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DVA PLUS PROFILE AND PROSPECTUS
FORM ONE
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Registration Nos. 333-35592
Filed pursuant to Rule 424(b)(3)
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT DVA PLUS/R/
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| Deferred Combination Variable and Fixed Annuity Contract, October 2, 2000
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| [ING VARIABLE ANNUITIES appears down left margin]
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| Golden American Life Insurance Company
| Separate Account B of Golden American Life Insurance Company
| ING VARIABLE ANNUITIES
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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PROFILE OF
GOLDENSELECT DVA PLUS(R)
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
OCTOBER 2, 2000
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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 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 9 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
DVA PLUS PROFILE PROSPECTUS BEGINS AFTER
108200 PAGE 11 OF THIS PROFILE
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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>
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ANNUITY OPTIONS
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<S> <C> <C>
Option 1 Income for a fixed Payments are made for a specified number of years to you
period or your beneficiary.
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Option 2 Income for life Payments are made for the rest of your life or longer for a
with a period specified period such as 10 or 20 years or until the total
certain 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.
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Option 3 Joint life income Payments are made for your life and the life of another
person (usually your spouse).
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Option 4 Annuity plan Any other annuitization plan that we choose to offer on the
annuity start date.
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</TABLE>
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. 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 age 85 during the accumulation phase. Under certain circumstances, we may
waive the minimum initial and additional premium payment requirement. Any
initial or additional premium payment that would cause the contract value of all
annuities that you maintain with us to exceed $1,000,000 requires our prior
approval.
Who may purchase this Contract? The Contract may be purchased by individuals as
part of a personal retirement plan (a "non-qualified Contract"), or as a
Contract that qualifies for special tax treatment when purchased as either an
Individual Retirement Annuity (IRA) or in connection with a qualified retirement
plan (each a "qualified Contract").
108200 2 DVA PLUS PROFILE
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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 into (1) the fixed account with guaranteed interest
periods of 6 months, 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, 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>
THE GCG TRUST
<S> <C> <C>
Liquid Asset Series Rising Dividends Series Strategic Equity Series
Limited Maturity Bond Series Diversified Mid-Cap Series Special Situations Series
Global Fixed Income Series Managed Global Series Mid-Cap Growth Series
Fully Managed Series Large Cap Value Series Small Cap Series
Total Return Series All Cap Series Growth Series
Asset Allocation Growth Series Research Series Real Estate Series
Equity Income Series Capital Appreciation Series Hard Assets Series
Investors Series Growth and Income Series Developing World Series
Value Equity Series Capital Growth Series Emerging Markets Series
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund
PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
SP Jennison International Growth 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:
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
Mortality & Expense Risk Charge 1.10% 1.25% 1.40%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
Total 1.25% 1.40% 1.55%
108200 3 DVA PLUS PROFILE
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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
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7%.................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
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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 15% 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+
SINCE PREMIUM PAYMENT | | | | | | |
SURRENDER CHARGE 7%| 7% | 6% | 5% | 4% | 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 0.06% (based on an average contract value of $69,000),
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
charge, 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.
108200 4 DVA PLUS PROFILE
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As required by the Securities and Exchange Commission, the examples assume that
you invested $1,000 in a Contract that earns 5% annually and that you withdraw
your money at the end of Year 1 or at the end of Year 10 (based on the 7%
Solution Enhanced Death Benefit). The 1 Year examples above include a 7%
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 Death
Benefit. For these examples, the premium tax is assumed to be 0%.
<TABLE>
<CAPTION>
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EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
------------------ ------------------ ------------------ ------------------
W/ THE W/O TOTAL ANNUAL 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
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THE GCG TRUST
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liquid Asset 2.11% 1.61% 0.56% 2.67% 2.17% $97 $92 $303 $250
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Limited Maturity Bond 2.11% 1.61% 0.57% 2.68% 2.18% $97 $92 $304 $251
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Global Fixed Income 2.36% 1.61% 1.60% 3.96% 3.21% $110 $102 $417 $351
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Fully Managed 2.36% 1.61% 0.97% 3.33% 2.58% $104 $96 $362 $291
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Total Return 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286
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Asset Allocation Growth 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
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Equity Income 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Investors 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
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Value Equity 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Rising Dividends 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Diversified Mid Cap 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
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Managed Global 2.36% 1.61% 1.25% 3.61% 2.86% $106 $99 $387 $319
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Large Cap Value 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
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All Cap 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
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Research 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286
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Capital Appreciation 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Growth and Income 2.36% 1.61% 1.11% 3.47% 2.72% $105 $98 $375 $305
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Capital Growth 2.36% 1.61% 1.05% 3.41% 2.66% $104 $97 $369 $299
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Strategic Equity 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Special Situations 2.36% 1.61% 1.11% 3.47% 2.72% $105 $98 $375 $305
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Mid-Cap Growth 2.36% 1.61% 0.91% 3.27% 2.52% $103 $96 $357 $286
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Small Cap 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Growth 2.36% 1.61% 1.04% 3.40% 2.65% $104 $97 $368 $298
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Real Estate 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Hard Assets 2.36% 1.61% 0.96% 3.32% 2.57% $103 $96 $361 $290
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Developing World 2.36% 1.61% 1.75% 4.11% 3.36% $111 $104 $430 $365
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Emerging Markets 2.36% 1.61% 1.75% 4.11% 3.36% $111 $104 $430 $365
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THE PIMCO VARIABLE INSURANCE TRUST
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PIMCO High Yield Bond 2.36% 1.61% 0.75% 3.11% 2.36% $101 $94 $342 $270
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PIMCO StocksPLUS
Growth and Income 2.36% 1.61% 0.65% 3.01% 2.26% $100 $93 $333 $260
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ING VARIABLE INSURANCE TRUST
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ING Global Brand
Names 2.36% 1.61% 1.23% 3.59% 2.84% $106 $99 $385 $317
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THE PRUDENTIAL SERIES FUND
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Prudential Jennison 2.36% 1.61% 1.03% 3.39% 2.64% $104 $97 $368 $297
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SP Jennison
International Growth 2.36% 1.61% 1.64% 4.00% 3.25% $110 $103 $421 $355
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</TABLE>
108200 5 DVA PLUS PROFILE
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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 and the annual contract fee and the maximum optional death
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.
108200 6 DVA PLUS PROFILE
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<TABLE>
<CAPTION>
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CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998 1997 1996
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<S> <C> <C> <C> <C>
Managed by A I M Capital Management, Inc.
Capital Appreciation (1) 22.07% 10.33% 26.27% 17.73%
Strategic Equity(2) 53.07% -1.27% 20.59% 16.89%
Managed by Alliance Capital Management, L.P.
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Capital Growth(2) 22.95% 9.63% 22.54% --
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Managed by Baring International Investment Limited (an affiliate)
Developing World(2) 58.45% -- -- --
Emerging Markets(4) 81.68% -25.70% -11.27% 5.02%
Global Fixed Income -10.60% 9.51% -1.44% 2.80%
Hard Assets(2) 20.85% -31.07% 3.94% 30.46%
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Managed by Capital Guardian Trust Company
Large Cap Value -- -- -- --
Managed Global(3) 60.00% 26.63% 9.83% 9.96%
Small Cap(3) 47.57% 18.46% 8.02% 17.60%
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Managed by Eagle Asset Management, Inc.
Value Equity -1.61% -0.58% 24.63% 8.30%
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Managed by Fidelity Management & Research Company
Asset Allocation Growth -- -- -- --
Diversified Mid-Cap -- -- -- --
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Managed by ING Investment Management, LLC (an affiliate)
Limited Maturity Bond -0.99% 4.63% 4.44% 2.12%
Liquid Asset 2.55% 2.85% 2.90% 2.78%
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Managed by Janus Capital Corporation
Growth(2) 74.62% 24.18% 13.35% --
Growth and Income -- -- -- --
Special Situations -- -- -- --
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Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.47% 11.75% 27.12% 18.12%
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Managed by Massachusetts Financial Services Company
Mid-Cap Growth 75.50% 20.25% 17.16% 18.15%
Research 21.66% 20.49% 17.62% 20.76%
Total Return 1.19% 9.26% 18.34% 11.29%
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Managed by Prudential Investment Corporation
Real Estate(5) -5.86% -15.27% 20.23% 32.47%
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Managed by Salomon Brothers Management, Inc.
All Cap -- -- -- --
Investors -- -- -- --
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Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -2.82% 6.00% 14.99% 6.48%
Fully Managed 4.68% 3.68% 12.95% 13.93%
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Managed by Pacific Investment Management Company
PIMCO High Yield Bond 0.84% -- -- --
PIMCO StocksPLUS Growth and Income 17.37% -- -- --
-------------------------------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V. (an affiliate)
ING Global Brand Names -- -- -- --
-------------------------------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- -- -- --
SP Jennison International Growth -- -- -- --
-------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------
(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 March 15, 2000, a different firm managed the Portfolio.
(5) Prior to May 1, 2000, a different firm managed the Portfolio.
108200 7 DVA PLUS PROFILE
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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;
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;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit, which we determine as follows: we credit
interest each business day at the 7% annual effective rate to the
enhanced death benefit from the preceding day (which would be the
initial premium if the preceding day is the contract date), then we
add additional premiums paid since the preceding day, then we subtract
any withdrawals made since the preceding day, then we adjust for any
market value adjustment, and then we subtract any associated surrender
charges. The maximum enhanced death benefit is 2 times all premium
payments, 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, positive or negative, 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 suchinvestment during the applicable
period. Thus, selecting these investments may limit or reduce
the enhanced death benefit.
108200 8 DVA PLUS PROFILE
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Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after subtracting
any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit, which is determined as follows: On each
contract anniversary that occurs on or before the contract owner turns
age 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 if the preceding day
is the contract date), then we add additional premiums paid since the
preceding day, and then we subtract any withdrawals made since the
preceding day, then we adjust for any market value adjustment, and
then we subtract for any associated surrender charges. That amount
becomes the new enhanced death benefit.
Note: In all cases described above, 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 the close of business on the day we receive your written refund
request. For purposes of the refund during the free look period, we include a
refund of any charges deducted from your contract value. Because of the market
risks associated with investing in the portfolios, the contract value returned
may be greater or less than the premium payment you paid. Some states require us
to return to you the amount of the paid premium, including any charges, (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.
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 at the end of ten years, or, at least equal two
times your initial premium payment at the end of twenty years,
108200 9 DVA PLUS PROFILE
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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, when you pay them, and 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 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 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.
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.
108200 10 DVA PLUS PROFILE
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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.
108200 11 DVA 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 DVA Plus(R)
--------------------------------------------------------------------------------
October 2, 2000
This prospectus describes GoldenSelect DVA Plus, a group and individual
deferred variable annuity contract (the "Contract") offered by Golden American
Life Insurance Company ("Golden American," the "Company," "we" or "our"). The
Contract is available in connection with certain retirement plans that qualify
for special federal income tax treatment ("qualified Contracts") as well as
those that do not qualify for such treatment ("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments in
one or more of 32 mutual fund investment portfolios. You may also allocate
premium payments to our Fixed Account with guaranteed interest periods. Your
contract value will vary daily to reflect the investment performance of the
investment portfolio(s) you select and any interest credited to your allocations
in the Fixed Account. The investment portfolios available under your Contract
and the portfolio managers are 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 (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,
("SAI") dated October 2, 2000, has been filed with the Securities and Exchange
Commission ("SEC"). 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 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, 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, ING VARIABLE INSURANCE TRUST AND THE
PRUDENTIAL SERIES FUND.
--------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER.
--------------------------------------------------------------------------------
DVAP3-108200
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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
Emerging Markets 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
FIDELITY MANAGEMENT & RESEARCH COMPANY
Asset Allocation Growth Series
Diversified Mid-Cap Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations 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
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth 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.
DVAP3-108200
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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 17
The Fixed Interest Allocation 18
Selecting a Guaranteed Interest Period 18
Guaranteed Interest Rates 18
Transfers from a Fixed Interest Allocation 19
Withdrawals from a Fixed Interest Allocation 19
Market Value Adjustment 20
The Annuity Contract 21
Contract Date and Contract Year 21
Annuity Start Date 21
Contract Owner 21
Annuitant 21
Beneficiary 22
Purchase and Availability of the Contract 22
Crediting of Premium Payments 23
Administrative Procedures 24
Contract Value 24
Cash Surrender Value 24
Surrendering to Receive the Cash Surrender Value 25
The Subaccounts 25
The Fixed Account 25
Optional Riders 25
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 36
Transfers by Third Parties 36
Dollar Cost Averaging 36
Automatic Rebalancing 37
Death Benefit Choices 38
Death Benefit During the Accumulation Phase 38
Standard Death Benefit 38
Enhanced Death Benefits 38
Death Benefit During the Income Phase 39
DVAP3-108200 i
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TABLE OF CONTENTS (CONTINUED)
--------------------------------------------------------------------------------
PAGE
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 40
Free Withdrawal Amount 41
Surrender Charge for Excess Withdrawals 41
Premium Taxes 41
Administrative Charge 41
Transfer Charge 41
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 44
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 45
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 Life Insurance
Company 53
Unaudited Financial Statements of Golden American Life
Insurance Company 77
Financial Statements of Golden American Life
Insurance Company 87
Statement of Additional Information
Table of Contents 117
Appendix A
Condensed Financial Information A1
Appendix B
Market Value Adjustment Examples B1
Appendix C
Surrender Charge for Excess Withdrawals Example C1
DVAP3-108200 ii
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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 21
Cash Surrender Value 24
Contract Date 21
Contract Owner 21
Contract Value 24
Contract Year 21
Fixed Interest Allocation 18
Free Withdrawal Amount 41
Market Value Adjustment 20
Net Investment Factor 10
Rider Date 26
7% Solution Enhanced Death Benefit 38
Special Fund 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
DVAP3-108200 1
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FEES AND EXPENSES
--------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0%
Transfer Charge.................................................... None**
* If you invested in a Fixed Interest Allocation, a Market Value
Adjustment may apply to certain transactions. This may increase or
decrease your contract value and/or your transfer or surrender amount.
** We may in the future charge $25 per transfer if you make more than 12
transfers in a contract year.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE***
Administrative Charge.............................................. $ 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****
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
------------- -------------- -----------
Mortality & Expense Risk Charge 1.10% 1.25% 1.40%
Asset-Based Administrative Charge 0.15% 0.15% 0.15%
----- ----- -----
Total Separate Account Charges 1.25% 1.40% 1.55%
*** As a percentage of average assets in each subaccount. The mortality
and expense risk charge and the asset-based administrative charge 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.
(1) The MGAB Charge Base is the total of premiums added during the 2-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
added during the 2-year period commencing on the rider date if your
purchase 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.
DVAP3-108200 2
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(2) The MGIB Base generally depends on the amount of premiums you pay(s)
during the first five contract years after you purchase the rider,
when you pay them, 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 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 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%
--------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
--------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
--------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
--------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Emerging Markets 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 (i) portfolios that commenced operations
in 2000; and (ii) newly formed portfolios where the charges have been
estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
DVAP3-108200 3
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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.
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 Investment Company Act of 1940, 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(2) EXPENSES(2)
--------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
--------------------------------------------------------------------------------
SP Jennison International 0.85% 0.25% 0.54% 1.64%
Growth
--------------------------------------------------------------------------------
(1) The 12b-1 fees for the Prudential Jennison Portfolio and SP Jennison
International Growth Portfolio are imposed to enable the portfolios
to recover certain sales expenses, including compensation to
broker-dealers, the cost of printing prospectuses for delivery
to prospective investors and advertising costs for each
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.
DVAP3-108200 4
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(2) Since the SP Jennison International 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.
The purpose of the foregoing tables is to help you understand the various
costs and expenses that you will bear directly or indirectly. See the
prospectuses of the GCG Trust, the PIMCO Variable Insurance Trust, the ING
Variable Insurance Trust, and the Prudential Series Fund for additional
information on management or advisory fees and in some cases other
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.
The purpose of the foregoing tables is to help you understand the various
costs and expenses that you will bear directly or indirectly. See the
prospectuses of the GCG Trust, the PIMCO Variable Insurance 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 $1,000 investment that earns 5% annually. Each example assumes election of
the 7% Solution Enhanced Death Benefit. The examples reflect deduction of a
mortality and expense risk charge, an asset-based administrative charge, and the
annual contract administrative charge as an annual charge of 0.06% of assets
(based on an average contract value of $69,000). 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 .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 the Liquid Asset and Limited Maturity Bond
portfolios). The annual change 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% Solution 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 3 contract years, and under certain
circumstances, within the first 7 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.
DVAP3-108200 5
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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 $ 97 $143 $182 $303
Limited Maturity Bond $ 97 $144 $183 $304
Global Fixed Income $110 $181 $243 $417
Fully Managed $104 $162 $214 $362
Total Return $103 $161 $211 $357
Asset Allocation Growth $104 $164 $216 $366
Equity Income $103 $162 $213 $361
Investors $104 $164 $216 $366
Value Equity $103 $162 $213 $361
Rising Dividends $103 $162 $213 $361
Diversified Mid-Cap $104 $164 $216 $366
Managed Global $106 $171 $227 $387
Large Cap Value $104 $164 $216 $366
All Cap $104 $164 $216 $366
Research $103 $161 $211 $357
Capital Appreciation $103 $162 $213 $361
Growth and Income $105 $167 $220 $375
Capital Growth $104 $165 $217 $369
Strategic Equity $103 $162 $213 $361
Special Situations $105 $167 $220 $375
Mid-Cap Growth $103 $161 $211 $357
Small Cap $103 $162 $213 $361
Growth $104 $164 $217 $368
Real Estate $103 $162 $213 $361
Hard Assets $103 $162 $213 $361
Developing World $111 $185 $250 $430
Emerging Markets $111 $185 $250 $430
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $101 $156 $203 $342
PIMCO StocksPLUS
Growth and Income $100 $153 $198 $333
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $106 $170 $226 $385
PRUDENTIAL SERIES FUND
Prudential Jennison $104 $164 $216 $368
SP Jennison International Growth $110 $182 $245 $421
DVAP3-108200 6
<PAGE>
<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 $27 $83 $142 $303
Limited Maturity Bond $27 $84 $143 $304
Global Fixed Income $40 $121 $203 $417
Fully Managed $34 $102 $174 $362
Total Return $33 $101 $171 $357
Asset Allocation Growth $34 $104 $176 $366
Equity Income $33 $102 $173 $361
Investors $34 $104 $176 $366
Value Equity $33 $102 $173 $361
Rising Dividends $33 $102 $173 $361
Diversified Mid-Cap $34 $104 $176 $366
Managed Global $36 $111 $187 $387
Large Cap Value $34 $104 $176 $366
All Cap $34 $104 $176 $366
Research $33 $101 $171 $357
Capital Appreciation $33 $102 $173 $361
Growth and Income $35 $107 $180 $375
Capital Growth $34 $105 $177 $369
Strategic Equity $33 $102 $173 $361
Special Situations $35 $107 $180 $375
Mid-Cap Growth $33 $101 $171 $357
Small Cap $33 $102 $173 $361
Growth $34 $104 $177 $368
Real Estate $33 $102 $173 $361
Hard Assets $33 $102 $173 $361
Developing World $41 $125 $210 $430
Emerging Markets $41 $125 $210 $430
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $31 $ 96 $163 $342
PIMCO StocksPLUS
Growth and Income $30 $ 93 $158 $333
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $36 $110 $186 $385
PRUDENTIAL SERIES FUND
Prudential Jennison $34 $104 $176 $368
SP Jennison International Growth $40 $122 $205 $421
DVAP3-108200 7
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<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 $ 92 $128 $156 $250
Limited Maturity Bond $ 92 $128 $157 $251
Global Fixed Income $102 $159 $208 $351
Fully Managed $ 96 $140 $177 $291
Total Return $ 96 $138 $174 $286
Asset Allocation Growth $ 97 $141 $179 $295
Equity Income $ 96 $140 $177 $290
Investors $ 97 $141 $179 $295
Value Equity $ 96 $140 $177 $290
Rising Dividends $ 96 $140 $177 $290
Diversified Mid-Cap $ 97 $141 $179 $295
Managed Global $ 99 $149 $191 $319
Large Cap Value $ 97 $141 $179 $295
All Cap $ 97 $141 $179 $295
Research $ 96 $138 $174 $286
Capital Appreciation $ 96 $140 $177 $290
Growth and Income $ 98 $144 $184 $305
Capital Growth $ 97 $143 $181 $299
Strategic Equity $ 96 $140 $177 $290
Special Situations $ 98 $144 $184 $305
Mid-Cap Growth $ 96 $138 $174 $286
Small Cap $ 96 $140 $177 $290
Growth $ 97 $142 $181 $298
Real Estate $ 96 $140 $177 $290
Hard Assets $ 96 $140 $177 $290
Developing World $104 $163 $215 $365
Emerging Markets $104 $163 $215 $365
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $ 94 $134 $166 $270
PIMCO StocksPLUS
Growth and Income $ 93 $131 $161 $260
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $ 99 $148 $190 $317
PRUDENTIAL SERIES FUND
Prudential Jennison $ 97 $142 $180 $297
SP Jennison International Growth $103 $160 $210 $355
DVAP3-108200 8
<PAGE>
<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 $22 $ 68 $116 $250
Limited Maturity Bond $22 $ 68 $117 $251
Global Fixed Income $32 $ 99 $168 $351
Fully Managed $26 $ 80 $137 $291
Total Return $26 $ 78 $134 $286
Asset Allocation Growth $27 $ 81 $139 $295
Equity Income $26 $ 80 $137 $290
Investors $27 $ 81 $139 $295
Value Equity $26 $ 80 $137 $290
Rising Dividends $26 $ 80 $137 $290
Diversified Mid-Cap $27 $ 81 $139 $295
Managed Global $29 $ 89 $151 $319
Large Cap Value $27 $ 81 $139 $295
All Cap $27 $ 81 $139 $295
Research $26 $ 78 $134 $286
Capital Appreciation $26 $ 80 $137 $290
Growth and Income $28 $ 84 $144 $305
Capital Growth $27 $ 83 $141 $299
Strategic Equity $26 $ 80 $137 $290
Special Situations $28 $ 84 $144 $305
Mid-Cap Growth $26 $ 78 $134 $286
Small Cap $26 $ 80 $137 $290
Growth $27 $ 82 $141 $298
Real Estate $26 $ 80 $137 $290
Hard Assets $26 $ 80 $137 $290
Developing World $34 $103 $175 $365
Emerging Markets $34 $103 $175 $365
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $24 $ 74 $126 $270
PIMCO StocksPLUS
Growth and Income $23 $ 71 $121 $260
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names $29 $ 88 $150 $317
PRUDENTIAL SERIES FUND
Prudential Jennison $27 $ 82 $140 $297
SP Jennison International Growth $33 $100 $170 $355
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.
DVAP3-108200 9
<PAGE>
<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
unaudited consolidated financial statements of Golden American for the six
months ended June 30, 2000 and 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
of 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
DVAP3-108200 10
<PAGE>
<PAGE>
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 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 and ING Investment Management B.V., a portfolio manager of the ING
Variable Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
DVAP3-108200 11
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<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.
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 Inc. is a 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, The 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, 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 ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate Account B is divided into subaccounts. Each subaccount invests exclu-
sively in shares of one investment portfolio of the GCG Trust, the PIMCO
Variable Insurance 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 Separate 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 Separate Account B. If the assets in Separate Account B exceed
the required reserves and
DVAP3-108200 12
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<PAGE>
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 Separate
Account B but are not discussed in this prospectus. Separate 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 THE INVESTMENT
PORTFOLIOS, 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. Separate 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, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL
SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
THE GCG TRUST
<S> <C>
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 instrumentali-ties, 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.
------------------------------------------------------------
DVAP3-108200 13
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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. Growth of capital and income is a
secondary goal.
Invests primarily in a combination of equity and fixed
income securities.
------------------------------------------------------------
Asset Allocation Growth Seeks to maximize total return over the long-term by
allocating assets among stocks, bonds, short-term
instruments and other investments.
Allocates investments primarily in a neutral mix over
time of 70% of its assets in stocks, 25% of its assets
in bonds, and 5% of its assets in short-term and money
market investments.
--------------------------------------------------------
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."
------------------------------------------------------------
Diversified Mid-Cap Seeks long-term growth of capital.
Normally invests at least 65% of its total assets in
common stocks of companies with medium market
capitalizations.
------------------------------------------------------------
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.
------------------------------------------------------------
DVAP3-108200 14
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--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
All Cap Seeks capital appreciation through investment in secuities
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.
------------------------------------------------------------
Growth and Income Seeks long-term capital growth and current income.
Normally invests up to 75% of its assets in equity
securities selected primarily for their growth
potential and at least 25% of its assets in securities
the portfolio manager believes have income potential.
------------------------------------------------------------
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.
------------------------------------------------------------
Special Situations Seeks capital appreciation.
Invests primarily in common stocks selected for their
capital appreciation potential. The Portfolio
emphasizes "special situation" companies that the
portfolio manager believes have been overlooked or
undervalued by other investors.
------------------------------------------------------------
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.
------------------------------------------------------------
DVAP3-108200 15
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--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
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.
------------------------------------------------------------
Emerging Markets Seeks long-term capital appreciation.
Invests primarily in equity securities of companies in at
least six different emerging market countries.
------------------------------------------------------------
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.
------------------------------------------------------------
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 INC.
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.
------------------------------------------------------------
SP Jennison
International Growth Seeks long-term growth of capital.
Invests primarily in equity-related securities of
issuers located in at least five different foreign
countries.
------------------------------------------------------------
</TABLE>
DVAP3-108200 16
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<PAGE>
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, including retaining portfolio managers to
manage the assets of the various portfolios. Directed Services provides or
procures, at its own expense, the services necessary for the operation of the
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 rate 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.
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") and its subsidiary
Prudential Investments Fund Management LLC ("PIFM") serve as the overall
investment advisors to the Prudential Series Fund. Prudential and PIFM are
responsible for the management of the Prudential Series Fund and provide
investment advice and related services. For the Prudential Jennison Portfolio
and SP Jennison International Growth Portfolio, Prudential and PIFM engage
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential and PIFM pay the sub-adviser out of the fee they
receive from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, three 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
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You may allocate premium payments and transfer your contract value to the
guaranteed interest periods of our Fixed Account at any time during the
accumulation period. Every time you allocate money to the Fixed Account, we set
up a Fixed Interest Allocation for the guaranteed interest period you select.
We currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10
years, although we may not offer all these periods in the future. You may
select one or more guaranteed interest periods at any one time. We will credit
your Fixed Interest Allocation with a guaranteed interest rate for the interest
period you select, so 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 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.
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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 Separate 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
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.
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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+.0025)) -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 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
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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 andthe PIMCO
Variable Insurance Trust, ING Variable Insurance Trust and Prudential Series
Fund through Separate Account B. It also provides a means for you to invest in
a Fixed Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-month
period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments under
your Contract. The Contract, like all deferred variable annuity contracts, has
two phases: the accumulation phase and the income phase. The accumulation phase
is the period between the contract date and the annuity start date. The income
phase begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another annuitant
is named in the application. You have the rights and options described in the
Contract. One or more persons may own the Contract. If there are multiple owners
named, the age of the oldest owner will determine the applicable death benefit
if such death benefit is available for multiple owners.
The death benefit becomes payable when you die. In the case of a sole contract
owner who dies before the income phase begins, we will pay the beneficiary the
death benefit then due. The sole contract owner's estate will be the beneficiary
if no beneficiary has been designated or the beneficiary has predeceased the
contract owner. In the case of a joint owner of the Contract dying before the
income phase begins, we will designate the surviving contract owner as the
beneficiary. This will override any previous beneficiary designation.
If the contract owner is a trust and a beneficial owner of the trust has been
designated, the beneficial owner will be treated as the contract owner for
determining the death benefit. If a beneficial owner is changed or added after
the contract date, this will be treated as a change of contract owner for
determining the death benefit. If no beneficial owner of the Trust has been
designated, the availability of enhanced death benefits will be based on the age
of the annuitant at the time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be named in
a written request before the Contract is in effect. Joint owners may
independently exercise transfers and other transactions allowed under the
Contract. All other rights of ownership must be exercised by both owners. Joint
owners own equal shares of any benefits accruing or payments made to them. All
rights of a joint owner end at death of that owner if the other joint owner
survives. The entire interest of the deceased joint owner in the Contract will
pass to the surviving joint owner. The age of the older owner will determine the
applicable death benefit if Enhanced Death Benefits are available for multiple
owners.
ANNUITANT
The annuitant is the person designated by you to be the measuring life in
determining annuity payments. The annuitant's age determines when the income
phase must begin and the amount of the annuity payments to be paid. You are the
annuitant unless you choose to name another person. The annuitant may not be
changed after the Contract is in effect.
The contract owner will receive the annuity benefits of the Contract if the
annuitant is living on the annuity start date. If the annuitant dies before the
annuity start date and a contingent annuitant has been named,
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the contingent annuitant becomes the annuitant (unless the contract owner is
not an individual, in which case the death benefit becomes payable).
If there is no contingent annuitant when the annuitant dies before the annuity
start date, the contract owner will become the annuitant. The contract owner may
designate a new annuitant within 60 days of the death of the annuitant.
If there is no contingent annuitant when the annuitant dies before the annuity
start date and the contract owner is not an individual, we will pay the
designated beneficiary the death benefit then due. If a beneficiary has not been
designated, or if there is no designated beneficiary living, the contract owner
will be the beneficiary. If the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
contract owner is not an individual, distribution rules under federal tax law
will apply. You should consult your tax advisor for more information if you are
not an individual.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary is the
person who receives any death benefit proceeds and who becomes the successor
contract owner if the contract owner (or the annuitant if the contract owner is
other than an individual) dies before the annuity start date. We pay death
benefits to the primary beneficiary (unless there are joint owners, in which
case death proceeds are payable to the surviving owner(s)).
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.
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.
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 at least $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 change the minimum initial or additional premium
requirements for certain group or
DVAP3-108200 22
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sponsored arrangements. Any initial or additional premium payment that would
cause the contract value of all annuities that you maintain with us to exceed
$1,000,000 requires our prior approval.
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 within 2 business days after receipt, if
the application and all information necessary for processing the Contract are
complete. Subsequent premium payments 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 consider the application incomplete. 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 to the
subaccounts 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 will be credited at the accumulation unit value next
determined after receipt of your premium payment and instructions.
Once we allocate your premium payment to the subaccounts selected by you, we
convert the premium payment into accumulation units. We divide the amount of the
premium payment allocated to a particular subaccount by the value of an
accumulation unit for the subaccount to determine the number of accumulation
units of the subaccount to be held in Separate 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 Separate Account B or the Fixed Account be allocated to a
subaccount specially designated by the Company (currently, the Liquid Asset
subaccount) during the free look period. After the free look period, we will
convert your contract value (your initial premium plus any earnings less any
expenses) into accumulation units of the subaccounts you previously selected.
The accumulation units will be allocated based on the accumulation unit value
next computed for each subaccount. Initial premiums designated for Fixed
Interest Allocations will be allocated to a Fixed Interest Allocation with the
guaranteed interest period you have chosen; however, in the future we may
allocate the premiums to the specially designated subaccount during the free
look period.
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 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 designated to be allocated to the subaccount. On the contract date, we
allocate your contract value to each subaccount and/or a Fixed Interest
Allocation specified by you, unless the Contract is issued in a state that
requires the return of premium payments during the free look period, in which
case, the portion of your initial premium not allocated to a Fixed Interest
Allocation 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 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 deduct any surrender charge, any
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charge for premium taxes, the annual contract and administrative fee
(unless waived), any optional benefit riders charge, and any other charges
incurred but not yet deducted. Finally, we adjust for any Market Value
Adjustment.
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 Separate 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 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 have 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 Separate Account B under the
1940 Act; (ii) operate Separate Account B as a management company under the
1940 Act if it is operating as a unit investment trust; (iii) operate Separate
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
Separate Account B; and (v) combine Separate 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
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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 IT 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 currently include
the Liquid Asset subaccount, Limited Maturity Bond subaccount and the Fixed
Interest Allocations. The Company may, at any time, designate new and/or
existing subaccounts as a Special Fund with 30 days notice with respect to new
premiums added or transfer to such subaccounts.
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 one 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, 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, 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.
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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. It 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 plus any additional premium 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 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, plus any additional premium added to your
Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rates reduced pro rata for any
withdrawals and reduced for any transfers made within 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for all
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 ADDED TO YOUR CONTRACT DURING THE 2-YEAR PERIOD
AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE BUT 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 added during the 2-year period after your rider date.
Withdrawals taken while MGAB rider is in effect, as well as, and
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 (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 to the subaccounts in which you are
invested pro rata based on the proportions of your then 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
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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 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, your 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 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 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 the then current 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 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, plus any additional
premiums 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). Premiums 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 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 are those added more than 5
years before the earliest MGIB Benefit Date and are included in
the MGIB Base. Premiums 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 significantly 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.
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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,
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; or
(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 to 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.
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.
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THE MGIB RIDER DOES NOT RESTRICT OR LIMITS YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIME 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 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 redeemed 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 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 subsequent
premium payments 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. Such
withdrawals 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." Making any withdrawals in any year greater than 7%
per year of the Eligible Payment Amount in any year 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 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;
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(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 and if the following conditions exist, your
Contract is given what we refer to as Automatic Periodic Benefit Status:
(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
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 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, 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, and (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
periods 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
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.
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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.
--------------------------------------------------------------------------------
WITHDRAWALS
--------------------------------------------------------------------------------
Any time during the accumulation phase and before the death of the contract
owner, 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 15% 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 affect 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 $1,000. 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.
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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 1.25%
Quarterly 3.75%
Annually 15.00%
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 withdrawal is based on a percentage of your contract value and the
amount to be systematically 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 15% of your contract value as
determined on the day we receive your election of this feature. The maximum
limit
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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 maximum percentage.
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 SAI. 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 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 judgment or in accordance with
applicable law. We will apply a Market Value Adjustment to transfers from a
Fixed Interest Allocation taken more than 30 days before its maturity date,
unless the transfer is made under the dollar cost averaging program. Transfers
between the Fixed Account, the Liquid Asset investment portfolio and the
Limited Maturity Bond investment portfolio and other subaccounts may
negatively impact your death benefit.
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
between Special Funds and other investment portfolios will
result in a transfer of the Guaranteed Death Benefit in proportion to the
contract 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. Transfers, including those involving
Special Funds, may also affect your optional rider base. See "The Annunity
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. Separate 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.
TRANSFERS BY THIRD PARTIES
As a convenience to you, we currently allow you to give third parties the right
to effect transfers on your behalf. However, when the third party makes
transfers for many contract owners, the result can be simultaneous transfers
involving large amounts of account values. Such transfers can disrupt the
orderly management of the investment portfolios available to the Contract, can
result in higher costs to contract owners, and may not be compatible with the
long term goals of contract owners. Therefore, we may at any time exercise our
business judgment and limit transfers made by a third party.
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
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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
Separate 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 more
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 Benefits 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; (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; (ii) total premium payments
less any withdrawals; (iii) the cash surrender value; and (iv) the enhanced
death benefit as calculated below.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
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We credit interest each business On each contract anniversary that
day at the 7% annual effective occurs on or before the contract
rate* to the enhanced death benefit owner turns age 80, we compare the
from the preceding day (which would prior enhanced death benefit to the
be the initial premium if the contract value and select the
preceding day is the contract larger amount as the new enhanced
date), then we add additional death benefit.
premiums paid since the preceding
day, then we subtract any On all other days, the enhanced
withdrawals made (including any death benefit is the amount
Market Value Adjustment applied to determined below. We first take the
such withdrawals) since the enhanced death benefit from the
preceding day and then we subtract preceding day (which would be the
any associated surrender charges.** initial premium if the valuation
date is the contract date) and then
The maximum enhanced death benefit we add additional premiums paid
is 2 times all premium payments, as since the preceding day, then we
reduced by withdrawals.*** subtract any withdrawals made
(including 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 or reduce the enhanced death benefit. If we
offer additional subaccounts in the future, we may restrict those new
subaccounts from participating in the 7% Solution Enhanced Death
Benefit.
** Each premium payment reduced by any withdrawals and any associated
surrender charges incurred will continue to grow at the 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 pro rata.
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 held by joint owners.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date, the
Company will pay the beneficiary any certain benefit remaining under the annuity
in effect at the time.
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.
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If we do not receive an election from a nonspouse owner's beneficiary within the
1-year period after the contract owner's date of death, then we will pay the
death benefit to the owner's beneficiary in a cash payment within five years
from date of death. We will determine the death benefit as of the date we
receive proof of death. We will make payment of the proceeds on or before the
end of the 5-year period starting on the owner's date of death. Such cash
payment will be in full settlement of all our liability under the Contract.
If the contract owner dies after the annuity start date, we will continue to
distribute any benefit payable at least as rapidly as under the annuity option
then in effect. All of the contract owner's rights granted under the Contract or
allowed by us will pass to the contract owner's beneficiary.
If the Contract has joint owners we will consider the date of death of the first
joint owner as the death of the contract owner and the surviving joint owner
will become the contract owner of the Contract.
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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 7-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment 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+
Since Premium Payment
Surrender Charge 7% 7% 6% 5% 4% 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
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qualifying medical professional, on or after the first contract anniversary,
as having a qualifying terminal illness. We have the right to require an
examination by a physician of our choice. If we require such an examination, we
will pay for it. You are required to send us satisfactory written proof of
illness. See your Contract for more information. The waiver of surrender charge
may not be available in all states.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
15% 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 withdrawal 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 these 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.
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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 1.10% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003030% 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
1.25% for the Annual Ratchet Enhanced Death Benefit, or 1.40% 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 .003446% or .003863%,
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 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 prorata 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 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
during the first two contract years following the rider date.
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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
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 Premium
Amount. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider "for a
description of the MGWB Eligible Payment Amount. 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 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, three 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.
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.
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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 3 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 3 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 SAI. 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 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
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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 1940 Act, 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 3.50% for Option
2 per year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for Options 1 and 2 if
such payments were not based on the tables in the Contract.
(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. You have
30 days to notify our Customer Service Center of any errors or discrepancies
contained in the report or in any confirmation notices. We will also send you
copies of any shareholder reports of the investment portfolios in which Separate
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 SEC so that the sale of securities
held in Separate Account B may not reasonably occur or so that the Company may
not reasonably determine the value of Separate 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.
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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, we include a refund of any charges deducted from your contract
value. Because of the market risks associated with investing in the portfolios,
the contract value returned may be greater or less than the premium payment you
paid. Some states require us to return to you the amount of the paid premium
(rather than the contract value) in which case you will not be subject to
investment risk during the free look period. In these states, your premiums
designated for investment in the subaccounts 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 Separate 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 7.0% commission, and passes through 100%
of the commission to the broker-dealer whose registered representative sold the
Contract.
DVAP3-108200 46
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|-----------------------------------------------------------------------------|
| UNDERWRITER COMPENSATION |
|-----------------------------------------------------------------------------|
| NAME OF PRINCIPAL AMOUNT OF OTHER |
| UNDERWRITER COMMISSION TO BE PAID COMPENSATION |
| |
| Directed Services, Inc. Maximum of 7.0% 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 7.0% 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 Separate Account B according to your
instructions. However, if the 1940 Act 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 shareholder 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 Separate 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 Separate Account B.
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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
--------------------------------------------------------------------------------
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 Separate 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
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Separate 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
Separate 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.
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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 conditions 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
DVAP3-108200 50
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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.
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,
DVAP3-108200 51
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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 IRS 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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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.
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER
---------------------------------------------------------
For the Period For the Period
January 1, For the Year For the Year October 25,
2000 through Ended Ended 1997 through
June 30, December 31, December 31, December 31,
2000 1999 1998 1997
------------ ------------- ------------ --------------
Annuity and Interest
Sensitive Life
Product Charges..... $ 71,975 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss)
before Federal
Income Tax.......... $ 13,679 $ 19,737 $ 10,353 $ (279)
Net Income (Loss).... $ 8,077 $ 11,214 $ 5,074 $ (425)
Total Assets......... $ 11,287,557 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities.... $ 10,722,684 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's
Equity............ $ 564,873 $ 477,849 $ 353,894 $ 227,313
POST-ACQUISITION | PRE-ACQUISITION
------------------------------- | ------------------
For the Period For the Period | For the Period
January 1,1997 August 14, | January 1,
through 1996 through | 1996 through
October 24, December 31, | August 13,
1997 1996 | 1996
------------- -------------- | --------------
Annuity and Interest |
Sensitive Life |
Product Charges..... $ 18,288 $ 8,768 | $ 12,259
Net Income (Loss) before |
Federal Income Tax.. $ (608) $ 570 | $ 1,736
Net Income (Loss).... $ 729 $ 350 | $ 3,199
Total Assets......... N/A $1,677,899 | N/A
Total Liabilities.... N/A $1,537,415 | N/A
Total Stockholder's
Equity............ N/A $ 140,484 | N/A
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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, the 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.
DVAP3-108200 54
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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.
THE FIRST SIX MONTHS OF 2000 COMPARED TO THE SAME PERIOD OF 1999
PREMIUMS
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Variable annuity premiums:
Separate account.............. $ 765.7 (29.6)% $(322.1) $1,087.8
Fixed account................. 353.6 7.1 23.4 330.2
-------- ---- ------- --------
Total variable annuity
premiums..................... 1,119.3 (21.1) (298.7) 1,418.0
Variable life premiums......... 1.0 (78.1) (3.7) 4.7
-------- ---- ------- --------
Total premiums................. $1,120.3 (21.3)% $(302.4) $1,422.7
======== ==== ======= ========
For the Companies' variable 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 decreased 29.6% during the
first six months of 2000 compared to the same period of 1999. Excluded
from the variable annuity separate account premiums above are $923.5
million and $50.7 million for the first six months of 2000 and 1999,
respectively, related to modified coinsurance agreements.
Variable life premiums decreased 78.1% in the first six months of 2000
from the same period of 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the six
months ended June 30, 2000 totaled $131.4 million, or 12% of total
premiums ($406.6 million, or 29% from two significant broker/dealers for
the six months ended June 30, 1999).
DVAP3-108200 55
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REVENUES
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Annuity and interest sensitive
life product charges.......... $ 72.0 106.9% $ 37.2 $34.8
Management fee revenue......... 9.0 121.2 4.9 4.1
Net investment income 31.8 12.8 3.7 28.1
Realized losses on investments. (2.6) 53.6 (0.9) (1.7)
Net income from modified
coinsurance agreements........ 115.8 2,024.9 110.3 5.5
Other income................... 0.9 26.2 0.2 0.7
------ ------- ------ -----
$226.9 217.3% $155.4 $71.5
====== ======= ====== =====
Total revenues increased 217.3% in the first six months of 2000 from the
same period in 1999. Annuity and interest sensitive life product charges
increased 106.9% in the first six months of 2000 due to additional fees
earned from the increasing block of business under management in the
variable separate accounts.
Golden American provides certain managerial and supervisory services to
Directed Services, Inc. ("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 $9.0 million and $4.1 million for the
first six months of 2000 and 1999, respectively.
Net investment income increased 12.8% in the first six months of 2000 due
to growth in invested assets from June 30, 1999. The Companies had $2.6
million of realized losses on the sale of investments in the first six
months of 2000 on the sale of fixed maturities and the writedown of an
impaired investment, compared to losses of $1.7 million in the same
period of 1999 related to the writedown of two fixed maturities.
Net income from modified coinsurance agreements increased by $110.3
million to $115.8 million for the first six months of 2000 as compared to
the first six months of 1999. This was primarily due to a modified
coinsurance agreement which was entered into during the second quarter of
2000, with an affiliate, Equitable Life Insurance Company of Iowa
("Equitable Life"), covering a part of business issued in 2000. This
reinsurance agreement contributed $111.8 million to other income in the
second quarter of 2000, which was offset by a corresponding release of
deferred policy acquisition costs and reimbursement of non-deferrable
costs related to policies reinsured under this agreement.
EXPENSES
Total insurance benefits and expenses increased $138.6 million, or
214.8%, to $203.1 million in the first six months of 2000. Interest
credited to account balances increased $20.0 million, or 24.3%, to $102.4
million in the first six months of 2000. The premium credit on the
Premium Plus product increased $22.3 million to $73.5 million at June 30,
2000 resulting in an increase in interest credited during the first six
months of 2000 compared to the same period in 1999. The bonus interest on
the fixed account decreased $2.3 million to $4.8 million at June 30, 2000
resulting in a decrease in interest credited during the first six months
of 2000 compared to the same period in 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products relative to
the balances at June 30, 1999.
Commissions increased $28.9 million, or 34.8%, to $112.2 million in the
first six months of 2000. Insurance taxes, state licenses, and fees
increased $0.4 million, or 15.9%, to $2.9 million in the first six months
of 2000. 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 incentive bonuses. Most costs incurred as the
result of new sales have been deferred, thus having very little impact on
current earnings.
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General expenses increased $11.4 million, or 39.6%, to $40.2 million in
the first six months of 2000. Management expects general expenses to
continue to increase in 2000 as a result of the emphasis on expanding the
salaried wholesaler distribution network, the growth in sales, and the
increased amounts in force. 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
the following affiliates: DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, Security Life of Denver Insurance Company, Southland
Life Insurance Company, and United Life & Annuity Insurance Company, for
certain advisory, computer, and other resources and services provided by
the Companies.
During the first six months of 2000 and 1999, value of purchased
insurance in force ("VPIF") was adjusted to increase amortization by $0.7
million in each period, respectively, to reflect changes in the
assumptions related to the timing of estimated gross profits.
Amortization of deferred policy acquisition costs ("DPAC") increased
$25.0 million, or 233.8%, in the first six months of 2000. This increase
resulted from the deferral of expenses associated with the large sales
volume experienced since June 30, 1999. Deferred policy acquisition costs
decreased $52.3 million or 34.8% in the first six months of 2000. During
the second quarter of 2000, a modified coinsurance agreement was entered
into which resulted in a $109.3 million release of previously deferred
policy acquisition costs. 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 June 30,
2000 is $1.9 million for the remainder of 2000, $3.5 million in 2001,
$3.3 million in 2002, $2.8 million in 2003, $2.2 million in 2004, and
$1.7 million in 2005. Actual amortization may vary based upon changes in
assumptions and experience.
Interest expense increased 189.4%, or $6.6 million, to $10.1 million in
the first six months of 2000. Interest expense on a $25 million surplus
note issued December 1996 and expiring December 2026 was $1.0 million for
the first six months of 2000, unchanged from the same period of 1999.
Interest expense on a $60 million surplus note issued in December 1998
and expiring December 2028 was $2.2 million for the first six months of
2000, unchanged from the same period of 1999. Interest expense on a $75
million surplus note, issued September 1999 and expiring September 2029
was $2.9 million for the first six months of 2000. Interest expense on a
$50 million surplus note, issued December 1999 and expiring December 2029
was $2.1 million for the first six months of 2000. Interest expense on a
$35 million surplus note issued December 1999 and expiring December 2029
was $1.6 million for the first six months of 2000. Golden American also
paid $0.3 million in 2000 and $0.2 million in 1999 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 $36,000 and $54,000 for the first six months of 2000
and 1999, respectively.
INCOME
Net income was $8.1 million for the first six months of 2000, an increase
of $6.7 million, or 468.0% from the same period of 1999.
Comprehensive income for the first six months of 2000 was $7.0 million,
an increase of $9.1 million from comprehensive loss of $2.1 million in
the same period of 1999.
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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
====== ==== ===== =====
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.
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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
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
------ ---------- ------ ------
(Dollars in millions)
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
====== ==== ====== =======
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.
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.
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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.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity
for 1997.
PREMIUMS
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Variable annuity |
premiums: |
Separate account.. $1,513.3 $291.2 $111.0 | $180.2
Fixed account..... 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life |
premiums.......... 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums..... $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== | ======
For the Companies' variable contracts, premiums collected are not
reported as revenues, but are reported as deposits to insurance
liabilities. Revenues for these products are recognized over time in the
form of investment income and product charges.
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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
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Annuity and interest |
sensitive life |
product charges..... $39.1 $22.1 $3.8 | $18.3
|
Management fee |
revenue............. 4.8 2.8 0.5 | 2.3
Net investment |
income.............. 42.5 26.8 5.1 | 21.7
Realized gains |
(losses) on |
investments....... (1.5) 0.1 -- | 0.1
Other income........ 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ==== | =====
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in
1998. Annuity and interest sensitive life product charges increased
76.8%, or $17.0 million, to $39.1 million in 1998 due to additional fees
earned from the increasing block of business under management in the
separate accounts and an increase in surrender charge revenues. This
increase was partially offset by the elimination of the unearned revenue
reserve related to in force acquired business at the merger date, which
resulted in lower annuity and interest sensitive life product charges
compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to
DSI. The fee paid to Golden American for these services, which is
calculated as a percentage of average assets in the variable separate
accounts, was $4.8 million for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million
in 1998 from $26.8 million in 1997 due to growth in invested assets.
During 1998, the Company had net realized losses on investments of $1.5
million, which 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.
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EXPENSES
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Insurance benefits |
and expenses: |
Annuity and |
interest sensitive |
life benefits: |
Interest credited |
to account |
balances.......... $ 94.9 $26.7 $ 7.4 | $19.3
Benefit claims |
incurred in excess |
of account |
balances.......... 2.1 0.1 -- | 0.1
Underwriting, |
acquisition, and |
insurance expenses: |
Commissions........ 121.2 36.3 9.4 | 26.9
General expenses... 37.6 17.3 3.4 | 13.9
Insurance taxes.... 4.1 2.3 0.5 | 1.8
Policy acquisition |
costs deferred.... (197.8) (42.7) (13.7) | (29.0)
Amortization: |
Deferred policy |
acquisition costs. 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance |
in force......... 4.7 6.1 0.9 | 5.2
Goodwill.......... 3.8 2.0 0.6 | 1.4
------ ----- ------ | -----
$ 75.7 $50.7 $ 9.4 | $41.3
====== ===== ====== | =====
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in
1998 from $50.7 million in 1997. Interest credited to account balances increased
255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra credit bonus
on the Premium Plus product introduced in October of 1997 generated a $51.6
million increase in interest credited during 1998 compared to 1997. The
remaining increase in interest credited 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 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
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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 increased slightly during the
first six months of 2000. All of the Companies' investments, other than
mortgage loans on real estate, are carried at fair value in the
Companies' financial statements. The increase in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of investments as well as net purchases.
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, net of transfers to the separate accounts. 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 is invested primarily in fixed
maturities and mortgage loans on real estate.
At June 30, 2000 and December 31, 1999, the Companies investments had a
yield of 6.7% and 6.6%, respectively. The Companies estimate the total
investment portfolio, excluding policy loans, had a fair value
approximately equal to 97.6% of amortized cost value at June 30, 2000
(97.6% at December 31, 1999).
FIXED MATURITIES: At June 30, 2000, the Companies had fixed maturities
with an amortized cost of $832.2 million and an estimated fair value of
$809.5 million. 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.
At June 30, 2000, net unrealized depreciation of fixed maturities of
$22.7 million was comprised of gross appreciation of $0.6 million and
gross depreciation of $23.3 million. Net unrealized holding losses on
these securities, net of adjustments for VPIF, DPAC, and deferred income
taxes of $7.0 million, were included in stockholder's equity at June 30,
2000.
At December 31, 1999, 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
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are rated at least A- by Standard & Poor's ($545.4 million or 65.5%
at June 30, 2000 and $558.0 million or 65.0% at December 31, 1999), that
are rated BBB+ to BBB- by Standard & Poor's ($136.4 million or 16.4% at
June 30, 2000 and $123.5 million or 14.4% at December 31, 1999), and
below investment grade securities, which are securities issued by
corporations that are rated BB+ to B- by Standard & Poor's ($53.8 million
or 6.5% at June 30, 2000 and $64.6 million or 7.5% at December 31, 1999).
Securities not rated by Standard & Poor's had a National Association of
Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5 ($96.6
million or 11.6% at June 30, 2000 and $112.0 million or 13.1% at December
31, 1999). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.7% and 6.6% at June 30, 2000 and
December 31, 1999, respectively.
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 June 30, 2000, the amortized cost value of the Companies' total
investments in below investment grade securities, excluding mortgage-
backed securities, was $67.3 million, or 6.3%, of the Companies'
investment portfolio ($72.3 million, or 6.9% at December 31, 1999). 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 June 30,
2000, the yield at amortized cost on the Companies' below investment
grade portfolio was 8.1% compared to 6.4% for the Companies' investment
grade corporate bond 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 $63.8 million, or 94.8% of amortized cost value, at
June 30, 2000 ($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.
During the first six months of 2000 and for the year ended December 31,
1999, fixed maturities designated as available for sale with a combined
amortized cost of $125.7 million and $221.8 million, respectively, were
sold, called, or repaid by their issuers. In total, net pre-tax losses
from sales, calls, and repayments of fixed maturity investments amounted
to $2.5 million in the first six months of 2000 and $1.3 million in 1999,
excluding the $1.6 million pre-tax loss on the write-down of bonds in
1999.
During the second quarter of 2000, Golden American determined that the
carrying value of an impaired bond exceeded its estimated net realizable
value. As a result, at June 30, 2000, Golden American recognized a total
pre-tax loss of approximately $142,000 to reduce the carrying value of
the bond to its net realizable value of $329,000.
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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 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: At June 30, 2000 and December 31, 1999, equity
securities represented 0.9% and 1.4%, respectively, of the Companies'
investment portfolio. At June 30, 2000 and December 31, 1999, the
Companies owned equity securities with a cost of $9.7 million and $15.0
million, respectively, and an estimated fair value of $10.5 million and
$17.3 million, respectively. At June 30, 2000 and December 31, 1999, net
unrealized appreciation of equity securities was comprised entirely of
gross appreciation of $0.8 million and $2.3 million, respectively. 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 represented
9.9% and 9.5% of the Companies' investment portfolio at June 30, 2000 and
December 31, 1999, respectively. Mortgages outstanding were $105.5
million at June 30, 2000 with an estimated fair value of $101.9 million.
Mortgages outstanding were $100.1 million at December 31, 1999 with an
estimated fair value of $95.5 million. At June 30, 2000, the Companies'
mortgage loan portfolio includes 59 loans with an average size of $1.8
million and average seasoning of 0.6 years if weighted by the number of
loans. At December 31, 1999, the Companies' mortgage loan portfolio
included 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). As of June 30, 2000, there have been no
significant changes to the concentrations of mortgage loans on real
estate compared to December 31, 1999. At June 30, 2000 and December 31,
1999, the yield on the Companies' mortgage loan portfolio was 7.3%.
At June 30, 2000 and 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 credits,
and other expenses related to production after October 24, 1997 ("ING merger
date"). The Companies' previous balances of DPAC and VPIF were eliminated as
of the ING merger date, and an asset representing VPIF was established for
all policies in force at the ING 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. During
the second quarter of 2000, a modified coinsurance agreement was entered into
which resulted in a $109.3 million release of previously deferred policy
acquisition costs. At June 30, 2000, the Companies had DPAC and VPIF balances
of $590.8 million and $29.5 million,
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respectively ($529.0 million and $31.7 million, respectively, at December
31, 1999). 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 as a result of the merger with ING. Accumulated amortization
of goodwill was $10.1 million as of June 30, 2000 and $8.2 million as of
December 31, 1999.
Other assets increased $1.7 million from December 31, 1999, due to
increases in a receivable from the separate account and prepaid expenses.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
At June 30, 2000, the Companies had $9.4 billion of separate account
assets compared to $7.6 billion at December 31, 1999. The increase in
separate account assets resulted from market appreciation, transfers from
the fixed account options, and sales of the Companies' variable annuity
products, net of redemptions.
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 June 30, 2000, the Companies had total assets of $11.3 billion, a
20.2% increase from December 31, 1999. 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 decreased 4.1%, to $0.9 billion. Market appreciation,
transfers from the fixed account options, and premiums, net of
redemptions, accounted for the $1.8 billion, or 24.2%, increase in
separate account liabilities to $9.4 billion at June 30, 2000.
Future policy benefits for annuity and interest sensitive life products
increased $152.6 million, or 17.3%, to $1.0 billion at December 31, 1999,
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.
Due to affiliates decreased $8.8 million or 69.7% to $3.8 million during
the first six months of 2000 due to declines in payables to related party
broker/dealers and a decrease in accrued interest on related party
surplus notes.
Other liabilities decreased $13.2 million or 24.7% to $40.1 million
during the first six months of 2000 due to the timing of the application
and settlement of policy payments and account transfers, as well as the
timing of the settlement of investment transactions. Other liabilities
increased $21.7 million during 1999 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.
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In conjunction with the volume of variable annuity sales, the Companies'
total liabilities increased $1.8 billion, or 20.3%, during the first six
months of 2000 and totaled $10.7 billion at June 30, 2000. 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 $80.0 million,
or 17.1%, from December 31, 1999 to $548.6 million at June 30, 2000, due
to a capital contribution from the Parent. 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 provided by operating activities was $33.3 million in the first
six months of 2000 compared to net cash used of $41.6 million in the same
period of 1999. 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; however, during the second quarter of
2000, Golden American received $110.0 million in conjunction with the
modified coinsurance agreement with an affiliate, resulting in positive
cash flow from operating activities.
Net cash used in investing activities was $12.3 million during the first
six months of 2000 compared to $38.6 million in the same period of 1999.
This decrease is primarily due to greater net sales of fixed maturities
and equity securities, which were partially offset by an increase in net
purchases of short term investments during the first six months of 2000
than in the same period of 1999. Net sales of fixed maturities reached
$22.2 million during the first six months of 2000 compared to net
purchases of $9.3 million in the same period of 1999. Net purchases of
short term investments reached $33.9 million in the first six months of
2000 versus $26.4 million during the same period in 1999. Net purchases
of mortgage loans on real estate were $5.6 million during the first six
months of 2000 versus net sales of $3.6 million during the first six
months of 1999.
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 used in financing activities was $25.7 million during the first
six months of 2000 compared to net cash provided by financing activities
of $82.8 million during the same period in 1999. The increase in net
reallocations to the Companies' separate accounts, which increased to
$412.2 million from $261.4 million during the prior year, contributed to
the decrease. Net reciprocal loan agreement borrowings of $40.0 million
during the first six months of 2000 provided cash to the Companies.
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
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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 expired
on July 31, 2000. As of July 31, 2000, the SunTrust Bank, Atlanta
revolving note facility was extended to July 30, 2001. 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. Golden American occupies
105,000 square feet of leased space; an affiliate occupies 20,000 square
feet. Golden American's New York subsidiary is housed in leased space in
New York, New York. The Companies intend to spend approximately $1.0
million on capital needs during the remainder of 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 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 the Companies
have total adjusted capital well above all required capital levels.
REINSURANCE. At June 30, 2000, Golden American had reinsurance treaties
with four unaffiliated reinsurers and two affiliated reinsurers 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.
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On June 30, 2000, effective January 1, 2000, Golden American entered into
a modified coinsurance agreement with Equitable Life, an affiliate,
covering a considerable portion of Golden American's variable annuities
issued in 2000, excluding those with an interest rate guarantee.
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 additional
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 June 30, 2000 levels, variable separate account funds, which
represent 90% of the in force, pass the risk in underlying fund
performance to the contractholder (except for certain minimum
guarantees). With respect to interest rate movements up or down 100 basis
points from June 30, 2000 levels, the remaining 10% 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.
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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.
During the first six months of 2000, one broker-dealer produced 10% or
more of Golden American's product sales (two broker-dealers as of
December 31, 1999).
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. On June 30, 2000, effective January 1, 2000, Golden American
entered into a modified coinsurance agreement with Equitable Life, an
affiliate, covering a considerable portion of Golden American's variable
annuities issued in 2000, excluding those with an interest rate
guarantee. Golden American is currently pursuing additional 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 Insurance Company of Iowa ("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"), $0.7
million, $1.3 million and $1.1 million, for the six months ended June 30,
2000 and 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 $9.1 million for the six months ended June 30,
2000 and $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 six months ended June 30,
2000 and for the years ended December 31, 1999 and 1998, the Companies
incurred fees of $1.3 million, $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 $3.3 million for first six months of 2000 and $6.1
million for 1999 and $5.8 million for 1998.
First Golden provides resources and services to DSI. Revenues for these
services totaled $0.1 million in the first six months of 2000, $0.4
million in 1999 and $0.1 million in 1998.
Golden American provides resources and services to ING Mutual Funds
Management Co., LLC, an affiliate. Revenues for these services totaled
$0.3 million for first six months of 2000 and $0.2 million for 1999.
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 $0.3 million
in the first six months of 2000 and $0.5 million in the year 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 $0.1 million in
the first six months of 2000 and $0.2 million in the year 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 $52,000 in the first six
months of 2000 and $103,000 in the year 1999.
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. On June 30, 2000, Golden American incurred a fee of $7,000,
under this agreement. No annual fee was paid in 1999.
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DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) of the variable insurance
products issued by Golden American. For the first six months of 2000 and
years 1999 and 1998, commissions paid by Golden American to DSI
(including commissions paid by First Golden) aggregated $109.3 million,
$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.
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
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insurer's own financial strength. For information regarding Golden
American's estimated liability for future guaranty fund assessments, see
Note 11 of Notes to Financial Statements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Certain insurance products of Golden
American are subject to various federal securities laws and regulations.
In addition, current and proposed federal measures which may
significantly affect the insurance business include regulation of
insurance company solvency, employee benefit regulation, removal of
barriers preventing banks from engaging in the insurance business, tax
law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
DIRECTORS AND 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.
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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. 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. 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.
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. 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. Ronald R. Blasdell joined Golden American in February, 1994 and
became Senior Vice President, Project Implementation in June, 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and became
Senior Vice President and Chief Information Officer 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 four 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.
DVAP3-108200 75
<PAGE>
<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.
DVAP3-108200 76
<PAGE>
<PAGE>
--------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
--------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
DVAP3-108200 77
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $832,167; 1999 - $858,052) $809,473 $835,321
Equity securities, at fair value (cost: 2000 - $9,671; 1999 - $14,952) 10,510 17,330
Mortgage loans on real estate 105,521 100,087
Policy loans 12,425 14,157
Short-term investments 114,084 80,191
------------------------------------------------
Total investments 1,052,013 1,047,086
Cash and cash equivalents 9,649 14,380
Reinsurance recoverable 17,597 14,834
Reinsurance recoverable from affiliate 1,798 --
Due from affiliates 3,958 637
Accrued investment income 10,094 11,198
Deferred policy acquisition costs 590,821 528,957
Value of purchased insurance in force 29,463 31,727
Current income taxes recoverable 3 35
Deferred income tax asset 16,912 21,943
Property and equipment, less allowances for depreciation of
$4,076 in 2000 and $3,229 in 1999 14,567 13,888
Goodwill, less accumulated amortization of $10,075 in 2000
and $8,186 in 1999 141,052 142,941
Other assets 4,199 2,514
Separate account assets 9,395,431 7,562,717
------------------------------------------------
Total assets $11,287,557 $9,392,857
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products $991,442 $1,033,701
Unearned revenue reserve 6,828 6,300
Other policy claims and benefits 68 8
------------------------------------------------
998,338 1,040,009
Reciprocal loan from affiliate 40,000 --
Surplus notes 245,000 245,000
Revolving note payable -- 1,400
Due to affiliates 3,835 12,651
Other liabilities 40,080 53,231
Separate account liabilities 9,395,431 7,562,717
------------------------------------------------
10,722,684 8,915,008
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 548,640 468,640
Accumulated other comprehensive loss (10,207) (9,154)
Retained earnings 23,940 15,863
------------------------------------------------
Total stockholder's equity 564,873 477,849
------------------------------------------------
Total liabilities and stockholder's equity $11,287,557 $9,392,857
================================================
</TABLE>
See accompanying notes.
DVAP3-108200 77
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------------
<S> <C> <C>
Revenues:
Annuity and interest sensitive life product charges $71,975 $34,783
Management fee revenue 9,058 4,096
Net investment income 31,775 28,158
Realized losses on investments (2,637) (1,717)
Net income from modified coinsurance agreements 115,792 5,449
Other income 934 740
-------------------------------------------------------
226,897 71,509
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 102,445 82,427
Benefit claims incurred in excess of account balances 3,211 1,725
Underwriting, acquisition, and insurance expenses:
Commissions 112,158 83,226
General expenses 40,179 28,787
Insurance taxes, state licenses, and fees 2,910 2,511
Policy acquisition costs deferred (97,724) (149,988)
Amortization:
Deferred policy acquisition costs 35,757 10,713
Value of purchased insurance in force 2,278 3,231
Goodwill 1,889 1,889
-------------------------------------------------------
203,103 64,521
Interest expense 10,115 3,496
-------------------------------------------------------
213,218 68,017
-------------------------------------------------------
Income before income taxes 13,679 3,492
Income taxes 5,602 2,070
-------------------------------------------------------
Net income $8,077 $1,422
=======================================================
</TABLE>
See accompanying notes.
DVAP3-108200 79
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $33,298 $(41,587)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale 123,182 90,910
Equity securities 5,195 --
Mortgage loans on real estate 3,281 3,606
Policy loans - net 1,732 --
-------------------------------------------------
133,390 94,516
Acquisition of investments:
Fixed maturities - available for sale (100,936) (100,242)
Mortgage loans on real estate (8,887) --
Policy loans - net -- (1,158)
Short term investments - net (33,893) (26,394)
-------------------------------------------------
(143,716) (127,794)
Net purchase of property and equipment (1,974) (5,324)
Issuance of reciprocal loan agreement receivables (16,900) --
Receipt of repayment of reciprocal loan agreement receivables 16,900 --
-------------------------------------------------
Net cash used in investing activities (12,300) (38,602)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings 177,900 265,800
Repayment of reciprocal loan agreement borrowings (137,900) (265,800)
Proceeds from revolving note payable 54,800 56,345
Repayment of revolving note payable (56,200) (56,295)
Receipts from annuity and interest sensitive life
policies credited to account balances 355,662 330,935
Return of account balances on annuity
and interest sensitive life policies (87,841) (66,732)
Net reallocations to Separate Accounts (412,150) (261,404)
Contribution from parent 80,000 80,000
-------------------------------------------------
Net cash provided by (used in) financing activities (25,729) 82,849
-------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,731) 2,660
Cash and cash equivalents at beginning of period 14,380 6,679
-------------------------------------------------
Cash and cash equivalents at end of period $9,649 $9,339
=================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $12,649 $1,373
</TABLE>
See accompanying notes.
DVAP3-108200 80
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This Form is being filed with the reduced disclosure format
specified in General Instruction H(1) and (2) of Form 10-Q. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All adjustments were of a normal
recurring nature, unless otherwise noted in Management's Discussion and Analysis
and the Notes to Financial Statements. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the financial statements and related
footnotes included in the Golden American Life Insurance Company's annual report
on Form 10-K for the year ended December 31, 1999.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $12,235,000 and $44,799,000 for the six months ended
June 30, 2000 and 1999, respectively. Total statutory capital and surplus was
$436,701,000 at June 30, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the June 30, 1999, December 31, 1999, and March 31, 2000
financial statements have been reclassified to conform to the June 30, 2000
financial statement presentation.
2. 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. During the second quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $6,428,000 and $(828,000),
respectively, and $7,024,000 and $(2,077,000) for the six months ended June 30,
2000 and 1999, respectively. Included in these amounts are total comprehensive
income (loss) for First Golden of $41,000 and $(226,000) for the second quarters
of 2000 and 1999, respectively, and $110,000 and $(244,000) for the six months
ended June 30, 2000 and 1999, respectively. Other comprehensive income (loss)
excludes net investment gains (losses) included in net income which merely
represent transfers from unrealized to realized gains and losses. These amounts
totaled $(120,000) and $(2,348,000) during the second quarters of 2000 and 1999,
respectively, and $(588,000) and $(2,052,000) during the six months ended June
30, 2000 and 1999, respectively. Such amounts, which have been measured through
the date of sale, are net of income taxes and adjustments for value of purchased
insurance in force and deferred policy acquisition costs totaling $(1,200,000)
and $584,000 for the second quarters of 2000 and 1999, respectively, and
$(2,041,000) and $335,000 for the six months ended June 30, 2000 and 1999,
respectively.
DVAP3-108200 81
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
3. INVESTMENTS
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 second quarter of 2000, Golden American determined that the carrying
value of an impaired bond exceeded its estimated net realizable value. As a
result, at June 30, 2000, Golden American recognized a total pre-tax loss of
approximately $142,000 to reduce the carrying value of the bond to its net
realizable value of $329,000.
During the second quarter of 1999, Golden American determined that the carrying
value of 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 reduce the carrying value of the bonds to their combined net realizable value
of $1,137,000.
4. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("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 distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $53,398,000 and $109,252,000 in the
second quarter and the first six months of 2000, respectively ($45,503,000 and
$80,288,000, respectively, for the same periods of 1999).
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 second quarter and six months
ended June 30, 2000, the fee was $4,740,000 and $9,058,000, respectively
($2,281,000 and $4,096,000, respectively, for the same periods of 1999).
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 managed by ING IM. The fee is payable quarterly. For the
second quarter and first six months of 2000, the Companies incurred fees of
$616,000 and $1,274,000, respectively, under this agreement ($576,000 and
$1,114,000, respectively, for the same periods of 1999).
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("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. On June 30, 2000, Golden American incurred a fee of
$7,000, under this agreement. No annual fee was paid in 1999.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,708,000 in the second quarter
of 2000 and $3,276,000 for the first six months of 2000 ($262,000 and $661,000,
respectively, for the same periods of 1999).
DVAP3-108200 82
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
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 $355,000 in the second quarter of
2000 and $667,000 for the first six months of 2000 ($488,000 and $805,000,
respectively, for the same periods of 1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$56,000 for the second quarter of 2000 and $108,000 for the first six months of
2000 ($241,000 and $483,000, respectively, for the same periods of 1999).
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $165,000 for the second quarter of
2000 and $270,000 for the first six months of 2000 ($206,000 and $217,000,
respectively, for the same periods of 1999).
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $149,000 for the second
quarter of 2000 and $318,000 for the first six months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $56,000 for the second
quarter of 2000 and $108,000 for the first six months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $26,000 for the second quarter of
2000 and $52,000 for the first six months of 2000.
For the second quarter of 2000, the Companies received premiums, net of
reinsurance, for variable products sold through 5 affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), and IFG Network
Securities, Inc. ("IFG"), of $9,500,000, $6,900,000, $100,000, $2,800,000, and
$1,500,000, respectively ($45,700,000, $32,600,000, $651,000, $7,900,000, and
$6,000,000, respectively, for the same period of 1999). For the first six months
of 2000, the Companies received premiums, net of reinsurance for variable
products sold through 5 affiliates, LSSI, Vestax, DSI, Multi-Financial, and IFG
of $67,000,000, $28,300,000, $800,000, $21,100,000, and $8,300,000, respectively
($75,300,000, $59,100,000, $2,300,000, $13,400,000 and $15,500,000,
respectively, for the same period of 1999).
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued in 2000, excluding those with an interest rate
guarantee. The accompanying financial statements are presented net of the
effects of the agreement.
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the 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 $254,000 and
$229,000 for the second quarters of 2000 and 1999, respectively, and $336,000
and
DVAP3-108200 83
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
$236,000 for the first six months of 2000 and 1999, respectively. Golden
American received interest income of $0 for the second quarter of 2000 and
$3,000 for the first six months of 2000. At June 30, 2000, Golden American had
borrowings of $40,000,000 from ING AIH under this agreement.
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 interest expense of $1,022,000 for the
second quarter of 2000 and $2,056,000 for the first six months of 2000.
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 incurred interest expense of
$698,000 for the second quarter of 2000 and $1,575,000 for the first six months
of 2000.
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 $1,453,000 for the second quarter of 2000 and
$2,906,000 for the first six months of 2000. 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 $1,087,000 and $1,088,000 for the second quarters
of 2000 and 1999, respectively, and $2,175,000 for the first six months of 2000,
unchanged from the same period in 1999.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. 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 $515,000 for the
quarter ended June 30, 2000, unchanged from the first quarter of 1999, and
$1,031,000 for the first six months of 2000, unchanged from the first six months
of 1999.
Stockholder's Equity: During the second quarter of 2000 and first six months of
2000, Golden American received capital contributions from its Parent of $0 and
$80,000,000, respectively ($60,000,000 and $80,000,000, respectively, for the
same periods of 1999).
DVAP3-108200 84
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES
Reinsurance: At June 30, 2000, 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 as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements. At June 30, 2000 and
December 31, 1999, the Companies had net receivables of $17,597,000 and
$14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $330,000 and $493,000,
respectively, for claims recoverable from reinsurers, $1,306,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $18,573,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $5,271,000 for the second quarter of 2000 and $7,908,000 for the
first six months of 2000 compared to $2,203,000 and $4,018,000 for the same
periods in 1999. Also included in the accompanying financial statements are net
policy benefits of $1,278,000 for the second quarter of 2000 and $1,835,000 for
the first six months of 2000 compared to $718,000 and $1,439,000 for the same
periods in 1999.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued in 2000,
excluding those with an interest rate guarantee. At June 30, 2000, Golden
American had a net receivable of $1,798,000 and received $110,000,000 cash for a
total settlement of $111,798,000 under this agreement. The carrying value of the
separate account liabilities covered under this agreement represent 10.3% of
total separate account liabilities outstanding at June 30, 2000. Golden American
remains liable to the extent Equitable Life does not meet its obligations under
the agreement. The accompanying financial statements are presented net of the
effects of the agreement.
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.
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 additional alternative
reinsurance agreements for new business issued after December 31, 1999. There
can be no assurance that such alternative agreements 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 offset 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 $1,000 in the second
quarter and $2,000 in the first six months of 2000, respectively. At June 30,
2000 and December 31, 1999, the Companies have an undiscounted reserve of
$2,450,000 and $2,444,000, respectively, to cover estimated future assessments
(net of related anticipated premium tax offsets) and have established an asset
totaling $682,000 and $618,000, 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 actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The
DVAP3-108200 85
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES (continued)
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. As of June 30, 2000, the Companies had one investment
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. 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
have a severe impact on the Companies' financial condition. Two broker/dealers,
each having at least ten percent of total sales, generated 24% of the Companies'
sales during the second quarter of 2000 (28% by two broker/dealers in the same
period of 1999). One broker/dealer generated 12% of the Companies' sales during
the first six months of 2000 (29% by two broker/dealers in the same period of
1999). The Premium Plus product generated 74% and 75% of the Companies' sales
during the second quarter of 2000 and first six months of 2000, respectively
(79% and 77% in the same periods of 1999).
Revolving Note Payable: To enhance short-term liquidity, the Companies
established revolving notes payable effective July 27, 1998 and expiring July
31, 1999 with SunTrust Bank, Atlanta (the "Bank"). As of July 31, 1999, the
SunTrust Bank, Atlanta revolving note facilities were 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 notes accrue 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 quarters ended June 30, 2000 and 1999, the
Companies incurred interest expense of $8,000 and $50,000, respectively. During
the six months ended June 30, 2000 and 1999, the Companies incurred interest
expense of $36,000 and $54,000, respectively. At June 30, 2000, the Companies
did not have any borrowings under these agreements ($1,400,000 at December 31,
1999).
DVAP3-108200 86
<PAGE>
<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
DVAP3-108200 87
<PAGE>
<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.
DVAP3-108200 88
<PAGE>
<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.
DVAP3-108200 89
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
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.
DVAP3-108200 90
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
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.
DVAP3-108200 91
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
| 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.
DVAP3-108200 92
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
| 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.
DVAP3-108200 93
<PAGE>
<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
DVAP3-108200 94
<PAGE>
<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.
DVAP3-108200 95
<PAGE>
<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.
DVAP3-108200 96
<PAGE>
<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
DVAP3-108200 97
<PAGE>
<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.
DVAP3-108200 98
<PAGE>
<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>
DVAP3-108200 99
<PAGE>
<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
======== ====== ======== ========
</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.
DVAP3-108200 100
<PAGE>
<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>
DVAP3-108200 101
<PAGE>
<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
DVAP3-108200 102
<PAGE>
<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
DVAP3-108200 103
<PAGE>
<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.
DVAP3-108200 104
<PAGE>
<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>
DVAP3-108200 105
<PAGE>
<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.
DVAP3-108200 106
<PAGE>
<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)
====== ====== ==== | =======
DVAP3-108200 107
<PAGE>
<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>
DVAP3-108200 108
<PAGE>
<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.
DVAP3-108200 109
<PAGE>
<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
DVAP3-108200 110
<PAGE>
<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
DVAP3-108200 111
<PAGE>
<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.
DVAP3-108200 112
<PAGE>
<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.
DVAP3-108200 113
<PAGE>
<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
DVAP3-108200 114
<PAGE>
<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
DVAP3-108200 115
<PAGE>
<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. At December 31, 1999,
the Companies had a $1,400,000 note payable to the Bank under this agreement.
DVAP3-108200 116
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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
108200 DVA PLUS-3 (10/00)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DVAP3-108200 117
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<PAGE>
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Asset Allocation Growth, Diversified Mid-Cap, Growth and Income,
Special Situations, Investors, Large Cap Value, All Cap, ING Global Brand
Names, Prudential Jennison and the SP Jennison International Growth subaccounts
which had not commenced 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. The Managed Global subaccount commenced operations initially as a
subaccount of another separate account, the Managed Global Account of Separate
Account D of Golden American; however, at the time of conversion the value of an
accumulation unit did not change.
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 $15.04 683,989 $10,287 $14.79 621,814 $9,199
1998 14.54 489,531 7,118 14.33 334,799 4,796
1997 14.02 227,427 3,188 13.83 116,454 1,611
1996 13.52 76,505 1,033 13.35 84,960 1,134
1995 13.03 37,887 494 12.89 62,084 801
10/2/95 12.89 -- -- 12.76 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $14.55 3,273,236 $47,632
1998 14.11 2,069.093 29,200
1997 13.65 1,070,045 14,601
1996 13.19 383,231 5,054
1995 12.76 93,239 1,190
10/2/95 12.63 -- --
------------------------------------------------------------------
</TABLE>
LIMITED MATURITY BOND
<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 $17.00 279,468 $4,751 $16.72 196,970 $3,294
1998 17.02 263,074 4,478 16.77 143,896 2,413
1997 16.13 139,323 2,247 15.91 78,553 1,250
1996 15.31 83,927 1,285 15.13 46,293 701
1995 14.86 26,976 401 14.71 11,834 174
10/2/95 14.49 -- -- 14.35 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $16.45 956,859 $15,738
1998 16.52 762,668 12,599
1997 15.70 452,478 7,105
1996 14.95 349,417 5,224
1995 14.56 136,553 1,988
10/2/95 14.20 -- --
------------------------------------------------------------------
</TABLE>
GLOBAL FIXED INCOME
<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 $11.88 35,081 $417 $11.79 10,884 $128
1998 13.17 6,337 83 13.09 6,154 81
5/1/98 12.17 -- -- 12.11 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.70 156,865 $1,835
1998 13.00 38,751 504
5/1/98 12.04 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A1
<PAGE>
<PAGE>
FULLY MANAGED
<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 $22.01 549,088 $12,084 $21.65 415,146 $8,987
1998 20.84 544,623 11,351 20.53 441,532 9,066
1997 19.93 418,686 8,345 19.66 441,532 6,706
1996 17.50 203,891 3,568 17.29 173,475 2,999
1995 15.23 49,153 748 15.07 13,988 211
10/2/95 14.77 -- -- 14.62 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $21.29 2,299,379 $48,961
1998 20.23 2,262,811 45,771
1997 19.40 1,737,950 33,720
1996 17.08 952,517 16,273
1995 14.91 184,364 2,750
10/2/95 14.47 -- --
------------------------------------------------------------------
</TABLE>
TOTAL RETURN
<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 $18.20 831,642 $15,135 $18.06 649,492 $11,730
1998 17.83 616,433 10,989 17.72 422,146 7,479
1997 16.18 224,763 3,636 16.10 140,222 2,258
1/20/97 13.76 -- -- 13.76 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $17.91 3,791,001 $67,903
1998 17.60 2,547,293 44,830
1997 16.02 720,866 11,548
1/20/97 13.76 -- --
------------------------------------------------------------------
</TABLE>
EQUITY INCOME
<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 $21.83 381,468 $8,327 $21.47 314,307 $6,750
1998 22.27 395,764 8,812 21.94 299,456 6,569
1997 20.83 328,740 6,847 20.55 223,101 4,585
1996 17.96 289,954 5,207 17.75 150,732 2,675
1995 16.72 104,463 1,747 16.55 21,073 348
10/2/95 16.10 -- -- 15.94 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $21.12 1,884,822 $39,813
1998 21.61 1,762,451 38,088
1997 20.28 1,472,723 29,860
1996 17.54 1,117,238 19,593
1995 16.38 370,515 6,068
10/2/95 15.78 -- --
------------------------------------------------------------------
</TABLE>
VALUE EQUITY
<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 $18.28 433,555 $7,924 $18.14 426,697 $7,742
1998 18.41 454,942 8,377 18.31 500,101 9,155
1997 18.36 372,681 6,843 18.28 410,757 7,509
1996 14.61 181,354 2,649 14.57 249,994 3,642
1995 13.37 34,272 458 13.36 23,394 313
10/2/95 12.43 -- -- 12.41 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $18.01 1,929,405 $34,747
1998 18.20 2,253,141 41,004
1997 18.20 1,749,956 31,853
1996 14.53 1,052,064 15,282
1995 13.34 179,453 2,394
10/2/95 12.40 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A2
<PAGE>
<PAGE>
RISING DIVIDENDS
<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 $26.07 1,251,144 $32,623 $25.83 1,054,275 $27,235
1998 22.79 1,199,087 $27,323 22.61 1,050,285 23,747
1997 20.22 795,321 16,079 20.09 739,017 14,847
1996 15.77 297,973 4,699 15.69 355,191 5,575
1995 13.24 22,934 304 13.19 36,100 476
10/2/95 12.16 -- -- 12.12 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $25.59 6,721,737 $172,024
1998 22.43 5,893,538 132,211
1997 19.96 3,670,022 73,267
1996 15.62 1,663,079 25,976
1995 13.15 300,820 3,956
10/2/95 12.09 -- --
------------------------------------------------------------------
</TABLE>
MANAGED GLOBAL
<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 $24.23 605,044 $14,658 $23.97 545,896 $13,083
1998 15.02 649,216 9,753 14.88 512,728 7,631
1997 11.76 525,356 6,180 11.67 438,611 5,120
1996 10.62 226,224 2,402 10.55 231,774 2,446
1995 9.58 26,722 256 9.53 27,492 262
10/2/95 9.32 -- -- 9.28 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $23.71 3,259,862 $77,287
1998 14.75 3,338,928 49,237
1997 11.58 2,719,073 31,494
1996 10.49 1,375,023 14,422
1995 9.49 208,957 1,983
10/2/95 9.24 -- --
------------------------------------------------------------------
</TABLE>
RESEARCH
<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 $28.25 565,925 $15,988 $28.04 458,015 $12,842
1998 23.03 437,189 10,068 22.89 335,512 7,680
1997 18.95 223,067 4,227 18.87 142,676 2,692
1/20/97 16.43 -- -- 16.43 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $27.80 3,126,054 $86,919
1998 22.73 2,179,744 49,553
1997 18.77 786,122 14,752
1/20/97 16.43 -- --
------------------------------------------------------------------
</TABLE>
CAPITAL APPRECIATION
<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 $30.46 431,150 $13,132 $30.11 391,380 $11,785
1998 24.75 413,115 10,233 24.50 370,619 9,080
1997 22.24 353,774 7,868 22.05 286,892 6,326
1996 17.46 162,558 2,839 17.34 174,592 3,028
1995 14.71 24,117 355 14.63 16,369 239
10/2/95 14.31 -- -- 14.23 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $29.77 2,494,266 $74,243
1998 24.26 2,345,157 56,884
1997 21.87 1,751,491 38,297
1996 17.22 1,106,359 19,054
1995 14.55 326,610 4,752
10/2/95 14.16 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A3
<PAGE>
<PAGE>
CAPITAL GROWTH
<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 $21.18 598,663 $12,678 $21.06 524,742 $11,051
1998 17.08 537,480 9,180 17.01 444,973 7,569
1997 15.45 325,440 5,027 15.41 226,587 3,491
1996 12.50 50,199 627 12.49 38,037 475
9/3/96 10.94 -- -- 10.94 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $20.94 3,125,440 $65,439
1998 16.94 2,202,441 37,304
1997 15.36 1,127,105 17,318
1996 12.47 173,758 2,167
9/3/96 10.94 -- --
------------------------------------------------------------------
</TABLE>
STRATEGIC EQUITY
<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 $22.06 455,696 $10,053 $21.92 365,555 $8,013
1998 14.30 508,588 7,272 14.23 589,815 8,393
1997 14.36 406,747 5,840 14.31 534,105 7,643
1996 11.81 370,536 4,374 11.78 231,567 2,729
1995 10.01 76,095 762 10.01 47,478 475
10/2/95 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 $21.78 1,611,499 $35,103
1998 14.16 1,566,193 22,178
1997 14.26 1,345,085 19,186
1996 11.76 968,694 11,396
1995 10.01 152,633 1,528
10/2/95 10.00 -- --
------------------------------------------------------------------
</TABLE>
MID-CAP GROWTH
<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 $39.97 287,598 $11,494 $39.59 294,064 $11,643
1998 22.60 173,070 3,912 22.43 183,243 4,109
1997 18.64 85,870 1,600 18.52 112,382 2,081
1996 15.77 29,878 471 15.70 28,223 443
9/3/96 14.64 -- -- 14.64 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $39.34 1,649,358 $64,879
1998 22.31 992,373 22,143
1997 18.45 503,083 9,284
1996 15.66 56,163 880
9/3/96 14.64 -- --
------------------------------------------------------------------
</TABLE>
SMALL CAP
<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 $22.96 453,438 $10,411 $22.82 580,175 $13,240
1998 15.44 446,934 6,900 15.37 525,379 8,074
1997 12.92 401,090 5,183 12.88 445,138 5,735
1996 11.86 198,338 2,352 11.84 227,347 2,692
1/2/96 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 $22.68 2,653,814 $60,197
1998 15.30 2,474,802 37,859
1997 12.84 2,029,658 26,068
1996 11.82 1,316,663 15,569
1/2/96 10.00 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A4
<PAGE>
<PAGE>
GROWTH
<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 $28.78 758,379 $21,827 $28.62 737,375 $21,104
1998 16.36 362,210 5,926 16.29 284,480 4,636
1997 13.06 161,235 2,106 13.03 132,596 1,728
1/20/97 11.99 -- -- 11.99 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $28.46 4,445,942 $126,509
1998 16.22 1,635,638 26,538
1997 12.99 718,807 9,340
1/20/97 11.99 -- --
------------------------------------------------------------------
</TABLE>
REAL ESTATE
<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 $20.96 136,122 $2,854 $20.62 92,387 $1,905
1998 22.07 170,494 3,763 21.74 125,630 2,731
1997 25.82 173,241 4,473 25.48 113,110 2,882
1996 21.30 54,229 1,155 21.04 42,710 899
1995 15.94 2,716 43 15.78 2,910 46
10/2/95 15.06 -- -- 14.91 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $20.28 583,100 $11,828
1998 21.42 797,901 17,090
1997 25.14 888,507 22,334
1996 20.79 384,928 8,004
1995 15.61 61,143 955
10/2/95 14.76 -- --
------------------------------------------------------------------
</TABLE>
HARD ASSETS
<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 $17.66 112,564 $1,988 $17.37 62,935 $1,093
1998 14.50 146,678 2,126 14.28 74,676 1,067
1997 20.85 154,417 3,219 20.57 81,681 1,680
1996 19.89 94,213 1,873 19.65 43,232 850
1995 15.11 24,828 375 14.96 2,847 42
10/2/95 14.86 -- -- 14.71 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $17.09 518,280 $8,856
1998 14.07 574,275 8,080
1997 20.29 632,371 12,834
1996 19.42 341,711 6,635
1995 14.80 26,605 394
10/2/95 14.57 -- --
------------------------------------------------------------------
</TABLE>
DEVELOPING WORLD
<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 $11.62 683 $8 $11.61 33,523 $389
1998 7.29 617 5 7.28 12,180 89
5/1/98 10.42 -- -- 10.42 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.58 292,097 $3,382
1998 7.27 49,393 359
5/1/98 10.42 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A5
<PAGE>
<PAGE>
EMERGING MARKETS
<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 $12.01 359,966 $4,323 $11.90 244,574 $2,910
1998 6.56 266,800 1,751 6.51 249,607 1,625
1997 8.75 249,197 2,182 8.70 215,512 1,875
1996 9.78 97,857 957 9.74 102,267 995
1995 9.23 15,670 145 9.20 12,465 115
10/2/95 9.50 -- -- 9.47 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.79 1,046,228 $12,331
1998 6.46 1,170,656 7,563
1997 8.64 1,131,253 9,779
1996 9.69 679,247 6,581
1995 9.17 160,820 1,475
10/2/95 9.44 -- --
------------------------------------------------------------------
</TABLE>
PIMCO HIGH YIELD BOND
<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 $10.27 400,821 $4,115 $10.24 229,047 $2,345
1998 10.09 213,774 2,157 10.08 118,295 1,192
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 $10.21 1,634,648 $16,695
1998 10.07 630,858 6,353
5/1/98 10.00 -- --
------------------------------------------------------------------
</TABLE>
PIMCO STOCKSPLUS GROWTH AND INCOME
<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 $13.16 284,260 $3,742 $13.13 187,840 $2,467
1998 11.12 112,706 1,253 11.11 53,016 589
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 $13.10 1,952,379 $25,572
1998 11.10 474,542 5,268
5/1/98 10.00 -- --
------------------------------------------------------------------
</TABLE>
DVAP3-108200 A6
<PAGE>
<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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0825) -1] = $9,700
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $114,530 ($124,230 - $9,700 ).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed 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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0625) -1] = $6,270
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $130,500 ($124,230 + $6,270 ).
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 $114,530 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.
DVAP3-108200 B1
<PAGE>
<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
withdrawal 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
[ $114,530 / ((1.07/1.0825) ) ] = $124,230
Then calculate the Market Value Adjustment on that amount.
4. Market Value Adjustment = 2,555/365
$124,230 x [((1.07/1.0825) ) -1] = $9,700
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $114,530, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $114,530, and also reduced by the Market Value
Adjustment of $9,700, 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 $130,500 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
[$130,500 /((1.07/1.0625) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0625) ) -1] = $6,270
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $130,500, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $130,500, but increased by the Market Value
Adjustment of $6,270, for a total reduction in the Fixed Interest Allocation of
$124,230.
DVAP3-108200 B2
<PAGE>
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $25,000 and
additional premium payments of $25,000 in each of the second and third contract
years, for total premium payments under the Contract of $75,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 30% of the contract
value of $90,000.
In this example, $13,500 (15% of $90,000) is the maximum free withdrawal amount
that you may withdraw during the contract year without a surrender charge. The
total withdrawal would be $27,000 ($90,000 x .30). Therefore, $13,500 ($27,000 -
$13,500) is considered an excess withdrawal and would be subject to a 4%
surrender charge of $540 ($13,500 x .04). This example does not take into
account any Market Value Adjustment or deduction of any premium taxes.
DVAP3-108200 C1
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
--------------------------------------------------------------------------------
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108200 DVA PLUS-3 10/02/2000
<PAGE>
<PAGE>
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ING VARIABLE ANNUITIES |
GOLDEN AMERICAN LIFE INSURANCE COMPANY |
Golden American Life Insurance Company is a stock company domiciled |
in Delaware |
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108200 DVA Plus-3 10/02/2000 |
<PAGE>
<PAGE>
DVA PLUS PROFILE AND PROSPECTUS
FORM TWO
<PAGE>
Registration Nos. 333-35592
Filed pursuant to Rule 424(b)(3)
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| [4 DEATH BENEFIT OPTIONS appears down the left margin]
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT DVA PLUS/R/
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| Deferred Combination Variable and Fixed Annuity Contract, October 2, 2000
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| Golden American Life Insurance Company
| Separate Account B of Golden American Life Insurance Company
| ING VARIABLE ANNUITIES
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<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
--------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT DVA PLUS /R/
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
OCTOBER 2, 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 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 9 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
DVA PLUS PROFILE PROSPECTUS BEGINS AFTER
108201 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 years to you
period or your beneficiary.
----------------------------------------------------------------------------------------------
Option 2 Income for life Payments are made for the rest of your life or longer for a
with a period specified period such as 10 or 20 years or until the total
certain 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 age 85 during the accumulation phase. Under certain circumstances, we may
waive the minimum initial and additional premium payment requirement. Any
initial or additional premium payment that would cause the contract value of all
annuities that you maintain with us to exceed $1,000,000 requires our prior
approval.
Who may purchase this Contract? The Contract may be purchased by individuals as
part of a personal retirement plan (a "non-qualified Contract"), or as a
Contract that qualifies for special tax treatment when purchased as either an
Individual Retirement Annuity (IRA) or in connection with a qualified retirement
plan (each a "qualified Contract").
108201 2 DVA PLUS PROFILE
<PAGE>
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 into (1) the fixed account with guaranteed interest
periods of 6 months, 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, 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>
THE GCG TRUST
<S> <C> <C>
Liquid Asset Series Rising Dividends Series Strategic Equity Series
Limited Maturity Bond Series Diversified Mid-Cap Series Special Situations Series
Global Fixed Income Series Managed Global Series Mid-Cap Growth Series
Fully Managed Series Large Cap Value Series Small Cap Series
Total Return Series All Cap Series Growth Series
Asset Allocation Growth Series Research Series Real Estate Series
Equity Income Series Capital Appreciation Series Hard Assets Series
Investors Series Growth and Income Series Developing World Series
Value Equity Series Capital Growth Series Emerging Markets Series
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund
PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
SP Jennison International Growth 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..... 1.15% 1.30% 1.50% 1.60%
Asset-Based Administrative Charge... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total.......................... 1.30% 1.45% 1.65% 1.75%
</TABLE>
108201 3 DVA 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 15% 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+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 7% 7% 6% 5% 4% 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 0.06% (based on an average contract value of $69,000),
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
charge, 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.
108201 4 DVA PLUS PROFILE
<PAGE>
As required by the Securities and Exchange Commission, the examples assume that
you invested $1,000 in a Contract that earns 5% annually and that you withdraw
your money at the end of Year 1 or at the end of Year 10 (based on the Max 7
Enhanced Death Benefit). The 1 Year examples above include a 7% 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 Max 7 Enhanced Death
Benefit. For these examples, the premium tax is assumed to be 0%.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
------------------ ------------------ ------------------ ------------------
W/ THE W/O TOTAL ANNUAL 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>
THE GCG TRUST
Liquid Asset 2.31% 1.81% 0.56% 2.87% 2.37% $99 $94 $322 $271
------------------------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.31% 1.81% 0.57% 2.88% 2.38% $99 $94 $323 $272
------------------------------------------------------------------------------------------------------------------------------------
Global Fixed Income 2.56% 1.81% 1.60% 4.16% 3.41% $112 $104 $434 $369
------------------------------------------------------------------------------------------------------------------------------------
Fully Managed 2.56% 1.81% 0.97% 3.53% 2.78% $106 $98 $380 $311
------------------------------------------------------------------------------------------------------------------------------------
Total Return 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305
------------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Growth 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
------------------------------------------------------------------------------------------------------------------------------------
Equity Income 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Investors 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
------------------------------------------------------------------------------------------------------------------------------------
Value Equity 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Rising Dividends 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
------------------------------------------------------------------------------------------------------------------------------------
Managed Global 2.56% 1.81% 1.25% 3.81% 3.06% $108 $101 $404 $337
------------------------------------------------------------------------------------------------------------------------------------
Large Cap Value 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
------------------------------------------------------------------------------------------------------------------------------------
All Cap 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
------------------------------------------------------------------------------------------------------------------------------------
Research 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305
------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Growth and Income 2.56% 1.81% 1.11% 3.67% 2.92% $107 $100 $392 $324
------------------------------------------------------------------------------------------------------------------------------------
Capital Growth 2.56% 1.81% 1.05% 3.61% 2.86% $106 $99 $387 $319
------------------------------------------------------------------------------------------------------------------------------------
Strategic Equity 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Special Situations 2.56% 1.81% 1.11% 3.67% 2.92% $107 $100 $392 $324
------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.56% 1.81% 0.91% 3.47% 2.72% $105 $98 $375 $305
------------------------------------------------------------------------------------------------------------------------------------
Small Cap 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Growth 2.56% 1.81% 1.04% 3.60% 2.85% $106 $99 $386 $318
------------------------------------------------------------------------------------------------------------------------------------
Real Estate 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Hard Assets 2.56% 1.81% 0.96% 3.52% 2.77% $105 $98 $379 $310
------------------------------------------------------------------------------------------------------------------------------------
Developing World 2.56% 1.81% 1.75% 4.31% 3.56% $113 $106 $446 $383
------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets 2.56% 1.81% 1.75% 4.31% 3.56% $113 $106 $446 $383
------------------------------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 2.56% 1.81% 0.75% 3.31% 2.56% $103 $96 $360 $290
------------------------------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.56% 1.81% 0.65% 3.21% 2.46% $102 $95 $351 $280
------------------------------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand
Names 2.56% 1.81% 1.23% 3.79% 3.04% $108 $101 $403 $336
------------------------------------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison 2.56% 1.81% 1.03% 3.59% 2.84% $106 $ 99 $385 $317
SP Jennison International
Growth 2.56% 1.81% 1.64% 4.20% 3.45% $112 $105 $437 $373
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
108201 5 DVA 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 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 returns 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 and the annual contract fee and the maximum optional death
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.
108201 6 DVA PLUS PROFILE
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.83% 10.10% 26.01% 16.92%
Strategic Equity(2) 52.76% -1.47% 20.35% 16.09%
---------------------------------------------------------------------------------------------------------
Managed by Alliance Capital Management, L.P.
Capital Growth 22.70% 9.41% 22.29% --
---------------------------------------------------------------------------------------------------------
Managed by Baring International Investment Limited (an affiliate)
Developing World(2) 58.12% -- -- --
Emerging Markets(4) 81.32% -25.85% -11.46% 4.37%
Global Fixed Income -10.78% 9.29% -1.65% 2.50%
Hard Assets(2) 20.61% -31.21% 3.73% 28.08%
---------------------------------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- -- -- --
Managed Global(3) 59.67% 26.37% 9.60% 9.04%
Small Cap(3) 47.27% 18.22% 7.80% 17.36%
---------------------------------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.82% -0.78% 24.38% 7.93%
---------------------------------------------------------------------------------------------------------
Managed by Fidelity Management & Research Company
Asset Allocation Growth -- -- -- --
Diversified Mid-Cap -- -- -- --
---------------------------------------------------------------------------------------------------------
Managed by ING Investment Management, LLC (an affiliate)
Limited Maturity Bond -1.19% 4.42% 4.23% 1.93%
Liquid Asset 2.34% 2.65% 2.65% 2.51%
---------------------------------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.27% 23.93% 13.12% --
Growth and Income -- -- -- --
Special Situations -- -- -- --
---------------------------------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.24% 11.52% 26.87% 17.19%
---------------------------------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 75.15% 20.01% 16.93% 15.91%
Research 21.41% 20.24% 17.38% 20.31%
Total Return 0.99% 9.03% 18.10% 10.87%
---------------------------------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(5) -6.05% -15.44% 19.98% 32.12%
---------------------------------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- -- -- --
Investors -- -- -- --
---------------------------------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -3.02% 5.78% 14.76% 5.86%
Fully Managed 4.47% 3.47% 12.72% 13.22%
---------------------------------------------------------------------------------------------------------
Managed by Pacific Investment Management Company
PIMCO High Yield Bond 0.64% -- -- --
PIMCO StocksPLUS Growth and Income 17.13% -- -- --
---------------------------------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V. (an affiliate)
ING Global Brand Names -- -- -- --
---------------------------------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- -- -- --
SP Jennison International Growth -- -- -- --
---------------------------------------------------------------------------------------------------------
</TABLE>
----------------------
(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 March 15, 2000, a different firm managed the Portfolio.
(5) Prior to May 1, 2000, a different firm managed the Portfolio.
108201 7 DVA 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;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for 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;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit, which we determine as follows: we credit
interest each business day at the 7% annual effective rate to the
enhanced death benefit from the preceding day (which would be the
initial premium added if the preceding day is the contract date), then
we add additional premiums paid 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. Special withdrawals shall reduce the 7%
Solution Enhanced Death Benefit by the amount of contract value
withdrawn. For any withdrawals in excess of the amount available as a
special withdrawal, a pro rata adjustment to the death benefit is
made. The maximum enhanced death benefit is 3 times all premium
payments added, adjusted to reflect withdrawals. Each accumulated
initial or additional premium payment will continue to grow at
the 7% annual effective rate until the maximum enhanced death
benefit is reached or the contract owner attains age 80, if earlier.
Note for current Special Funds: Certain investment portfolios and the Fixed
Account are designated as "Special Funds" for purposes of calculating
the 7% Solution Enhanced Death Benefit. In addition to the Fixed
Account, the investment portfolio designated currently as Special
Funds are the Liquid Asset Portfolio and the Limited Maturity Bond
Portfolio. The actual
108201 8 DVA PLUS PROFILE
<PAGE>
interest rate used for calculating the 7% Solution Enhanced
Death Benefit Special Funds 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 investment portfolio as a Special
Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such
investment portfolio. Thus selecting these investment portfolios
and/or the fixed account may limit or reduce the enhanced death
benefit.
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit, which is determined as follows: On each
contract anniversary that occurs on or before the contract owner turns
age 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 if the preceding day
is the contract date), then we add additional premiums paid 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 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, we
include a refund of any charges deducted from your contract value. Because of
the market risks associated with investing in the portfolios, the contract value
returned may be greater or less than the premium payment you paid. Some states
require us to return to you the amount of the paid premium, excluding any
charges, (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
108201 9 DVA PLUS PROFILE
<PAGE>
adjustment could increase or decrease your contract value and/or the amount you
transfer or withdraw. Keep in mind that transfers between Special Funds and
other investment portfolios may impact your 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 at the end of ten years, or, at least equal two
times your initial premium payment 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, when you pay them, and 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 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 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
108201 10 DVA PLUS PROFILE
<PAGE>
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.
108201 11 DVA PLUS PROFILE
<PAGE>
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<PAGE>
--------------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA PLUS(R)
--------------------------------------------------------------------------------
OCTOBER 2, 2000
This prospectus describes GoldenSelect DVA Plus, a group and individual
deferred variable annuity contract (the "Contract") offered by Golden American
Life Insurance Company ("Golden American," the "Company," "we" or "our").
The Contract is available in connection with certain retirement plans that
qualify for special federal income tax treatment ("qualified Contracts") as well
as those that do not qualify for such treatment ("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments in
one or more of 32 mutual fund investment portfolios. You may also allocate
premium payments to our Fixed Account with guaranteed interest periods. Your
contract value will vary daily to reflect the investment performance of the
investment portfolio(s) you select and any interest credited to your allocations
in the Fixed Account. The investment portfolios available under your Contract
and the portfolio managers are 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 (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
("SAI"), dated October 2, 2000, has been filed with the Securities and Exchange
Commission ("SEC"). 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 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, 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, ING VARIABLE INSURANCE TRUST AND THE
PRUDENTIAL SERIES FUND.
--------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER.
--------------------------------------------------------------------------------
DVAP4-108201
<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
Emerging Markets 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
FIDELITY MANAGEMENT & RESEARCH COMPANY
Asset Allocation Growth Series
Diversified Mid-Cap Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations 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
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth 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.
DVAP4-108201
<PAGE>
--------------------------------------------------------------------------------
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....................................... 17
The Fixed Interest Allocation.......................................... 18
Selecting a Guaranteed Interest Period........................... 18
Guaranteed Interest Rates........................................ 18
Transfers from a Fixed Interest Allocation....................... 19
Withdrawals from a Fixed Interest Allocation..................... 19
Market Value Adjustment.......................................... 20
Special Funds.......................................................... 21
The Annuity Contract................................................... 21
Contract Date and Contract Year ................................. 21
Annuity Start Date............................................... 21
Contract Owner................................................... 21
Annuitant........................................................ 22
Beneficiary...................................................... 22
Purchase and Availability of the Contract........................ 23
Crediting of Premium Payments.................................... 23
Administrative Procedures........................................ 24
Contract Value................................................... 24
Cash Surrender Value............................................. 25
Surrendering to Receive the Cash Surrender Value................. 25
The Subaccounts.................................................. 25
Addition, Deletion or Substitution of Subaccounts and
Other Changes.................................................... 25
The Fixed Account................................................ 26
Optional Riders.................................................. 26
Rider Date.................................................. 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.............................................. 34
Systematic Withdrawals........................................... 34
IRA Withdrawals.................................................. 35
Transfers Among Your Investments....................................... 36
Transfers by Third Parties 36
Dollar Cost Averaging............................................ 36
Automatic Rebalancing............................................ 37
Death Benefit Choices.................................................. 38
Death Benefit During the Accumulation Phase...................... 38
Standard Death Benefit...................................... 38
DVAP4-108201 i
<PAGE>
--------------------------------------------------------------------------------
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............................. 40
Required Distributions upon Contract Owner's Death............... 40
Charges and Fees....................................................... 41
Charge Deduction Subaccount...................................... 41
Charges Deducted from the Contract Value......................... 41
Surrender Charge............................................ 41
Waiver of Surrender Charge for Extended Medical Care........ 41
Free Withdrawal Amount...................................... 41
Surrender Charge for Excess Withdrawals..................... 41
Premium Taxes............................................... 42
Administrative Charge....................................... 42
Transfer Charge............................................. 42
Charges Deducted from the Subaccounts............................ 42
Mortality and Expense Risk Charge........................... 42
Asset-Based Administrative Charge........................... 42
Optional Rider Charges...................................... 43
Trust Expenses................................................... 43
The Annuity Options.................................................... 44
Annuitization of Your Contract................................... 44
Selecting the Annuity Start Date................................. 44
Frequency of Annuity Payments.................................... 45
The Annuity Options.............................................. 45
Income for a Fixed Period................................... 45
Income for Life with a Period Certain....................... 45
Joint Life Income........................................... 45
Annuity Plan................................................ 45
Payment When Named Person Dies................................... 45
Other Contract Provisions.............................................. 46
Reports to Contract Owners....................................... 46
Suspension of Payments........................................... 46
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.................................. 47
Selling the Contract............................................. 47
Other Information...................................................... 47
Voting Rights.................................................... 47
State Regulation................................................. 48
Legal Proceedings................................................ 48
Legal Matters.................................................... 48
Experts.......................................................... 48
Federal Tax Considerations............................................. 48
More Information About Golden American Life Insurance Company.......... 53
Unaudited Financial Statements of Golden American Life Insurance Company 77
Financial Statements of Golden American Life Insurance Company......... 87
Statement of Additional Information
Table of Contents................................................ 117
Appendix A
Condensed Financial Information.................................. A1
Appendix B
Market Value Adjustment Examples................................. B1
Appendix C
Surrender Charge for Excess Withdrawals Example.................. C1
DVAP4-108201 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 10
Annual Ratchet Enhanced Death Benefit 38
Annuitant 22
Annuity Start Date 21
Cash Surrender Value 25
Max 7 Enhanced Death Benefit 38
Contract Date 21
Contract Owner 21
Contract Value 24
Contract Year 21
Fixed Interest Allocation 18
Free Withdrawal Amount 41
Market Value Adjustment 20
Net Investment Factor 10
Rider Date 26
7% Solution Enhanced Death Benefit 38
Special Funds 21
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
DVAP4-108201 1
<PAGE>
--------------------------------------------------------------------------------
FEES AND EXPENSES
--------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 1 2 3 4 5 6 7+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 7% 7% 6% 5% 4% 3% 1% 0%
Transfer Charge.................................................... None**
* If you invested in a Fixed Interest Allocation, a Market Value
Adjustment may apply to certain transactions. This may increase or
decrease your contract value and/or your transfer or surrender amount.
** We may in the future charge $25 per transfer if you make more than 12
transfers in a contract year.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE***
Administrative Charge.............................................. $ 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.......... 1.15% 1.30% 1.50% 1.60%
Asset-Based Administrative Charge........ 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total Separate Account Charges.... 1.30% 1.45% 1.65% 1.75%
</TABLE>
*** As a percentage of average assets in each subaccount. The mortality
and expense risk charge and the asset-based administrative charge 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.
(1) The MGAB Charge Base is the total of premiums added during the 2-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
added during the 2-year period commencing on the rider date if you
purchase 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.
DVAP4-108201 2
<PAGE>
(2) The MGIB Base generally depends on the amount of premiums you pay
during the first five contract years after you purchase the rider,
when you pay them, 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 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 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%
--------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
--------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
--------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
--------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
Emerging Markets 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 (i) portfolios that commenced operations
in 2000; and (ii) newly formed portfolios where the charges have been
estimated.
(3) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
DVAP4-108201 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.
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 Investment Company Act of 1940, 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(2) EXPENSE(2)
--------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
--------------------------------------------------------------------------------
SP Jennison International 0.85% 0.25% 0.54% 1.64%
Growth
--------------------------------------------------------------------------------
(1) The 12b-1 fees for the Prudential Jennison Portfolio and SP Jennison
International Growth Portfolio are imposed to enable the
portfolios to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses for
delivery to prospective investors and advertising costs for each
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.
DVAP4-108201 4
<PAGE>
(2) Since the SP Jennison International 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.
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, 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 $1,000 investment 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 0.06% of assets
(based on an average contract value of $69,000). 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 the 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 3 contract
years, and under certain circumstances, within the first 7 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.
DVAP4-108201 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 $ 99 $149 $192 $322
Limited Maturity Bond $ 99 $150 $193 $323
Global Fixed Income $112 $186 $252 $434
Fully Managed $106 $168 $223 $380
Total Return $105 $167 $220 $375
Asset Allocation Growth $106 $169 $225 $384
Equity Income $105 $168 $223 $379
Investors $106 $169 $225 $384
Value Equity $105 $168 $223 $379
Rising Dividends $105 $168 $223 $379
Diversified Mid-Cap $106 $169 $225 $384
Managed Global $108 $176 $236 $404
Large Cap Value $106 $169 $225 $384
All Cap $106 $169 $225 $384
Research $105 $167 $220 $375
Capital Appreciation $105 $168 $223 $379
Growth and Income $107 $172 $230 $392
Capital Growth $106 $171 $227 $387
Strategic Equity $105 $168 $223 $379
Special Situations $107 $172 $230 $392
Mid-Cap Growth $105 $167 $220 $375
Small Cap $105 $168 $223 $379
Growth $106 $170 $226 $386
Real Estate $105 $168 $223 $379
Hard Assets $105 $168 $223 $379
Developing World $113 $191 $259 $446
Emerging Markets $113 $191 $259 $446
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $103 $162 $213 $360
PIMCO StocksPLUS
Growth and Income $102 $159 $208 $351
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $108 $176 $235 $403
PRUDENTIAL SERIES FUND
Prudential Jennison $106 $170 $226 $385
SP Jennison International Growth $112 $188 $254 $437
DVAP4-108201 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 $29 $ 89 $152 $322
Limited Maturity Bond $29 $ 90 $153 $323
Global Fixed Income $42 $126 $212 $434
Fully Managed $36 $108 $183 $380
Total Return $35 $107 $180 $375
Asset Allocation Growth $36 $109 $185 $384
Equity Income $35 $108 $183 $379
Investors $36 $109 $185 $384
Value Equity $35 $108 $183 $379
Rising Dividends $35 $108 $183 $379
Diversified Mid-Cap $36 $109 $185 $384
Managed Global $38 $116 $196 $404
Large Cap Value $36 $109 $185 $384
All Cap $36 $109 $185 $384
Research $35 $107 $180 $375
Capital Appreciation $35 $108 $183 $379
Growth and Income $37 $112 $190 $392
Capital Growth $36 $111 $187 $387
Strategic Equity $35 $108 $183 $379
Special Situations $37 $112 $190 $392
Mid-Cap Growth $35 $107 $180 $375
Small Cap $35 $108 $183 $379
Growth $36 $110 $186 $386
Real Estate $35 $108 $183 $379
Hard Assets $35 $108 $183 $379
Developing World $43 $131 $219 $446
Emerging Markets $43 $131 $219 $446
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $33 $102 $173 $360
PIMCO StocksPLUS
Growth and Income $32 $ 99 $168 $351
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $38 $116 $195 $403
PRUDENTIAL SERIES FUND
Prudential Jennison $36 $110 $186 $385
SP Jennison International Growth $42 $128 $214 $437
DVAP4-108201 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 $ 94 $134 $167 $271
Limited Maturity Bond $ 94 $134 $167 $272
Global Fixed Income $104 $165 $217 $369
Fully Managed $ 98 $146 $187 $311
Total Return $ 98 $144 $184 $305
Asset Allocation Growth $ 99 $147 $189 $315
Equity Income $ 98 $146 $186 $310
Investors $ 99 $147 $189 $315
Value Equity $ 98 $146 $186 $310
Rising Dividends $ 98 $146 $186 $310
Diversified Mid-Cap $ 99 $147 $189 $315
Managed Global $101 $155 $201 $337
Large Cap Value $ 99 $147 $189 $315
All Cap $ 99 $147 $189 $315
Research $ 98 $144 $184 $305
Capital Appreciation $ 98 $146 $186 $310
Growth and Income $100 $150 $194 $324
Capital Growth $ 99 $149 $191 $319
Strategic Equity $ 98 $146 $186 $310
Special Situations $100 $150 $194 $324
Mid-Cap Growth $ 98 $144 $184 $305
Small Cap $ 98 $146 $186 $310
Growth $ 99 $148 $190 $318
Real Estate $ 98 $146 $186 $310
Hard Assets $ 98 $146 $186 $310
Developing World $106 $169 $225 $383
Emerging Markets $106 $169 $225 $383
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $ 96 $140 $176 $290
PIMCO StocksPLUS
Growth and Income $ 95 $137 $171 $280
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $101 $154 $200 $336
PRUDENTIAL SERIES FUND
Prudential Jennison $ 99 $148 $190 $317
SP Jennison International Growth $105 $166 $219 $373
DVAP4-108201 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 $24 $ 74 $127 $271
Limited Maturity Bond $24 $ 74 $127 $272
Global Fixed Income $34 $105 $177 $369
Fully Managed $28 $ 86 $147 $311
Total Return $28 $ 84 $144 $305
Asset Allocation Growth $29 $ 87 $149 $315
Equity Income $28 $ 86 $146 $310
Investors $29 $ 87 $149 $315
Value Equity $28 $ 86 $146 $310
Rising Dividends $28 $ 86 $146 $310
Diversified Mid-Cap $29 $ 87 $149 $315
Managed Global $31 $ 95 $161 $337
Large Cap Value $29 $ 87 $149 $315
All Cap $29 $ 87 $149 $315
Research $28 $ 84 $144 $305
Capital Appreciation $28 $ 86 $146 $310
Growth and Income $30 $ 90 $154 $324
Capital Growth $29 $ 89 $151 $319
Strategic Equity $28 $ 86 $146 $310
Special Situations $30 $ 90 $154 $324
Mid-Cap Growth $28 $ 84 $144 $305
Small Cap $28 $ 86 $146 $310
Growth $29 $ 88 $150 $318
Real Estate $28 $ 86 $146 $310
Hard Assets $28 $ 86 $146 $310
Developing World $36 $109 $185 $383
Emerging Markets $36 $109 $185 $383
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $26 $ 80 $136 $290
PIMCO StocksPLUS
Growth and Income $25 $ 77 $131 $280
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $31 $ 94 $160 $336
PRUDENTIAL SERIES FUND
Prudential Jennison $29 $ 88 $150 $317
SP Jennison International Growth $35 $106 $179 $373
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.
DVAP4-108201 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 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 SAI. The unaudited consolidated
financial statements of Golden American for the six months ended June 30,
2000 and 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 of
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
DVAP4-108201 10
<PAGE>
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 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 and ING Investment Management Advisors B.V., a portfolio
manager of the ING Variable Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
DVAP4-108201 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.
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 Inc. is a 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, Directed Services, Inc.,
Pacific Investment Management Company, Credit Suisse Asset Management, LLC, ING
Mutual Funds Management Co. LLC, The 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, 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 ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate 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 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
Separate 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 Separate Account B. If the assets in Separate Account B exceed
the required reserves and
DVAP4-108201 12
<PAGE>
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 Separate
Account B but are not discussed in this prospectus. Separate 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 THE INVESTMENT
PORTFOLIOS, 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. Separate 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, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND. YOU SHOULD
READ THESE PROSPECTUSES BEFORE INVESTING.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
THE GCG TRUST
<S> <C>
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.
------------------------------------------------------------
DVAP4-108201 13
<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. Growth of capital and income is a
secondary goal.
Invests primarily in a combination of equity and fixed
income securities.
------------------------------------------------------------
Asset Allocation Growth Seeks to maximize total return over the long-term by
allocating assets among stocks, bonds, short-term
instruments and other investments.
Allocates investments primarily in a neutral mix over
time of 70% of its assets in stocks, 25% of its assets
in bonds, and 5% of its assets in short-term and money
market investments.
-----------------------------------------------------------
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."
------------------------------------------------------------
Diversified Mid-Cap Seeks long-term capital growth.
Normally invests at least 65% of its total assets in
common stocks of companies with medium market
capitalizations.
------------------------------------------------------------
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.
------------------------------------------------------------
DVAP4-108201 14
<PAGE>
--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
All Cap Seeks capital appreciation through investment in secuities
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.
------------------------------------------------------------
Growth and Income Seeks long-term capital growth and current income.
Normally invests up to 75% of its assets in equity
securities selected primarily for their growth
potential and at least 25% of its assets in securities
the portfolio manager believes have income potential.
------------------------------------------------------------
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.
------------------------------------------------------------
Special Situations Seeks capital appreciation.
Invests primarily in common stocks selected for their
capital appreciation potential. The Portfolio
emphasizes "special situation" companies that the
portfolio manager believes have been overlooked or
undervalued by other investors.
------------------------------------------------------------
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.
------------------------------------------------------------
DVAP4-108201 15
<PAGE>
--------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------------
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.
------------------------------------------------------------
Emerging Markets Seeks long-term capital appreciation.
Invests primarily in equity securities of companies in at
least six different emerging market countries.
------------------------------------------------------------
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.
------------------------------------------------------------
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 INC.
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.
------------------------------------------------------------
SP Jennison
International Growth Seeks long-term growth of capital.
Invests primarily in equity-related securities of
issuers located in at least five different foreign
countries.
------------------------------------------------------------
</TABLE>
DVAP4-108201 16
<PAGE>
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 portfolios,
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 rate 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.
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") and its subsidiary
Prudential Investments Fund Management LLC ("PIFM") serve as the overall
investment advisors to the Prudential Series Fund. Prudential and PIFM are
responsible for the management of the Prudential Series Fund and provide
investment advice and related services. For the Prudential Jennison Portfolio
and SP Jennison International Growth Portfolio, Prudential and PIFM engage
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential and PIFM pay the sub-adviser out of the fee they
receive from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, three 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.
DVAP4-108201 17
<PAGE>
--------------------------------------------------------------------------------
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 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.
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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 Separate 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
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.
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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+.0025)) -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 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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SPECIAL FUNDS
--------------------------------------------------------------------------------
We use the term Special Funds in the discussion of the 7% Solution Enhanced
Death Benefit, the Minimum Guaranteed Accumulation Benefit rider (with the
20-year waiting period), and the Minimum Guaranteed Income Benefit rider. The
Special Funds currently include the Liquid Asset subaccount, Limited Maturity
Bond subaccount and the Fixed Interest Allocations. The Company may, at any
time, designate new and/or existing subaccounts as a Special Fund with 30 days
notice with respct to new premiums added or transfers to such subaccounts.
--------------------------------------------------------------------------------
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 ING Variable Insurance Trust, and the Prudential
Series Fund through Separate Account B. It also provides a means for you to
invest in a Fixed Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-month
period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments under
your Contract. The Contract, like all deferred variable annuity contracts, has
two phases: the accumulation phase and the income phase. The accumulation phase
is the period between the contract date and the annuity start date. The income
phase begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another annuitant
is named in the application. You have the rights and options described in the
Contract. One or more persons may own the Contract. If there are multiple owners
named, the age of the oldest owner will determine the applicable death benefit
if such death benefit is available for multiple owners.
The death benefit becomes payable when you die. In the case of a sole contract
owner who dies before the income phase begins, we will pay the beneficiary the
death benefit then due. The sole contract owner's estate will be the beneficiary
if no beneficiary has been designated or the beneficiary has predeceased the
contract owner. In the case of a joint owner of the Contract dying before the
income phase begins, we will designate the surviving contract owner as the
beneficiary. This will override any previous beneficiary designation.
If the contract owner is a trust and a beneficial owner of the trust has been
designated, the beneficial owner will be treated as the contract owner for
determining the death benefit. If a beneficial owner is changed or added after
the contract date, this will be treated as a change of contract owner for
determining the death benefit. 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
DVAP4-108201 21
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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 advisor for more information if you are
not an individual.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary is the
person who receives any death benefit proceeds and who becomes the successor
contract owner if the contract owner (or the annuitant if the contract owner is
other than an individual) dies before the annuity start date. We pay death
benefits to the primary beneficiary (unless there are joint owners, in which
case death proceeds are payable to the surviving owner(s)).
If the beneficiary dies before the annuitant or the contract owner, the death
benefit proceeds are paid to the contingent beneficiary, if any. If there is no
surviving beneficiary, we pay the death benefit proceeds to the contract owner's
estate.
One or more persons may be a beneficiary or contingent beneficiary. In the case
of more than one beneficiary, we will assume any death benefit proceeds are to
be paid in equal shares to the surviving beneficiaries.
You have the right to change beneficiaries during the annuitant's lifetime
unless you have designated an irrevocable beneficiary. When an irrevocable
beneficiary has been designated, you and the irrevocable beneficiary may have to
act together to exercise some of the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime, you
may transfer ownership of a non-qualified Contract. A change in ownership may
affect the amount of the death benefit, the guaranteed death benefit and/or the
death benefit 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.
DVAP4-108201 22
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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.
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 at least
$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 change the minimum initial or
additional premium requirements for certain group or sponsored arrangements.
Any initial or additional premium payment that would cause the contract value
of all annuities that you maintain with us to exceed $1,000,000 requires our
prior approval.
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 within 2 business days after receipt, if
the application and all information necessary for processing the Contract are
complete. Subsequent premium payments 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 consider the application incomplete. 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 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 will be credited at the accumulation unit value next
determined after receipt of your premium payment and instructions.
Once we allocate your premium payment to the subaccounts selected by you, we
convert the premium payment into accumulation units. We divide the amount of the
premium payment allocated to a particular subaccount by the value of an
accumulation unit for the subaccount to determine the number of accumulation
units of the subaccount to be held in Separate 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.
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(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, 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 Separate Account B or the Fixed Account be allocated to a
subaccount specially designated by the Company (currently, the Liquid Asset
subaccount) during the free look period. After the free look period, we will
convert your contract value (your initial premium plus any earnings less any
expenses) into accumulation units of the subaccounts you previously selected.
The accumulation units will be allocated based on the accumulation unit value
next computed for each subaccount. Initial premiums designated for Fixed
Interest Allocations will be allocated to a Fixed Interest Allocation with the
guaranteed interest period you have chosen; however, in the future we may
allocate the premiums to the specially designated subaccount during the free
look period.
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 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 designated to be allocated to the subaccount. On the contract date, we
allocate your contract value to each subaccount and/or a Fixed Interest
Allocation specified by you, unless the Contract is issued in a state that
requires the return of premium payments during the free look period, in which
case, the portion of your initial premium not allocated to a Fixed Interest
Allocation 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).
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(4) We add to (3) any additional premium payments, and then add or
subtract any transfers to or from that subaccount.
(5) We subtract from (4) any withdrawals and any related charges, and then
subtract any contract fees (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 deduct any surrender charge, any charge for premium
taxes, the annual contract and administrative fee (unless waived), any optional
benefit riders charge, and any other charges incurred but not yet deducted.
Finally, we adjust for any Market Value Adjustment.
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 Separate 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 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 have 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 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 Separate Account B under the
1940 Act; (ii) operate Separate Account B as a management company under the
1940 Act if it is operating as a unit investment trust; (iii) operate Separate
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
Separate Account B; and (v) combine Separate Account B with other accounts.
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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 IT 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.
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 one 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."
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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, 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, 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. It 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 plus any additional premium 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 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, plus any additional premium added to your
Contract during the 2-year period after your contract date,
accumulated at the MGAB Base Rates reduced pro rata for any
withdrawals and reduced for any transfers made within 3 years
prior to the MGAB Benefit Date. The MGAB Base Rate for all
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 ADDED TO YOUR CONTRACT DURING THE 2-YEAR PERIOD
AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE BUT 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 added during the 2-year period after your rider date.
Withdrawals taken while MGAB rider is in effect, as well as, and
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 (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.
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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 to the subaccounts in which you are invested
pro rata based on the proportions of your then 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 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, your 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 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
DVAP4-108201 28
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the rider, 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 the then current 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 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, plus any additional
premiums 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). Premiums 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 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 are those added more than 5
years before the earliest MGIB Benefit Date and are included in
the MGIB Base. Premiums paid after the 5th rider anniversary are
excluded from the MGIB Base.
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(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 significantly 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, 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; or
(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 to 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.
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
DVAP4-108201 30
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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 LIMITS YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIME 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 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 redeemed 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 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 subsequent
premium payments 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. Such
withdrawals 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." Making any
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withdrawals in any year greater than 7%
per year of the Eligible Payment Amount in any year 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 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 and if the following conditions exist, your
Contract is given what we refer to as Automatic Periodic Benefit Status:
(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
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 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, 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, and (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
periods applicable to the remaining payments. Once the last MGWB
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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 have elected the
Max 7 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 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 the 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.
--------------------------------------------------------------------------------
WITHDRAWALS
--------------------------------------------------------------------------------
Any time during the accumulation phase and before the death of the contract
owner, 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 15% 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 affect the withdrawal amount
you receive.
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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 $1,000. 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 1.25%
Quarterly 3.75%
Annually 15.00%
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 withdrawal is based on a percentage of your contract value and the
amount to be systematically 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
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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 15% 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 maximum percentage.
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 ("IRS")
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 SAI. 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 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.
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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 judgment 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. Keep in
mind that transfers between Special Funds and other investment portfolios may
negatively impact your death benefit.
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, including those involving Special Funds, may also affect your
optional rider base. See "The Annunity 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. Separate 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.
TRANSFERS BY THIRD PARTIES
As a convenience to you, we currently allow you to give third parties the right
to effect transfers on your behalf. However, when the third party makes
transfers for many contract owners, the result can be simultaneous transfers
involving large amounts of account values. Such transfers can disrupt the
orderly management of the investment portfolios available to the Contract, can
result in higher costs to contract owners, and may not be compatible with the
long term goals of contract owners. Therefore, we may at any time exercise our
business judgment and limit transfers made by a third party.
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
DVAP4-108201 36
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purchased if the
value of its unit is low and less units are purchased if the value of its unit
is high. Therefore, a lower than average value per unit may be achieved over the
long term. However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities regardless of
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar amount you
want transferred under this program. Each monthly transfer must be at least
$100. If your source account is the Limited Maturity Bond subaccount, the Liquid
Asset subaccount or a 1-year Fixed Interest Allocation, the maximum amount that
can be transferred each month is your contract value in such source account
divided by 12. If your source account is a 6-month Fixed Interest Allocation,
the maximum amount that can be transferred each month is your contract value in
such source account divided by 6. You may change the transfer amount once
each contract year. If you have a DCA Fixed Interest Allocation, there is no
minimum or maximum transfer amount; we will transfer all your money allocated
to that source account into the subaccount(s) in equal payments over the
selected 6-month or 1-year period. The last payment will include earnings
accrued over the course of the selected period. 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
Separate 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. 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 Benefits 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; (ii)
total premium payments reduced by a pro rata adjustment for any withdrawal; and
(iii) the cash surrender value.
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 prior to death; (ii) total premium payments reduced by a pro rata
adjustments for any withdrawal; (iii) the cash surrender value; and (iv) the
enhanced death benefit as calculated below.
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.
DVAP4-108201 38
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
---------------------------------------------------------------------------
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 if the preceding death benefit.
day is the contract date), then we
add additional premiums paid since On all other days, the enhanced
the preceding day, then we adjust death benefit is the amount
for any withdrawals made (including determined below. We first take the
any Market Value Adjustment applied enhanced death benefit from the
to such withdrawals and any preceding day (which would be the
associated surrender charges)** initial premium if the valuation
since the preceding day. At age 80 date is the contract date) and then
or at the time the maximum death we add additional premiums paid
benefit is reached, the since the preceding day, then we
accumulation rate used will change. then we reduce the Enhanced Death
Benefit pro rata for any contract
The maximum enhanced death benefit value withdrawn. That
is 3 times all premium amount
becomes the new enhanced death
benefit. payments, as reduced by
adjustments for withdrawals.***
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* The actual interest rate used for calculating the 7% Solution Enhanced
Death Benefit for Special Funds 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.
Thus, selecting Special Funds may limit or reduce the enhanced death
benefit pro rata.
** Each premium payment 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 did not exceed 7% of
cumulative premiums 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 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 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
DVAP4-108201 39
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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 ("the 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 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.
DVAP4-108201 40
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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 7-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment 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+
SINCE PREMIUM PAYMENT
SURRENDER CHARGE 7% 7% 6% 5% 4% 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.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
15% 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
DVAP4-108201 41
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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 withdrawal 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 these 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 1.15% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .003169% 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
1.30% for the Annual Ratchet Enhanced Death Benefit, 1.50% for the 7% Solution
Enhanced Death Benefit or 1.60% 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 .003585%, .004141%, or .004419%, 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.
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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 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 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
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
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, three 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 or 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
DVAP4-108201 43
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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.
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 3 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 3 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.
DVAP4-108201 44
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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 SAI. 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 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 1940 Act, 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 3.50% for Option
2 per year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for Options 1 and 2 if
such payments were not based on the tables in the Contract.
DVAP4-108201 45
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(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. You have
30 days to notify our Customer Service Center of any errors or discrepancies
contained in the report or in any confirmation notices. We will also send you
copies of any shareholder reports of the investment portfolios in which Separate
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 SEC so that the sale of securities
held in Separate Account B may not reasonably occur or so that the Company may
not reasonably determine the value of Separate 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, we include a refund of any charges deducted from your contract
value. Because of the market risks associated with investing in the portfolios,
the contract value returned may be greater or less than the premium payment you
paid. Some states require us to return to you the amount of the paid premium
(rather than the contract value) in which case you will not be subject to
investment risk during the free look period. In these states, your premiums
designated for investment in the subaccounts 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
DVAP4-108201 46
<PAGE>
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 Separate 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 7.0% 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 OTHER
UNDERWRITER COMMISSION TO BE PAID COMPENSATION
Directed Services, Inc. Maximum of 7.0% 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 7.0% 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 Separate Account B according to your
instructions. However, if the 1940 Act 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.
DVAP4-108201 47
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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 shareholder 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 Separate 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 Separate 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
--------------------------------------------------------------------------------
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
DVAP4-108201 48
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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 Separate 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 Separate 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 Separate 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
DVAP4-108201 49
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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.
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 conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
DVAP4-108201 50
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distributions. Adverse tax consequences may result from: contributions in excess
of specified limits; distributions before age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Contracts with the various types of qualified retirement plans. Contract owners,
annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but we shall not be bound by the terms and conditions of such
plans to the extent such terms contradict the Contract, unless the Company
consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same manner as
under a non-qualified Contract. When a withdrawal from a qualified Contract
occurs, a pro rata portion of the amount received is taxable, generally based on
the ratio of the contract owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract) to the participant's
total accrued benefit balance under the retirement plan. For qualified
Contracts, the investment in the Contract can be zero. For Roth IRAs,
distributions are generally not taxed, except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires that
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the contract owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the contract owner (or
plan participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than 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
DVAP4-108201 51
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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 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 IRS 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.
DVAP4-108201 52
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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.
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER
---------------------------------------------------------
For the Period For the Period
January 1, For the Year For the Year October 25,
2000 through Ended Ended 1997 through
June 30, December 31, December 31, December 31,
2000 1999 1998 1997
------------ ------------- ------------ --------------
Annuity and Interest
Sensitive Life
Product Charges..... $ 71,975 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss)
before Federal
Income Tax.......... $ 13,679 $ 19,737 $ 10,353 $ (279)
Net Income (Loss).... $ 8,077 $ 11,214 $ 5,074 $ (425)
Total Assets......... $ 11,287,557 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities.... $ 10,722,684 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's
Equity............ $ 564,873 $ 477,849 $ 353,894 $ 227,313
POST-ACQUISITION | PRE-ACQUISITION
------------------------------- | ------------------
For the Period For the Period | For the Period
January 1,1997 August 14, | January 1,
through 1996 through | 1996 through
October 24, December 31, | August 13,
1997 1996 | 1996
------------- -------------- | --------------
Annuity and Interest |
Sensitive Life |
Product Charges..... $ 18,288 $ 8,768 | $ 12,259
Net Income (Loss) before |
Federal Income Tax.. $ (608) $ 570 | $ 1,736
Net Income (Loss).... $ 729 $ 350 | $ 3,199
Total Assets......... N/A $1,677,899 | N/A
Total Liabilities.... N/A $1,537,415 | N/A
Total Stockholder's
Equity............ N/A $ 140,484 | N/A
DVAP4-108201 53
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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, the 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.
DVAP4-108201 54
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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.
THE FIRST SIX MONTHS OF 2000 COMPARED TO THE SAME PERIOD OF 1999
PREMIUMS
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Variable annuity premiums:
Separate account.............. $ 765.7 (29.6)% $(322.1) $1,087.8
Fixed account................. 353.6 7.1 23.4 330.2
-------- ---- ------- --------
Total variable annuity
premiums..................... 1,119.3 (21.1) (298.7) 1,418.0
Variable life premiums......... 1.0 (78.1) (3.7) 4.7
-------- ---- ------- --------
Total premiums................. $1,120.3 (21.3)% $(302.4) $1,422.7
======== ==== ======= ========
For the Companies' variable 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 decreased 29.6% during the
first six months of 2000 compared to the same period of 1999. Excluded
from the variable annuity separate account premiums above are $923.5
million and $50.7 million for the first six months of 2000 and 1999,
respectively, related to modified coinsurance agreements.
Variable life premiums decreased 78.1% in the first six months of 2000
from the same period of 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the six
months ended June 30, 2000 totaled $131.4 million, or 12% of total
premiums ($406.6 million, or 29% from two significant broker/dealers for
the six months ended June 30, 1999).
DVAP4-108201 55
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REVENUES
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Annuity and interest sensitive
life product charges.......... $ 72.0 106.9% $ 37.2 $34.8
Management fee revenue......... 9.0 121.2 4.9 4.1
Net investment income 31.8 12.8 3.7 28.1
Realized losses on investments. (2.6) 53.6 (0.9) (1.7)
Net income from modified
coinsurance agreements........ 115.8 2,024.9 110.3 5.5
Other income................... 0.9 26.2 0.2 0.7
------ ------- ------ -----
$226.9 217.3% $155.4 $71.5
====== ======= ====== =====
Total revenues increased 217.3% in the first six months of 2000 from the
same period in 1999. Annuity and interest sensitive life product charges
increased 106.9% in the first six months of 2000 due to additional fees
earned from the increasing block of business under management in the
variable separate accounts.
Golden American provides certain managerial and supervisory services to
Directed Services, Inc. ("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 $9.0 million and $4.1 million for the
first six months of 2000 and 1999, respectively.
Net investment income increased 12.8% in the first six months of 2000 due
to growth in invested assets from June 30, 1999. The Companies had $2.6
million of realized losses on the sale of investments in the first six
months of 2000 on the sale of fixed maturities and the writedown of an
impaired investment, compared to losses of $1.7 million in the same
period of 1999 related to the writedown of two fixed maturities.
Net income from modified coinsurance agreements increased by $110.3
million to $115.8 million for the first six months of 2000 as compared to
the first six months of 1999. This was primarily due to a modified
coinsurance agreement which was entered into during the second quarter of
2000, with an affiliate, Equitable Life Insurance Company of Iowa
("Equitable Life"), covering a part of business issued in 2000. This
reinsurance agreement contributed $111.8 million to other income in the
second quarter of 2000, which was offset by a corresponding release of
deferred policy acquisition costs and reimbursement of non-deferrable
costs related to policies reinsured under this agreement.
EXPENSES
Total insurance benefits and expenses increased $138.6 million, or
214.8%, to $203.1 million in the first six months of 2000. Interest
credited to account balances increased $20.0 million, or 24.3%, to $102.4
million in the first six months of 2000. The premium credit on the
Premium Plus product increased $22.3 million to $73.5 million at June 30,
2000 resulting in an increase in interest credited during the first six
months of 2000 compared to the same period in 1999. The bonus interest on
the fixed account decreased $2.3 million to $4.8 million at June 30, 2000
resulting in a decrease in interest credited during the first six months
of 2000 compared to the same period in 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products relative to
the balances at June 30, 1999.
Commissions increased $28.9 million, or 34.8%, to $112.2 million in the
first six months of 2000. Insurance taxes, state licenses, and fees
increased $0.4 million, or 15.9%, to $2.9 million in the first six months
of 2000. 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 incentive bonuses. Most costs incurred as the
result of new sales have been deferred, thus having very little impact on
current earnings.
DVAP4-108201 56
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<PAGE>
General expenses increased $11.4 million, or 39.6%, to $40.2 million in
the first six months of 2000. Management expects general expenses to
continue to increase in 2000 as a result of the emphasis on expanding the
salaried wholesaler distribution network, the growth in sales, and the
increased amounts in force. 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
the following affiliates: DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, Security Life of Denver Insurance Company, Southland
Life Insurance Company, and United Life & Annuity Insurance Company, for
certain advisory, computer, and other resources and services provided by
the Companies.
During the first six months of 2000 and 1999, value of purchased
insurance in force ("VPIF") was adjusted to increase amortization by $0.7
million in each period, respectively, to reflect changes in the
assumptions related to the timing of estimated gross profits.
Amortization of deferred policy acquisition costs ("DPAC") increased
$25.0 million, or 233.8%, in the first six months of 2000. This increase
resulted from the deferral of expenses associated with the large sales
volume experienced since June 30, 1999. Deferred policy acquisition costs
decreased $52.3 million or 34.8% in the first six months of 2000. During
the second quarter of 2000, a modified coinsurance agreement was entered
into which resulted in a $109.3 million release of previously deferred
policy acquisition costs. 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 June 30,
2000 is $1.9 million for the remainder of 2000, $3.5 million in 2001,
$3.3 million in 2002, $2.8 million in 2003, $2.2 million in 2004, and
$1.7 million in 2005. Actual amortization may vary based upon changes in
assumptions and experience.
Interest expense increased 189.4%, or $6.6 million, to $10.1 million in
the first six months of 2000. Interest expense on a $25 million surplus
note issued December 1996 and expiring December 2026 was $1.0 million for
the first six months of 2000, unchanged from the same period of 1999.
Interest expense on a $60 million surplus note issued in December 1998
and expiring December 2028 was $2.2 million for the first six months of
2000, unchanged from the same period of 1999. Interest expense on a $75
million surplus note, issued September 1999 and expiring September 2029
was $2.9 million for the first six months of 2000. Interest expense on a
$50 million surplus note, issued December 1999 and expiring December 2029
was $2.1 million for the first six months of 2000. Interest expense on a
$35 million surplus note issued December 1999 and expiring December 2029
was $1.6 million for the first six months of 2000. Golden American also
paid $0.3 million in 2000 and $0.2 million in 1999 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 $36,000 and $54,000 for the first six months of 2000
and 1999, respectively.
INCOME
Net income was $8.1 million for the first six months of 2000, an increase
of $6.7 million, or 468.0% from the same period of 1999.
Comprehensive income for the first six months of 2000 was $7.0 million,
an increase of $9.1 million from comprehensive loss of $2.1 million in
the same period of 1999.
DVAP4-108201 57
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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
====== ==== ===== =====
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.
DVAP4-108201 58
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<PAGE>
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
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
------ ---------- ------ ------
(Dollars in millions)
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
====== ==== ====== =======
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.
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.
DVAP4-108201 59
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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.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity
for 1997.
PREMIUMS
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Variable annuity |
premiums: |
Separate account.. $1,513.3 $291.2 $111.0 | $180.2
Fixed account..... 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life |
premiums.......... 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums..... $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== | ======
For the Companies' variable contracts, premiums collected are not
reported as revenues, but are reported as deposits to insurance
liabilities. Revenues for these products are recognized over time in the
form of investment income and product charges.
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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
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Annuity and interest |
sensitive life |
product charges..... $39.1 $22.1 $3.8 | $18.3
|
Management fee |
revenue............. 4.8 2.8 0.5 | 2.3
Net investment |
income.............. 42.5 26.8 5.1 | 21.7
Realized gains |
(losses) on |
investments....... (1.5) 0.1 -- | 0.1
Other income........ 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ==== | =====
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in
1998. Annuity and interest sensitive life product charges increased
76.8%, or $17.0 million, to $39.1 million in 1998 due to additional fees
earned from the increasing block of business under management in the
separate accounts and an increase in surrender charge revenues. This
increase was partially offset by the elimination of the unearned revenue
reserve related to in force acquired business at the merger date, which
resulted in lower annuity and interest sensitive life product charges
compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to
DSI. The fee paid to Golden American for these services, which is
calculated as a percentage of average assets in the variable separate
accounts, was $4.8 million for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million
in 1998 from $26.8 million in 1997 due to growth in invested assets.
During 1998, the Company had net realized losses on investments of $1.5
million, which 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.
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EXPENSES
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, December 31, December 31, | October 24,
1998 1997 1997 | 1997
------------- ------------ ---------------- | ----------------
|
(Dollars in millions)
Insurance benefits |
and expenses: |
Annuity and |
interest sensitive |
life benefits: |
Interest credited |
to account |
balances.......... $ 94.9 $26.7 $ 7.4 | $19.3
Benefit claims |
incurred in excess |
of account |
balances.......... 2.1 0.1 -- | 0.1
Underwriting, |
acquisition, and |
insurance expenses: |
Commissions........ 121.2 36.3 9.4 | 26.9
General expenses... 37.6 17.3 3.4 | 13.9
Insurance taxes.... 4.1 2.3 0.5 | 1.8
Policy acquisition |
costs deferred.... (197.8) (42.7) (13.7) | (29.0)
Amortization: |
Deferred policy |
acquisition costs. 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance |
in force......... 4.7 6.1 0.9 | 5.2
Goodwill.......... 3.8 2.0 0.6 | 1.4
------ ----- ------ | -----
$ 75.7 $50.7 $ 9.4 | $41.3
====== ===== ====== | =====
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in
1998 from $50.7 million in 1997. Interest credited to account balances increased
255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra credit bonus
on the Premium Plus product introduced in October of 1997 generated a $51.6
million increase in interest credited during 1998 compared to 1997. The
remaining increase in interest credited 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 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
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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 increased slightly during the
first six months of 2000. All of the Companies' investments, other than
mortgage loans on real estate, are carried at fair value in the
Companies' financial statements. The increase in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of investments as well as net purchases.
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, net of transfers to the separate accounts. 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 is invested primarily in fixed
maturities and mortgage loans on real estate.
At June 30, 2000 and December 31, 1999, the Companies investments had a
yield of 6.7% and 6.6%, respectively. The Companies estimate the total
investment portfolio, excluding policy loans, had a fair value
approximately equal to 97.6% of amortized cost value at June 30, 2000
(97.6% at December 31, 1999).
FIXED MATURITIES: At June 30, 2000, the Companies had fixed maturities
with an amortized cost of $832.2 million and an estimated fair value of
$809.5 million. 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.
At June 30, 2000, net unrealized depreciation of fixed maturities of
$22.7 million was comprised of gross appreciation of $0.6 million and
gross depreciation of $23.3 million. Net unrealized holding losses on
these securities, net of adjustments for VPIF, DPAC, and deferred income
taxes of $7.0 million, were included in stockholder's equity at June 30,
2000.
At December 31, 1999, 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
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are rated at least A- by Standard & Poor's ($545.4 million or 65.5%
at June 30, 2000 and $558.0 million or 65.0% at December 31, 1999), that
are rated BBB+ to BBB- by Standard & Poor's ($136.4 million or 16.4% at
June 30, 2000 and $123.5 million or 14.4% at December 31, 1999), and
below investment grade securities, which are securities issued by
corporations that are rated BB+ to B- by Standard & Poor's ($53.8 million
or 6.5% at June 30, 2000 and $64.6 million or 7.5% at December 31, 1999).
Securities not rated by Standard & Poor's had a National Association of
Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5 ($96.6
million or 11.6% at June 30, 2000 and $112.0 million or 13.1% at December
31, 1999). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.7% and 6.6% at June 30, 2000 and
December 31, 1999, respectively.
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 June 30, 2000, the amortized cost value of the Companies' total
investments in below investment grade securities, excluding mortgage-
backed securities, was $67.3 million, or 6.3%, of the Companies'
investment portfolio ($72.3 million, or 6.9% at December 31, 1999). 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 June 30,
2000, the yield at amortized cost on the Companies' below investment
grade portfolio was 8.1% compared to 6.4% for the Companies' investment
grade corporate bond 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 $63.8 million, or 94.8% of amortized cost value, at
June 30, 2000 ($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.
During the first six months of 2000 and for the year ended December 31,
1999, fixed maturities designated as available for sale with a combined
amortized cost of $125.7 million and $221.8 million, respectively, were
sold, called, or repaid by their issuers. In total, net pre-tax losses
from sales, calls, and repayments of fixed maturity investments amounted
to $2.5 million in the first six months of 2000 and $1.3 million in 1999,
excluding the $1.6 million pre-tax loss on the write-down of bonds in
1999.
During the second quarter of 2000, Golden American determined that the
carrying value of an impaired bond exceeded its estimated net realizable
value. As a result, at June 30, 2000, Golden American recognized a total
pre-tax loss of approximately $142,000 to reduce the carrying value of
the bond to its net realizable value of $329,000.
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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 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: At June 30, 2000 and December 31, 1999, equity
securities represented 0.9% and 1.4%, respectively, of the Companies'
investment portfolio. At June 30, 2000 and December 31, 1999, the
Companies owned equity securities with a cost of $9.7 million and $15.0
million, respectively, and an estimated fair value of $10.5 million and
$17.3 million, respectively. At June 30, 2000 and December 31, 1999, net
unrealized appreciation of equity securities was comprised entirely of
gross appreciation of $0.8 million and $2.3 million, respectively. 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 represented
9.9% and 9.5% of the Companies' investment portfolio at June 30, 2000 and
December 31, 1999, respectively. Mortgages outstanding were $105.5
million at June 30, 2000 with an estimated fair value of $101.9 million.
Mortgages outstanding were $100.1 million at December 31, 1999 with an
estimated fair value of $95.5 million. At June 30, 2000, the Companies'
mortgage loan portfolio includes 59 loans with an average size of $1.8
million and average seasoning of 0.6 years if weighted by the number of
loans. At December 31, 1999, the Companies' mortgage loan portfolio
included 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). As of June 30, 2000, there have been no
significant changes to the concentrations of mortgage loans on real
estate compared to December 31, 1999. At June 30, 2000 and December 31,
1999, the yield on the Companies' mortgage loan portfolio was 7.3%.
At June 30, 2000 and 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 credits,
and other expenses related to production after October 24, 1997 ("ING merger
date"). The Companies' previous balances of DPAC and VPIF were eliminated as
of the ING merger date, and an asset representing VPIF was established for
all policies in force at the ING 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. During
the second quarter of 2000, a modified coinsurance agreement was entered into
which resulted in a $109.3 million release of previously deferred policy
acquisition costs. At June 30, 2000, the Companies had DPAC and VPIF balances
of $590.8 million and $29.5 million,
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respectively ($529.0 million and $31.7 million, respectively, at December
31, 1999). 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 as a result of the merger with ING. Accumulated amortization
of goodwill was $10.1 million as of June 30, 2000 and $8.2 million as of
December 31, 1999.
Other assets increased $1.7 million from December 31, 1999, due to
increases in a receivable from the separate account and prepaid expenses.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
At June 30, 2000, the Companies had $9.4 billion of separate account
assets compared to $7.6 billion at December 31, 1999. The increase in
separate account assets resulted from market appreciation, transfers from
the fixed account options, and sales of the Companies' variable annuity
products, net of redemptions.
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 June 30, 2000, the Companies had total assets of $11.3 billion, a
20.2% increase from December 31, 1999. 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 decreased 4.1%, to $0.9 billion. Market appreciation,
transfers from the fixed account options, and premiums, net of
redemptions, accounted for the $1.8 billion, or 24.2%, increase in
separate account liabilities to $9.4 billion at June 30, 2000.
Future policy benefits for annuity and interest sensitive life products
increased $152.6 million, or 17.3%, to $1.0 billion at December 31, 1999,
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.
Due to affiliates decreased $8.8 million or 69.7% to $3.8 million during
the first six months of 2000 due to declines in payables to related party
broker/dealers and a decrease in accrued interest on related party
surplus notes.
Other liabilities decreased $13.2 million or 24.7% to $40.1 million
during the first six months of 2000 due to the timing of the application
and settlement of policy payments and account transfers, as well as the
timing of the settlement of investment transactions. Other liabilities
increased $21.7 million during 1999 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.
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In conjunction with the volume of variable annuity sales, the Companies'
total liabilities increased $1.8 billion, or 20.3%, during the first six
months of 2000 and totaled $10.7 billion at June 30, 2000. 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 $80.0 million,
or 17.1%, from December 31, 1999 to $548.6 million at June 30, 2000, due
to a capital contribution from the Parent. 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 provided by operating activities was $33.3 million in the first
six months of 2000 compared to net cash used of $41.6 million in the same
period of 1999. 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; however, during the second quarter of
2000, Golden American received $110.0 million in conjunction with the
modified coinsurance agreement with an affiliate, resulting in positive
cash flow from operating activities.
Net cash used in investing activities was $12.3 million during the first
six months of 2000 compared to $38.6 million in the same period of 1999.
This decrease is primarily due to greater net sales of fixed maturities
and equity securities, which were partially offset by an increase in net
purchases of short term investments during the first six months of 2000
than in the same period of 1999. Net sales of fixed maturities reached
$22.2 million during the first six months of 2000 compared to net
purchases of $9.3 million in the same period of 1999. Net purchases of
short term investments reached $33.9 million in the first six months of
2000 versus $26.4 million during the same period in 1999. Net purchases
of mortgage loans on real estate were $5.6 million during the first six
months of 2000 versus net sales of $3.6 million during the first six
months of 1999.
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 used in financing activities was $25.7 million during the first
six months of 2000 compared to net cash provided by financing activities
of $82.8 million during the same period in 1999. The increase in net
reallocations to the Companies' separate accounts, which increased to
$412.2 million from $261.4 million during the prior year, contributed to
the decrease. Net reciprocal loan agreement borrowings of $40.0 million
during the first six months of 2000 provided cash to the Companies.
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
DVAP4-108201 67
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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 expired
on July 31, 2000. As of July 31, 2000, the SunTrust Bank, Atlanta
revolving note facility was extended to July 30, 2001. 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. Golden American occupies
105,000 square feet of leased space; an affiliate occupies 20,000 square
feet. Golden American's New York subsidiary is housed in leased space in
New York, New York. The Companies intend to spend approximately $1.0
million on capital needs during the remainder of 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 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 the Companies
have total adjusted capital well above all required capital levels.
REINSURANCE. At June 30, 2000, Golden American had reinsurance treaties
with four unaffiliated reinsurers and two affiliated reinsurers 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.
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On June 30, 2000, effective January 1, 2000, Golden American entered into
a modified coinsurance agreement with Equitable Life, an affiliate,
covering a considerable portion of Golden American's variable annuities
issued in 2000, excluding those with an interest rate guarantee.
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 additional
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 June 30, 2000 levels, variable separate account funds, which
represent 90% of the in force, pass the risk in underlying fund
performance to the contractholder (except for certain minimum
guarantees). With respect to interest rate movements up or down 100 basis
points from June 30, 2000 levels, the remaining 10% 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.
DVAP4-108201 69
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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.
During the first six months of 2000, one broker-dealer produced 10% or
more of Golden American's product sales (two broker-dealers as of
December 31, 1999).
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. On June 30, 2000, effective January 1, 2000, Golden American
entered into a modified coinsurance agreement with Equitable Life, an
affiliate, covering a considerable portion of Golden American's variable
annuities issued in 2000, excluding those with an interest rate
guarantee. Golden American is currently pursuing additional 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
DVAP4-108201 70
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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 Insurance Company of Iowa ("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"), $0.7
million, $1.3 million and $1.1 million, for the six months ended June 30,
2000 and 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 $9.1 million for the six months ended June 30,
2000 and $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 six months ended June 30,
2000 and for the years ended December 31, 1999 and 1998, the Companies
incurred fees of $1.3 million, $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 $3.3 million for first six months of 2000 and $6.1
million for 1999 and $5.8 million for 1998.
First Golden provides resources and services to DSI. Revenues for these
services totaled $0.1 million in the first six months of 2000, $0.4
million in 1999 and $0.1 million in 1998.
Golden American provides resources and services to ING Mutual Funds
Management Co., LLC, an affiliate. Revenues for these services totaled
$0.3 million for first six months of 2000 and $0.2 million for 1999.
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 $0.3 million
in the first six months of 2000 and $0.5 million in the year 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 $0.1 million in
the first six months of 2000 and $0.2 million in the year 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 $52,000 in the first six
months of 2000 and $103,000 in the year 1999.
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. On June 30, 2000, Golden American incurred a fee of $7,000,
under this agreement. No annual fee was paid in 1999.
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DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) of the variable insurance
products issued by Golden American. For the first six months of 2000 and
years 1999 and 1998, commissions paid by Golden American to DSI
(including commissions paid by First Golden) aggregated $109.3 million,
$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.
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
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insurer's own financial strength. For information regarding Golden
American's estimated liability for future guaranty fund assessments, see
Note 11 of Notes to Financial Statements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Certain insurance products of Golden
American are subject to various federal securities laws and regulations.
In addition, current and proposed federal measures which may
significantly affect the insurance business include regulation of
insurance company solvency, employee benefit regulation, removal of
barriers preventing banks from engaging in the insurance business, tax
law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
DIRECTORS AND 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.
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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. 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. 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.
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. 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. Ronald R. Blasdell joined Golden American in February, 1994 and
became Senior Vice President, Project Implementation in June, 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and became
Senior Vice President and Chief Information Officer 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 four 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.
DVAP4-108201 75
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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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UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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For the Six Months Ended June 30, 2000
DVAP4-108201 77
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $832,167; 1999 - $858,052) $809,473 $835,321
Equity securities, at fair value (cost: 2000 - $9,671; 1999 - $14,952) 10,510 17,330
Mortgage loans on real estate 105,521 100,087
Policy loans 12,425 14,157
Short-term investments 114,084 80,191
------------------------------------------------
Total investments 1,052,013 1,047,086
Cash and cash equivalents 9,649 14,380
Reinsurance recoverable 17,597 14,834
Reinsurance recoverable from affiliate 1,798 --
Due from affiliates 3,958 637
Accrued investment income 10,094 11,198
Deferred policy acquisition costs 590,821 528,957
Value of purchased insurance in force 29,463 31,727
Current income taxes recoverable 3 35
Deferred income tax asset 16,912 21,943
Property and equipment, less allowances for depreciation of
$4,076 in 2000 and $3,229 in 1999 14,567 13,888
Goodwill, less accumulated amortization of $10,075 in 2000
and $8,186 in 1999 141,052 142,941
Other assets 4,199 2,514
Separate account assets 9,395,431 7,562,717
------------------------------------------------
Total assets $11,287,557 $9,392,857
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products $991,442 $1,033,701
Unearned revenue reserve 6,828 6,300
Other policy claims and benefits 68 8
------------------------------------------------
998,338 1,040,009
Reciprocal loan from affiliate 40,000 --
Surplus notes 245,000 245,000
Revolving note payable -- 1,400
Due to affiliates 3,835 12,651
Other liabilities 40,080 53,231
Separate account liabilities 9,395,431 7,562,717
------------------------------------------------
10,722,684 8,915,008
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 548,640 468,640
Accumulated other comprehensive loss (10,207) (9,154)
Retained earnings 23,940 15,863
------------------------------------------------
Total stockholder's equity 564,873 477,849
------------------------------------------------
Total liabilities and stockholder's equity $11,287,557 $9,392,857
================================================
</TABLE>
See accompanying notes.
DVAP4-108201 78
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------------
<S> <C> <C>
Revenues:
Annuity and interest sensitive life product charges $71,975 $34,783
Management fee revenue 9,058 4,096
Net investment income 31,775 28,158
Realized losses on investments (2,637) (1,717)
Net income from modified coinsurance agreements 115,792 5,449
Other income 934 740
-------------------------------------------------------
226,897 71,509
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 102,445 82,427
Benefit claims incurred in excess of account balances 3,211 1,725
Underwriting, acquisition, and insurance expenses:
Commissions 112,158 83,226
General expenses 40,179 28,787
Insurance taxes, state licenses, and fees 2,910 2,511
Policy acquisition costs deferred (97,724) (149,988)
Amortization:
Deferred policy acquisition costs 35,757 10,713
Value of purchased insurance in force 2,278 3,231
Goodwill 1,889 1,889
-------------------------------------------------------
203,103 64,521
Interest expense 10,115 3,496
-------------------------------------------------------
213,218 68,017
-------------------------------------------------------
Income before income taxes 13,679 3,492
Income taxes 5,602 2,070
-------------------------------------------------------
Net income $8,077 $1,422
=======================================================
</TABLE>
See accompanying notes.
DVAP4-108201 79
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $33,298 $(41,587)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale 123,182 90,910
Equity securities 5,195 --
Mortgage loans on real estate 3,281 3,606
Policy loans - net 1,732 --
-------------------------------------------------
133,390 94,516
Acquisition of investments:
Fixed maturities - available for sale (100,936) (100,242)
Mortgage loans on real estate (8,887) --
Policy loans - net -- (1,158)
Short term investments - net (33,893) (26,394)
-------------------------------------------------
(143,716) (127,794)
Net purchase of property and equipment (1,974) (5,324)
Issuance of reciprocal loan agreement receivables (16,900) --
Receipt of repayment of reciprocal loan agreement receivables 16,900 --
-------------------------------------------------
Net cash used in investing activities (12,300) (38,602)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings 177,900 265,800
Repayment of reciprocal loan agreement borrowings (137,900) (265,800)
Proceeds from revolving note payable 54,800 56,345
Repayment of revolving note payable (56,200) (56,295)
Receipts from annuity and interest sensitive life
policies credited to account balances 355,662 330,935
Return of account balances on annuity
and interest sensitive life policies (87,841) (66,732)
Net reallocations to Separate Accounts (412,150) (261,404)
Contribution from parent 80,000 80,000
-------------------------------------------------
Net cash provided by (used in) financing activities (25,729) 82,849
-------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,731) 2,660
Cash and cash equivalents at beginning of period 14,380 6,679
-------------------------------------------------
Cash and cash equivalents at end of period $9,649 $9,339
=================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $12,649 $1,373
</TABLE>
See accompanying notes.
DVAP4-108201 80
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This Form is being filed with the reduced disclosure format
specified in General Instruction H(1) and (2) of Form 10-Q. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All adjustments were of a normal
recurring nature, unless otherwise noted in Management's Discussion and Analysis
and the Notes to Financial Statements. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the financial statements and related
footnotes included in the Golden American Life Insurance Company's annual report
on Form 10-K for the year ended December 31, 1999.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $12,235,000 and $44,799,000 for the six months ended
June 30, 2000 and 1999, respectively. Total statutory capital and surplus was
$436,701,000 at June 30, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the June 30, 1999, December 31, 1999, and March 31, 2000
financial statements have been reclassified to conform to the June 30, 2000
financial statement presentation.
2. 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. During the second quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $6,428,000 and $(828,000),
respectively, and $7,024,000 and $(2,077,000) for the six months ended June 30,
2000 and 1999, respectively. Included in these amounts are total comprehensive
income (loss) for First Golden of $41,000 and $(226,000) for the second quarters
of 2000 and 1999, respectively, and $110,000 and $(244,000) for the six months
ended June 30, 2000 and 1999, respectively. Other comprehensive income (loss)
excludes net investment gains (losses) included in net income which merely
represent transfers from unrealized to realized gains and losses. These amounts
totaled $(120,000) and $(2,348,000) during the second quarters of 2000 and 1999,
respectively, and $(588,000) and $(2,052,000) during the six months ended June
30, 2000 and 1999, respectively. Such amounts, which have been measured through
the date of sale, are net of income taxes and adjustments for value of purchased
insurance in force and deferred policy acquisition costs totaling $(1,200,000)
and $584,000 for the second quarters of 2000 and 1999, respectively, and
$(2,041,000) and $335,000 for the six months ended June 30, 2000 and 1999,
respectively.
DVAP4-108201 81
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
3. INVESTMENTS
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 second quarter of 2000, Golden American determined that the carrying
value of an impaired bond exceeded its estimated net realizable value. As a
result, at June 30, 2000, Golden American recognized a total pre-tax loss of
approximately $142,000 to reduce the carrying value of the bond to its net
realizable value of $329,000.
During the second quarter of 1999, Golden American determined that the carrying
value of 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 reduce the carrying value of the bonds to their combined net realizable value
of $1,137,000.
4. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("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 distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $53,398,000 and $109,252,000 in the
second quarter and the first six months of 2000, respectively ($45,503,000 and
$80,288,000, respectively, for the same periods of 1999).
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 second quarter and six months
ended June 30, 2000, the fee was $4,740,000 and $9,058,000, respectively
($2,281,000 and $4,096,000, respectively, for the same periods of 1999).
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 managed by ING IM. The fee is payable quarterly. For the
second quarter and first six months of 2000, the Companies incurred fees of
$616,000 and $1,274,000, respectively, under this agreement ($576,000 and
$1,114,000, respectively, for the same periods of 1999).
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("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. On June 30, 2000, Golden American incurred a fee of
$7,000, under this agreement. No annual fee was paid in 1999.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,708,000 in the second quarter
of 2000 and $3,276,000 for the first six months of 2000 ($262,000 and $661,000,
respectively, for the same periods of 1999).
DVAP4-108201 82
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
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 $355,000 in the second quarter of
2000 and $667,000 for the first six months of 2000 ($488,000 and $805,000,
respectively, for the same periods of 1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$56,000 for the second quarter of 2000 and $108,000 for the first six months of
2000 ($241,000 and $483,000, respectively, for the same periods of 1999).
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $165,000 for the second quarter of
2000 and $270,000 for the first six months of 2000 ($206,000 and $217,000,
respectively, for the same periods of 1999).
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $149,000 for the second
quarter of 2000 and $318,000 for the first six months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $56,000 for the second
quarter of 2000 and $108,000 for the first six months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $26,000 for the second quarter of
2000 and $52,000 for the first six months of 2000.
For the second quarter of 2000, the Companies received premiums, net of
reinsurance, for variable products sold through 5 affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), and IFG Network
Securities, Inc. ("IFG"), of $9,500,000, $6,900,000, $100,000, $2,800,000, and
$1,500,000, respectively ($45,700,000, $32,600,000, $651,000, $7,900,000, and
$6,000,000, respectively, for the same period of 1999). For the first six months
of 2000, the Companies received premiums, net of reinsurance for variable
products sold through 5 affiliates, LSSI, Vestax, DSI, Multi-Financial, and IFG
of $67,000,000, $28,300,000, $800,000, $21,100,000, and $8,300,000, respectively
($75,300,000, $59,100,000, $2,300,000, $13,400,000 and $15,500,000,
respectively, for the same period of 1999).
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued in 2000, excluding those with an interest rate
guarantee. The accompanying financial statements are presented net of the
effects of the agreement.
Reciprocal Loan Agreement: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the 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 $254,000 and
$229,000 for the second quarters of 2000 and 1999, respectively, and $336,000
and
DVAP4-108201 83
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
$236,000 for the first six months of 2000 and 1999, respectively. Golden
American received interest income of $0 for the second quarter of 2000 and
$3,000 for the first six months of 2000. At June 30, 2000, Golden American had
borrowings of $40,000,000 from ING AIH under this agreement.
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 interest expense of $1,022,000 for the
second quarter of 2000 and $2,056,000 for the first six months of 2000.
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 incurred interest expense of
$698,000 for the second quarter of 2000 and $1,575,000 for the first six months
of 2000.
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 $1,453,000 for the second quarter of 2000 and
$2,906,000 for the first six months of 2000. 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 $1,087,000 and $1,088,000 for the second quarters
of 2000 and 1999, respectively, and $2,175,000 for the first six months of 2000,
unchanged from the same period in 1999.
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. 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 $515,000 for the
quarter ended June 30, 2000, unchanged from the first quarter of 1999, and
$1,031,000 for the first six months of 2000, unchanged from the first six months
of 1999.
Stockholder's Equity: During the second quarter of 2000 and first six months of
2000, Golden American received capital contributions from its Parent of $0 and
$80,000,000, respectively ($60,000,000 and $80,000,000, respectively, for the
same periods of 1999).
DVAP4-108201 84
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES
Reinsurance: At June 30, 2000, 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 as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements. At June 30, 2000 and
December 31, 1999, the Companies had net receivables of $17,597,000 and
$14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $330,000 and $493,000,
respectively, for claims recoverable from reinsurers, $1,306,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $18,573,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $5,271,000 for the second quarter of 2000 and $7,908,000 for the
first six months of 2000 compared to $2,203,000 and $4,018,000 for the same
periods in 1999. Also included in the accompanying financial statements are net
policy benefits of $1,278,000 for the second quarter of 2000 and $1,835,000 for
the first six months of 2000 compared to $718,000 and $1,439,000 for the same
periods in 1999.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued in 2000,
excluding those with an interest rate guarantee. At June 30, 2000, Golden
American had a net receivable of $1,798,000 and received $110,000,000 cash for a
total settlement of $111,798,000 under this agreement. The carrying value of the
separate account liabilities covered under this agreement represent 10.3% of
total separate account liabilities outstanding at June 30, 2000. Golden American
remains liable to the extent Equitable Life does not meet its obligations under
the agreement. The accompanying financial statements are presented net of the
effects of the agreement.
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.
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 additional alternative
reinsurance agreements for new business issued after December 31, 1999. There
can be no assurance that such alternative agreements 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 offset 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 $1,000 in the second
quarter and $2,000 in the first six months of 2000, respectively. At June 30,
2000 and December 31, 1999, the Companies have an undiscounted reserve of
$2,450,000 and $2,444,000, respectively, to cover estimated future assessments
(net of related anticipated premium tax offsets) and have established an asset
totaling $682,000 and $618,000, 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 actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The
DVAP4-108201 85
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES (continued)
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. As of June 30, 2000, the Companies had one investment
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. 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
have a severe impact on the Companies' financial condition. Two broker/dealers,
each having at least ten percent of total sales, generated 24% of the Companies'
sales during the second quarter of 2000 (28% by two broker/dealers in the same
period of 1999). One broker/dealer generated 12% of the Companies' sales during
the first six months of 2000 (29% by two broker/dealers in the same period of
1999). The Premium Plus product generated 74% and 75% of the Companies' sales
during the second quarter of 2000 and first six months of 2000, respectively
(79% and 77% in the same periods of 1999).
Revolving Note Payable: To enhance short-term liquidity, the Companies
established revolving notes payable effective July 27, 1998 and expiring July
31, 1999 with SunTrust Bank, Atlanta (the "Bank"). As of July 31, 1999, the
SunTrust Bank, Atlanta revolving note facilities were 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 notes accrue 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 quarters ended June 30, 2000 and 1999, the
Companies incurred interest expense of $8,000 and $50,000, respectively. During
the six months ended June 30, 2000 and 1999, the Companies incurred interest
expense of $36,000 and $54,000, respectively. At June 30, 2000, the Companies
did not have any borrowings under these agreements ($1,400,000 at December 31,
1999).
DVAP4-108201 86
<PAGE>
<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
DVAP4-108201 87
<PAGE>
<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.
DVAP4-108201 88
<PAGE>
<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.
DVAP4-108201 89
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
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.
DVAP4-108201 90
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
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.
DVAP4-108201 91
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
| 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.
DVAP4-108201 92
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
| 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.
DVAP4-108201 93
<PAGE>
<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
DVAP4-108201 94
<PAGE>
<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.
DVAP4-108201 95
<PAGE>
<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.
DVAP4-108201 96
<PAGE>
<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
DVAP4-108201 97
<PAGE>
<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.
DVAP4-108201 98
<PAGE>
<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>
DVAP4-108201 99
<PAGE>
<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
======== ====== ======== ========
</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.
DVAP4-108201 100
<PAGE>
<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>
DVAP4-108201 101
<PAGE>
<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
DVAP4-108201 102
<PAGE>
<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
DVAP4-108201 103
<PAGE>
<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.
DVAP4-108201 104
<PAGE>
<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>
DVAP4-108201 105
<PAGE>
<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.
DVAP4-108201 106
<PAGE>
<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)
====== ====== ==== | =======
DVAP4-108201 107
<PAGE>
<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>
DVAP4-108201 108
<PAGE>
<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.
DVAP4-108201 109
<PAGE>
<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
DVAP4-108201 110
<PAGE>
<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
DVAP4-108201 111
<PAGE>
<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.
DVAP4-108201 112
<PAGE>
<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.
DVAP4-108201 113
<PAGE>
<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
DVAP4-108201 114
<PAGE>
<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
DVAP4-108201 115
<PAGE>
<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. At December 31, 1999,
the Companies had a $1,400,000 note payable to the Bank under this agreement.
DVAP4-108201 116
<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
108201 DVA PLUS-4 (10/00)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DVAP4-108201 117
<PAGE>
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Asset Allocation Growth, Diversified Mid-Cap, Growth and Income,
Special Situations,Investors, Large Cap Value, All Cap, ING Global Brand Names
and the Prudential Jennison and the SP Jennison International Growth ubaccounts
which had not commenced operations as of December 31, 19989, 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. The Managed Global subaccount commenced operations initially
as a subaccount of another separate account, the Managed Global Account of
Separate Account D of Golden American; however, at the time of conversion the
value of an accumulation unit did not change.
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 $15.04 683,989 $10,287 $14.79 621,814 $9,199
1998 14.54 489,531 7,118 14.33 334,799 4,796
1997 14.02 227,427 3,188 13.83 116,454 1,611
1996 13.52 76,505 1,033 13.35 84,960 1,134
1995 13.03 37,887 494 12.89 62,084 801
10/2/95 12.89 -- -- 12.76 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $14.55 3,273,236 $47,632
1998 14.11 2,069.093 29,200
1997 13.65 1,070,045 14,601
1996 13.19 383,231 5,054
1995 12.76 93,239 1,190
10/2/95 12.63 -- --
------------------------------------------------------------------
</TABLE>
LIMITED MATURITY BOND
<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 $17.00 279,468 $4,751 $16.72 196,970 $3,294
1998 17.02 263,074 4,478 16.77 143,896 2,413
1997 16.13 139,323 2,247 15.91 78,553 1,250
1996 15.31 83,927 1,285 15.13 46,293 701
1995 14.86 26,976 401 14.71 11,834 174
10/2/95 14.49 -- -- 14.35 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $16.45 956,859 $15,738
1998 16.52 762,668 12,599
1997 15.70 452,478 7,105
1996 14.95 349,417 5,224
1995 14.56 136,553 1,988
10/2/95 14.20 -- --
------------------------------------------------------------------
</TABLE>
GLOBAL FIXED INCOME
<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 $11.88 35,081 $417 $11.79 10,884 $128
1998 13.17 6,337 83 13.09 6,154 81
5/1/98 12.17 -- -- 12.11 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.70 156,865 $1,835
1998 13.00 38,751 504
5/1/98 12.04 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 A1
<PAGE>
FULLY MANAGED
<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 $22.01 549,088 $12,084 $21.65 415,146 $8,987
1998 20.84 544,623 11,351 20.53 441,532 9,066
1997 19.93 418,686 8,345 19.66 441,532 6,706
1996 17.50 203,891 3,568 17.29 173,475 2,999
1995 15.23 49,153 748 15.07 13,988 211
10/2/95 14.77 -- -- 14.62 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $21.29 2,299,379 $48,961
1998 20.23 2,262,811 45,771
1997 19.40 1,737,950 33,720
1996 17.08 952,517 16,273
1995 14.91 184,364 2,750
10/2/95 14.47 -- --
------------------------------------------------------------------
</TABLE>
TOTAL RETURN
<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 $18.20 831,642 $15,135 $18.06 649,492 $11,730
1998 17.83 616,433 10,989 17.72 422,146 7,479
1997 16.18 224,763 3,636 16.10 140,222 2,258
1/20/97 13.76 -- -- 13.76 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $17.91 3,791,001 $67,903
1998 17.60 2,547,293 44,830
1997 16.02 720,866 11,548
1/20/97 13.76 -- --
------------------------------------------------------------------
</TABLE>
EQUITY INCOME
<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 $21.83 381,468 $8,327 $21.47 314,307 $6,750
1998 22.27 395,764 8,812 21.94 299,456 6,569
1997 20.83 328,740 6,847 20.55 223,101 4,585
1996 17.96 289,954 5,207 17.75 150,732 2,675
1995 16.72 104,463 1,747 16.55 21,073 348
10/2/95 16.10 -- -- 15.94 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $21.12 1,884,822 $39,813
1998 21.61 1,762,451 38,088
1997 20.28 1,472,723 29,860
1996 17.54 1,117,238 19,593
1995 16.38 370,515 6,068
10/2/95 15.78 -- --
------------------------------------------------------------------
</TABLE>
VALUE EQUITY
<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 $18.28 433,555 $7,924 $18.14 426,697 $7,742
1998 18.41 454,942 8,377 18.31 500,101 9,155
1997 18.36 372,681 6,843 18.28 410,757 7,509
1996 14.61 181,354 2,649 14.57 249,994 3,642
1995 13.37 34,272 458 13.36 23,394 313
10/2/95 12.43 -- -- 12.41 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $18.01 1,929,405 $34,747
1998 18.20 2,253,141 41,004
1997 18.20 1,749,956 31,853
1996 14.53 1,052,064 15,282
1995 13.34 179,453 2,394
10/2/95 12.40 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 A2
<PAGE>
RISING DIVIDENDS
<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 $26.07 1,251,144 $32,623 $25.83 1,054,275 $27,235
1998 22.79 1,199,087 $27,323 22.61 1,050,285 23,747
1997 20.22 795,321 16,079 20.09 739,017 14,847
1996 15.77 297,973 4,699 15.69 355,191 5,575
1995 13.24 22,934 304 13.19 36,100 476
10/2/95 12.16 -- -- 12.12 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $25.59 6,721,737 $172,024
1998 22.43 5,893,538 132,211
1997 19.96 3,670,022 73,267
1996 15.62 1,663,079 25,976
1995 13.15 300,820 3,956
10/2/95 12.09 -- --
------------------------------------------------------------------
</TABLE>
MANAGED GLOBAL
<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 $24.23 605,044 $14,658 $23.97 545,896 $13,083
1998 15.02 649,216 9,753 14.88 512,728 7,631
1997 11.76 525,356 6,180 11.67 438,611 5,120
1996 10.62 226,224 2,402 10.55 231,774 2,446
1995 9.58 26,722 256 9.53 27,492 262
10/2/95 9.32 -- -- 9.28 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $23.71 3,259,862 $77,287
1998 14.75 3,338,928 49,237
1997 11.58 2,719,073 31,494
1996 10.49 1,375,023 14,422
1995 9.49 208,957 1,983
10/2/95 9.24 -- --
------------------------------------------------------------------
</TABLE>
RESEARCH
<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 $28.25 565,925 $15,988 $28.04 458,015 $12,842
1998 23.03 437,189 10,068 22.89 335,512 7,680
1997 18.95 223,067 4,227 18.87 142,676 2,692
1/20/97 16.43 -- -- 16.43 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $27.80 3,126,054 $86,919
1998 22.73 2,179,744 49,553
1997 18.77 786,122 14,752
1/20/97 16.43 -- --
------------------------------------------------------------------
</TABLE>
CAPITAL APPRECIATION
<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 $30.46 431,150 $13,132 $30.11 391,380 $11,785
1998 24.75 413,115 10,233 24.50 370,619 9,080
1997 22.24 353,774 7,868 22.05 286,892 6,326
1996 17.46 162,558 2,839 17.34 174,592 3,028
1995 14.71 24,117 355 14.63 16,369 239
10/2/95 14.31 -- -- 14.23 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $29.77 2,494,266 $74,243
1998 24.26 2,345,157 56,884
1997 21.87 1,751,491 38,297
1996 17.22 1,106,359 19,054
1995 14.55 326,610 4,752
10/2/95 14.16 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 A3
<PAGE>
CAPITAL GROWTH
<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 $21.18 598,663 $12,678 $21.06 524,742 $11,051
1998 17.08 537,480 9,180 17.01 444,973 7,569
1997 15.45 325,440 5,027 15.41 226,587 3,491
1996 12.50 50,199 627 12.49 38,037 475
9/3/96 10.94 -- -- 10.94 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $20.94 3,125,440 $65,439
1998 16.94 2,202,441 37,304
1997 15.36 1,127,105 17,318
1996 12.47 173,758 2,167
9/3/96 10.94 -- --
------------------------------------------------------------------
</TABLE>
STRATEGIC EQUITY
<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 $22.06 455,696 $10,053 $21.92 365,555 $8,013
1998 14.30 508,588 7,272 14.23 589,815 8,393
1997 14.36 406,747 5,840 14.31 534,105 7,643
1996 11.81 370,536 4,374 11.78 231,567 2,729
1995 10.01 76,095 762 10.01 47,478 475
10/2/95 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 $21.78 1,611,499 $35,103
1998 14.16 1,566,193 22,178
1997 14.26 1,345,085 19,186
1996 11.76 968,694 11,396
1995 10.01 152,633 1,528
10/2/95 10.00 -- --
------------------------------------------------------------------
</TABLE>
MID-CAP GROWTH
<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 $39.97 287,598 $11,494 $39.59 294,064 $11,643
1998 22.60 173,070 3,912 22.43 183,243 4,109
1997 18.64 85,870 1,600 18.52 112,382 2,081
1996 15.77 29,878 471 15.70 28,223 443
9/3/96 14.64 -- -- 14.64 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $39.34 1,649,358 $64,879
1998 22.31 992,373 22,143
1997 18.45 503,083 9,284
1996 15.66 56,163 880
9/3/96 14.64 -- --
------------------------------------------------------------------
</TABLE>
SMALL CAP
<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 $22.96 453,438 $10,411 $22.82 580,175 $13,240
1998 15.44 446,934 6,900 15.37 525,379 8,074
1997 12.92 401,090 5,183 12.88 445,138 5,735
1996 11.86 198,338 2,352 11.84 227,347 2,692
1/2/96 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 $22.68 2,653,814 $60,197
1998 15.30 2,474,802 37,859
1997 12.84 2,029,658 26,068
1996 11.82 1,316,663 15,569
1/2/96 10.00 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 A4
<PAGE>
GROWTH
<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 $28.78 758,379 $21,827 $28.62 737,375 $21,104
1998 16.36 362,210 5,926 16.29 284,480 4,636
1997 13.06 161,235 2,106 13.03 132,596 1,728
1/20/97 11.99 -- -- 11.99 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $28.46 4,445,942 $126,509
1998 16.22 1,635,638 26,538
1997 12.99 718,807 9,340
1/20/97 11.99 -- --
------------------------------------------------------------------
</TABLE>
REAL ESTATE
<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 $20.96 136,122 $2,854 $20.62 92,387 $1,905
1998 22.07 170,494 3,763 21.74 125,630 2,731
1997 25.82 173,241 4,473 25.48 113,110 2,882
1996 21.30 54,229 1,155 21.04 42,710 899
1995 15.94 2,716 43 15.78 2,910 46
10/2/95 15.06 -- -- 14.91 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $20.28 583,100 $11,828
1998 21.42 797,901 17,090
1997 25.14 888,507 22,334
1996 20.79 384,928 8,004
1995 15.61 61,143 955
10/2/95 14.76 -- --
------------------------------------------------------------------
</TABLE>
HARD ASSETS
<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 $17.66 112,564 $1,988 $17.37 62,935 $1,093
1998 14.50 146,678 2,126 14.28 74,676 1,067
1997 20.85 154,417 3,219 20.57 81,681 1,680
1996 19.89 94,213 1,873 19.65 43,232 850
1995 15.11 24,828 375 14.96 2,847 42
10/2/95 14.86 -- -- 14.71 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $17.09 518,280 $8,856
1998 14.07 574,275 8,080
1997 20.29 632,371 12,834
1996 19.42 341,711 6,635
1995 14.80 26,605 394
10/2/95 14.57 -- --
------------------------------------------------------------------
</TABLE>
DEVELOPING WORLD
<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 $11.62 683 $8 $11.61 33,523 $389
1998 7.29 617 5 7.28 12,180 89
5/1/98 10.42 -- -- 10.42 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.58 292,097 $3,382
1998 7.27 49,393 359
5/1/98 10.42 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 A5
<PAGE>
EMERGING MARKETS
<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 $12.01 359,966 $4,323 $11.90 244,574 $2,910
1998 6.56 266,800 1,751 6.51 249,607 1,625
1997 8.75 249,197 2,182 8.70 215,512 1,875
1996 9.78 97,857 957 9.74 102,267 995
1995 9.23 15,670 145 9.20 12,465 115
10/2/95 9.50 -- -- 9.47 -- --
----------------------------------------------------------------------------------------------------------------------
<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 $11.79 1,046,228 $12,331
1998 6.46 1,170,656 7,563
1997 8.64 1,131,253 9,779
1996 9.69 679,247 6,581
1995 9.17 160,820 1,475
10/2/95 9.44 -- --
------------------------------------------------------------------
</TABLE>
PIMCO HIGH YIELD BOND
<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 $10.27 400,821 $4,115 $10.24 229,047 $2,345
1998 10.09 213,774 2,157 10.08 118,295 1,192
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 $10.21 1,634,648 $16,695
1998 10.07 630,858 6,353
5/1/98 10.00 -- --
------------------------------------------------------------------
</TABLE>
PIMCO STOCKSPLUS GROWTH AND INCOME
<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 $13.16 284,260 $3,742 $13.13 187,840 $2,467
1998 11.12 112,706 1,253 11.11 53,016 589
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 $13.10 1,952,379 $25,572
1998 11.10 474,542 5,268
5/1/98 10.00 -- --
------------------------------------------------------------------
</TABLE>
DVAP4-108201 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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0825) -1] = $9,700
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $114,530 ($124,230 - $9,700 ).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed 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
surrender is 3
$124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0625) -1] = $6,270
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $130,500 ($124,230 + $6,270 ).
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 $114,530 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.
DVAP4-108201 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
withdrawal 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
[ $114,530 / ((1.07/1.0825) ) ] = $124,230
Then calculate the Market Value Adjustment on that amount.
4. Market Value Adjustment = 2,555/365
$124,230 x [((1.07/1.0825) ) -1] = $9,700
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $114,530, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $114,530, and also reduced by the Market Value
Adjustment of $9,700, 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 $130,500 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
[$130,500 /((1.07/1.0625) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0625) ) -1] = $6,270
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $130,500, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $130,500, but increased by the Market Value
Adjustment of $6,270, for a total reduction in the Fixed Interest Allocation of
$124,230.
DVAP4-108201 B2
<PAGE>
APPENDIX C
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $25,000 and
additional premium payments of $25,000 in each of the second and third contract
years, for total premium payments under the Contract of $75,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 30% of the contract
value of $90,000.
In this example, $13,500 (15% of $90,000) is the maximum free withdrawal amount
that you may withdraw during the contract year without a surrender charge. The
total withdrawal would be $27,000 ($90,000 x .30). Therefore, $13,500 ($27,000 -
$13,500) is considered an excess withdrawal and would be subject to a 4%
surrender charge of $540 ($13,500 x .04). This example does not take into
account any Market Value Adjustment or deduction of any premium taxes.
DVAP4-108201 C1
<PAGE>
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<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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
108201 DVA PLUS-4 10/02/2000
<PAGE>
<PAGE>
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ING VARIABLE ANNUITIES |
GOLDEN AMERICAN LIFE INSURANCE COMPANY |
Golden American Life Insurance Company is a stock company domiciled |
in Delaware |
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108201 DVA Plus-4 10/02/2000 |
<PAGE>
<PAGE>
