information
-6-
<PAGE>
to the Company or to its mailing agent. If requested by the Company in lieu
thereof, the Fund or the Distributor will provide such documentation, including
a computer diskette or a final copy of a current statement of additional
information set in type at the Fund's or Distributor's expense.
3.3. The Fund or the Distributor, at the Fund's or its affiliate's expense,
will provide the Company or its mailing agent with copies of its proxy material,
if any, reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will distribute
this proxy material, reports and other communications to existing contractowners
and tabulate the votes.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account
in accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it owns,
in the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contractowners. Except as
set forth above, the Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law. The
Company will be responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with all legal requirements, including the Mixed and Shared Funding Exemptive
Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends to comply
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Distributor will provide the Company on a timely basis with
investment performance information for each Designated Portfolio in which the
Company maintains a subaccount of the Account, including total return for the
preceding calendar month and calendar quarter, the calendar year to date, and
the prior one-year, five-year, and ten year (or life of the Fund) periods. The
Company may, based on the SEC mandated information supplied by the Distributor,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials concurrently with
their first use for the Distributor's internal recordkeeping purposes. It is
understood that neither the Distributor nor any Designated Portfolio will be
responsible for errors or omissions in, or the content of, Contractowner
Materials except to the extent that the error or omission resulted from
information provided by or on behalf of the Distributor or the Designated
Portfolio. Any printed
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information that is furnished to the Company pursuant to
this Agreement other than each Designated Portfolio's prospectus or statement of
additional information (or information supplemental thereto), periodic reports
and proxy solicitation materials is the Distributor's sole responsibility and
not the responsibility of any Designated Portfolio or the Fund. The Company
agrees that the Portfolios, the shareholders of the Portfolios and the officers
and governing Board of the Fund will have no liability or responsibility to the
Company in these respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or the
Distributor for distribution, or in sales literature or other material provided
by the Fund, Adviser or by the Distributor, except with permission of the
Distributor. Any piece of sales literature or other promotional material
intended to be used by the Company which requires the permission of the
Distributor prior to use will be furnished by Company to the Distributor, or its
designee, at least ten (10) business days prior to its use. No such material
will be used if the Distributor reasonably objects to such use within five (5)
business days after receipt of such material.
Nothing in this Section 4.2 will be construed as preventing the Company or its
employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser or the Distributor will furnish, or will cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund, the Adviser and the Distributor will not give any
information or make any representations or statements on behalf of the Company
or concerning the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
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, contemporaneously
with the filing of such document with the SEC, the NASD or other regulatory
authority.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
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
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
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4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, 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, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Distributor hereby consent to the Company's use of
the names ING Mutual Funds Management Co. LLC, ING Variable Insurance Trust, the
portfolio names designated on Schedule B or other designated names as may be
used from time to time in connection with the marketing of the Contracts,
subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such consent
will terminate with the termination of this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund, the Adviser and the Distributor will pay no fee or other
compensation to the Company under this Agreement except pursuant to Rule 12b-1
under the 1940 Act to finance distribution expenses. The Fund may make Rule
12b-1 payments to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing proxy materials and reports by it to contractowners (including
the costs of printing a Fund prospectus that constitutes an annual report); the
preparation of all statements and notices required by any federal or state law;
all taxes on the issuance or transfer of the Fund's shares; any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act; and all other expenses set forth in Article III
of this Agreement.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1. The Adviser will ensure that the Fund will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. 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 Treasury 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 Internal Revenue Code, and that it
will make every effort to maintain such
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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 Internal Revenue Code, and that it
will make every effort to maintain such treatment, and that it will notify the
Fund and the Distributor 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 Internal Revenue Code (or any successor or similar
provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Fund Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contractowners 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 contractowners; or (f)
a decision by an insurer to disregard the voting instructions of contractowners.
The Fund 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 Fund Board. The Company will assist the Fund Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary for
the Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever contractowner
voting instructions are disregarded.
7.3. If it is determined by a majority of the Fund 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 Fund Board members), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (a)
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 contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contractowners, life insurance
contractowners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contractowners the option of making such a change; and (b) establishing
a new registered management investment company or managed separate account.
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7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund Board.
7.7. If and to the extent the Mixed and Shared Funding Exemptive 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
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extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By the Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or is
associated with the Fund, the Adviser or the Distributor within the meaning
of such terms under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or sales
literature or other promotional material 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 or necessary to make such
statements not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify will 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
written information furnished to the Company by the Fund, the Adviser
or the Distributor for use in the registration statement, prospectus
or statement of additional information 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
(2) arise out of or as a result of statements or representations
by or on behalf of the Company or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund registration statement,
prospectus, statement of additional information or sales literature or
other promotional material of the Fund (or amendment or supplement) or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make such statements not
misleading in light of the circumstances in which they were made, if
such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
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(5) arise out of 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 by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a)
to the extent such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the performance
of such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities 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 Adviser, the Fund and the Distributor
------------------------------------------------------------
(a) The Adviser, the Fund and the Distributor, in each case solely to
the extent relating to such party's responsibilities hereunder, agree to
indemnify and hold harmless the Company and each person, if any, who
controls or is associated with the Company within the meaning of such terms
under the federal securities laws and any director, trustee, officer,
partner, employee or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses,
claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other promotional
material 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 or necessary to make such statements not misleading in light of
the circumstances in which they were made; provided that this
agreement to indemnify will 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 Adviser, the Distributor or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or statement
of additional information for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
or wrongful conduct of the Adviser, the Fund or the Distributor or
persons under the control of the Adviser, the Fund or the Distributor
respectively, with respect to the sale of the Fund shares; or
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(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other
promotional material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make
such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company by the Adviser, the Fund or the Distributor
or persons under the control of the Adviser, the Fund or the
Distributor; or
(4) arise as a result of any failure by the Fund, the Adviser or
the Distributor 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 requirements and procedures related thereto specified
in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or the
Distributor in this Agreement, or arise out of or result from any
other material breach of this Agreement by the Adviser, the Fund or
the Distributor;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Fund, Adviser
or the Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a)
to the extent such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the performance
of such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund
and the Distributor of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of the account.
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the
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Indemnifying Party will be entitled to participate, at
its own expense, in the defense thereof. The Indemnifying Party also will be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Indemnifying Party to the Indemnified
Party of the Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any additional counsel
retained by it, and the Indemnifying Party 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, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such counsel; or
(b) the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
8.4 DISTRIBUTOR LIMITATION ON LIABILITY. Notwithstanding the foregoing, the
Distributor shall not be liable to any party to this Agreement for lost profits,
punitive, special, incidental, indirect or consequential damages.
ARTICLE IX. Applicable Law
--------------
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
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
-----------
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
some or all of the Designated Portfolios, upon sixty (60) days' advance
written notice to the other parties or, if later, upon receipt of any
required exemptive relief or orders from the SEC, unless otherwise agreed
in a separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if shares of the Designated Portfolio are not reasonably
available to meet the requirements of the Contracts as determined in good
faith by the Company; or
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(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio 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 Company; or
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal proceedings against
the Company by the NASD, the SEC, the insurance commission 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 administration of
the Contracts, the operation of the Account, or the purchase of the Fund
shares, provided that the Fund determines in its sole judgment, exercised
in good faith, that any such proceeding would have a material adverse
effect on the Company's ability to perform its obligations under this
Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of formal proceedings
against the Fund, Adviser or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body,
provided that the Company determines in its sole judgment, exercised in
good faith, that any such proceeding would have a material adverse effect
on the Fund's or the Distributor's ability to perform its obligations under
this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably and in good faith believes that the Fund may fail to so qualify;
or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if the Fund fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good
faith believes the Fund may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice
to the other parties, upon another party's material breach of any provision
of this Agreement which material breach is not cured within thirty (30)
days of said notice; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund, the Adviser or
the Distributor has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Company,
such termination to be effective sixty (60) days' after receipt by the
other parties of written notice of the election to terminate; or
(j) at the option of the Fund or the Distributor, if the Fund or the
Distributor respectively, determines in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Fund or the Adviser, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
-16-
<PAGE>
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having
an interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Designated Portfolio
shares of the Fund in accordance with the terms of the Contracts for which
those Designated Portfolio shares had been selected to serve as the
underlying investment media. The Company will give sixty (60) days' prior
written notice to the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the
interests of: (1) all contractowners of variable insurance products of all
separate accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of this
Agreement; or
(m) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2. NOTICE REQUIREMENT. No termination of this Agreement will be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
will set forth the basis for the termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Distributor will, 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.") . Specifically, without limitation, the owners of the Existing
Contracts will be permitted to reallocate investments in the Portfolios (as in
effect on such date), redeem investments in the Portfolios and/or invest in the
Portfolios upon the making of additional purchase payments under the Existing
Contracts.
10.4. SURVIVING PROVISIONS. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties will survive and not be affected by any termination of this Agreement.
In addition, each party's obligations under Section 12.7 will survive and not be
affected by any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE XI. Notices
-------
11.1. 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: ING Variable Insurance Trust
c/o Louis Citron
1475 Dunwoody Drive
West Chester, PA 19380
If to the Company: Golden American Life Insurance Company
c/o Myles Tashman
-17-
<PAGE>
Executive Vice President and General Counsel
1475 Dunwoody Drive
West Chester, PA 19380
If to Adviser: ING Mutual Funds Management Co. LLC
c/o Louis Citron
1475 Dunwoody Drive
West Chester, PA 19380
If to Distributor: ING Funds Distributor, Inc
c/o Donald Brostrom
1475 Dunwoody Drive
West Chester, PA 19380
ARTICLE XII. Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio or series of the Fund will be liable for the obligations or
liabilities of any other Portfolio or series.
12.2. The Fund, the Adviser and the Distributor acknowledge that the
identities of the customers of the Company or any of its affiliates, except for
customers of the Adviser or its affiliates (collectively the "Company Protected
Parties" for purposes of this Section 12.2), information maintained regarding
those customers, and all computer programs and procedures or other information
developed or used by the Company Protected Parties or any of their employees or
agents in connection with the Company's performance of its duties under this
Agreement are the valuable property of the Company Protected Parties. The Fund,
the Adviser and the Distributor agree that if they come into possession of any
list or compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund, the Adviser or the
Distributor from information supplied to them by the Company Protected Parties'
customers who also maintain accounts directly with the Fund, the Adviser or the
Distributor, the Fund, the Adviser and the Distributor will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Company's prior written consent; or (b) as required by law or judicial process.
The Company acknowledges that the identities of the customers of the Fund, the
Adviser, the Distributor or any of their affiliates (collectively the "Adviser
Protected Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Adviser Protected Parties or any of their
employees or agents in connection with the Fund's, the Adviser's or the
Distributor's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees that
if it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or the Distributor's prior
written
-18-
<PAGE>
consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 12.2 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
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 will constitute one and the same
instrument.
12.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and 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. Upon request by the
Fund or the Distributor, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or the Distributor, as the case may
be. The Fund agrees that the Company will have the right to inspect, audit and
copy all records pertaining to the performance of services under this Agreement
pursuant to the requirements of any state insurance department. Each party also
agrees to promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
12.11. The names "ING Variable Insurance Trust" and "Trustees of ING
Variable Insurance Trust" refer respectively to the trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated July 15, 1999 which is hereby referred
to and a copy of which is at the principal office of the Fund. The obligations
of "ING Variable
-19-
<PAGE>
Insurance Trust" entered into in the name or on behalf thereof
by any of the Trustees, representatives or agents are made not individually, but
in such capacities, and are not binding upon any of the Trustees, Shareholders,
or representatives of the Fund personally, but bind only the Trust Property, and
all persons dealing with any class of Shares of the Fund must look solely to the
Trust Property belonging to such class for the enforcement of any claims against
the Fund.
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: /s/ David L. Jacobson
------------------------------------
Title: Senior Vice President
---------------------------------
Date: April 25, 2000
----------------------------------
ING VARIABLE INSURANCE TRUST:
By: /s/ Louis S. Citron
------------------------------------
Title: Vice President
---------------------------------
Date: April 25, 2000
----------------------------------
ING MUTUAL FUNDS MANAGEMENT CO. LLC :
By: /s/ Louis S. Citron
------------------------------------
Title: Senior Vice President and
General Counsel
---------------------------------
Date: April 25, 2000
----------------------------------
ING FUNDS DISTRIBUTOR, Inc.
By: /s/ Donald E. Brostrom
------------------------------------
Title: Chief Financial Officer and
Treasurer
---------------------------------
Date: April 25, 2000
----------------------------------
-20-
<PAGE>
SCHEDULE A
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONTRACTS AND SEPARATE ACCOUNT(S)
CONTRACT(S):
Deferred Combination Variable and Fixed Annuity Contracts
SEPARATE ACCOUNT(S):
Separate Account B of Golden American Life Insurance Company
SCHEDULE B
ING VARIABLE INSURANCE TRUST
DESIGNATED PORTFOLIOS
PORTFOLIOS:
ING International Equity Fund
ING Global Brand Names Fund
Schedule Date: April 28, 2000
-21-
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 23(a)
Sutherland
Asbill & 1275 Pennsylvania Ave., NW
Brennan LLP Washington, DC 20004-2415
Attorneys at Law Tel: (202) 383-0100
Fax: (202) 637-3593
www.sablaw.com
April 21, 2000
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
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as part of the registration
statement on Form S-1 for Golden American Life Insurance Company
(File No. 333-95457). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/Stephen E. Roth
------------------
Stephen E. Roth
<PAGE>
<PAGE>
<PAGE>
<PAGE>
Exhibit 23(b) - 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, 2000, with
respect to the financial statements of Separate Account B in the
Statement of Additional Information incorporated by reference from the
Registration Statement (Form N-4 No. 333-28755) filed with the Securities
and Exchange Commission comtemporaneously with this Registration Statement.
We also consent to the use of our report dated February 4, 2000, with respect
to the financial statements of Golden American Life Insurance Company, and to
the reference to our firm under the caption "Experts" in each of the
Prospectuses included in this Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-95457) 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 21, 2000
<PAGE>
<PAGE>
<PAGE>
<PAGE>
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, 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:
* Post-Effective Amendment No. 6 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 333-28769;
811-5626)
* Amendment No. 8 to Golden American's Registration Statement on
Form S-1 (No. 333-28765)
* Post-Effective Amendment No. 15 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 033-59261;
811-5626)
* Golden American's Registration Statement on Form S-1 (current
registration No. 333-51353)
* Post-Effective Amendment No. 30 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 333-23351;
811-5626)
* Post-Effective Amendment No. 5 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 333-28679;
811-5626)
* Amendment No. 1 to Golden American's Registration Statement on
Form S-1 (No. 333-95511)
* Post-Effective Amendment No. 9 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 333-28755;
811-5626)
* Amendment No. 1 to Golden American's Registration Statement on
Form S-1 (No. 333-95457)
* Post-Effective Amendment No. 3 to Separate Account B of Golden
American's Registration Statement on Form N-4 (Nos. 333-66757;
811-5626)
* Amendment No. 5 to Golden American's Registration Statement on
Form S-1 (No. 333-66745)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Barnett Chernow
- ----------------------- Director, Chairman of March 20, 2000
Barnett Chernow the Board of
Directors and President
/s/Myles R. Tashman
- ----------------------- Director, Executive March 20, 2000
Myles R. Tashman Vice President,
General Counsel and
Secretary
/s/E. Robert Koster
- ----------------------- Senior Vice President March 20, 2000
E. Robert Koster and Chief Financial
Officer
/s/Cheryl L. Harding
- ----------------------- Chief Accounting March 21, 2000
Cheryl L. Harding Officer
/s/Michael W. Cunningham
- ----------------------- Director March 21, 2000
Michael W. Cunningham
/s/Phillip R. Lowery
- ----------------------- Director March 23, 2000
Phillip R. Lowery
/s/Mark A. Tullis
- ----------------------- Director March 23, 2000
Mark A. Tullis
1475 Dunwoody Drive GoldenSelect Series
West Chester, PA 19380-1478 Issued by Golden American Life Insurance Company
<PAGE>
<PAGE>
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 835,321
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 17,330
<MORTGAGE> 100,087
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,047,086
<CASH> 14,380
<RECOVER-REINSURE> 14,834
<DEFERRED-ACQUISITION> 528,957
<TOTAL-ASSETS> 9,392,857
<POLICY-LOSSES> 1,033,701
<UNEARNED-PREMIUMS> 6,300
<POLICY-OTHER> 8
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 246,400
0
0
<COMMON> 2,500
<OTHER-SE> 475,349
<TOTAL-LIABILITY-AND-EQUITY> 9,392,857
0
<INVESTMENT-INCOME> 59,169
<INVESTMENT-GAINS> (2,923)
<OTHER-INCOME> 103,898
<BENEFITS> 182,221
<UNDERWRITING-AMORTIZATION> 33,119
<UNDERWRITING-OTHER> (83,827)
<INCOME-PRETAX> 19,737
<INCOME-TAX> 8,523
<INCOME-CONTINUING> 11,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,214
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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<PAGE>
<PAGE>
</TABLE>
